AETNA INCOME SHARES, 485APOS, 1996-04-25

AETNA INCOME SHARES
485APOS, 1996-04-25

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As filed with the Securities and Exchange File No. 33-47232
Commission on April 25, 1996 File No. 811-2361

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Post-Effective Amendment No. 44

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 31

AETNA INCOME SHARES
(Exact Name of Registrant as Specified in Charter)

151 Farmington Avenue RE4C, Hartford, Connecticut 06156
(Address of Principal Executive Offices)
(860) 273-7834
(Registrant's Telephone Number, including Area Code)

Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue RE4C, Hartford, Connecticut 06156
(Name and Address of Agent for Service)

It is proposed that this filing will become effective (Check appropriate space):

[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on _______________________ pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on _______________________ pursuant to paragraph (a)(1) of
Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[X] on May 1, 1996 pursuant to paragraph (a)(3) of Rule 485 (Request
for acceleration has been made)

Aetna Income Shares has registered an indefinite number of its securities
under the Securities Act of 1933 pursuant to Rule 24f-2 of the Investment
Company Act of 1940. The Registrant filed its Rule 24f-2 Notice for its
fiscal year ended December 31, 1995 on February 29, 1996

<PAGE>

Aetna Income Shares
Cross-Reference Sheet

Form N-1A
Item No. Caption in Prospectus

1. Cover Page Cover Page
2. Synopsis Fee Table
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objective;
Investment Policies and
Restrictions
5. Management of the Fund Management of the Fund
5A. Management's Discussion of Fund Financial Highlights
Performance
6. Capital Stock and Other Securities General Information;
Tax Matters
7. Purchase of Securities Being Offered Management of the Fund;
Net Asset Value
8. Redemption or Repurchase Sale and Redemption of Shares
9. Pending Legal Proceedings Not applicable

Caption in Statement of Additional
Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information and History
13. Investment Objectives and Policies General Information and History;
Investment Objective and Policies
of the Fund; Description of
Various Securities and Investment
Techniques
14. Management of the Fund Trustees and Officers of the Fund
15. Control Persons and Principal Control Persons and Principal
Holders of Securities Shareholders of the Fund
16. Investment Advisory and Other Investment Advisory Agreement;
Services Administrative Services Agreement;
Custodian; Independent Auditors
17. Brokerage Allocation and Other Brokerage Allocation and Trading
Practices Policies
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption and Pricing Sale and Redemption of Shares;
of Securities Being Offered Net Asset Value
20. Tax Status Tax Matters
21. Underwriters Principal Underwriter
22. Calculation of Performance Data Not Applicable
23. Financial Statements Financial Statements

<PAGE>

AETNA INCOME SHARES
151 Farmington Avenue
Hartford, CT 06156
1-800-238-6263

Aetna Income Shares (the "Fund") is a diversified open-end management
investment company whose shares are currently available to (i) variable
annuity and variable life insurance separate accounts to fund variable
annuity contracts (VA Contracts) and variable life insurance policies (VLI
Policies) issued by Aetna Life Insurance and Annuity Company (ALIAC) and its
affiliates and subsidiaries and (ii) other shareholders of the Fund only
through dividend reinvestment.

The Fund seeks to maximize total return, consistent with reasonable risk,
through investments in a diversified portfolio consisting primarily of debt
securities. The Fund defines reasonable risk as the degree of risk of loss
that an average investor would, in light of the fund's investment policies,
be willing to tolerate in seeking to maximize total return. It is anticipated
that capital appreciation and investment income will both be major factors in
achieving total return.

This Prospectus sets forth concisely the information about the Fund that you
should know before investing. Additional information about the Fund is
contained in a Statement of Additional Information (SAI) dated May 1, 1996,
which has been filed with the Securities and Exchange Commission (SEC) and is
incorporated by reference. You can request an SAI, without charge, by writing
to the Fund at the address listed above or by calling the Fund at
1-800-238-6263.

This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the securities of the Fund in any jurisdiction in which such
sale, offer to sell, or solicitation may not be lawfully made.

LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Please read this Prospectus and retain for future reference.

<PAGE>
TABLE OF CONTENTS

FEE TABLE 3
FINANCIAL HIGHLIGHTS 4
INVESTMENT OBJECTIVE 5
INVESTMENT POLICIES AND RESTRICTIONS 5
Investment Policies 5
Industry Concentration 6
Asset-Backed Securities 6
Borrowing 6
Options, Futures and Other Derivatives 6
High Risk High-Yield Securities 6
International Securities 7
Depositary Receipts 7
Mortgage-Backed Securities 7
Repurchase Agreements 7
Securities Lending 7
MANAGEMENT OF THE FUND 7
Trustees 7
Investment Adviser 7
Portfolio Management 8
Expenses and Fund Administration 8
GENERAL INFORMATION 8
Declaration of Trust 8
Capital Stock 8
Shareholder Inquiries and Distribution Options 8
Shareholder Meetings 8
Voting Rights 8
TAX MATTERS 8
The Fund 9
Fund Distributions 9
Share Redemptions 9
Tax Withholding 9
SALE AND REDEMPTION OF SHARES 9
NET ASSET VALUE 9
APPENDIX--DESCRIPTION OF CORPORATE BOND RATINGS 10

2
<PAGE>
FEE TABLE

The Fee Table is provided to help the investor understand the various fees
and costs that an investor will bear directly or indirectly. It does not
include charges due under a VA Contract or a VLI Policy. VA Contract holders
and participants, and VLI Policy holders should refer to the appropriate
contract or policy prospectus for a description of the contract or policy
charges or fees.

Annual Fund Operating Expenses
(as a percentage of average net assets)

Management Fee 0.25%
Other Expenses* 0.08%
------
TOTAL FUND OPERATING
EXPENSES 0.33%

*These expenses reflect the amendment to the Administrative Service Agreement
that is effective May 1, 1996. See "Management of the Fund" for additional
information concerning the fees payable to ALIAC as the Fund's investment
adviser and administrator.

Hypothetical Illustration (Example)

THE FOLLOWING EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND/OR RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN BELOW.

1 year 3 years 5 years 10 years
-------- --------- --------- -----------
You would pay the following
expenses on a $1,000
investment, assuming a 5%
annual return and
redemption at the end of
each time period: $3 $11 $19 $42

Refer to the applicable VA Contract or VLI Policy prospectus for an
explanation of contract/policy charges and expenses.

For more information on the Shareholder Maintenance Fee, refer to "General
Information--Maintenance Fee."

3
<PAGE>

FINANCIAL HIGHLIGHTS

The selected data presented below for, and as of the end of, each of the
years in the ten-year period ended December 31, 1995 are derived from the
financial statements of the Fund, which statements have been audited by KPMG
Peat Marwick LLP, independent auditors. The financial statements as of
December 31, 1995, and for each of the years in the two-year period then
ended, and the independent auditors' report thereon, are included in the SAI.

Years Ended December 31
-----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- ---------
Net asset value per
share, beginning of
year $ 11.719 $ 13.052 $ 12.759 $ 13.511 $ 12.307
Income from
Investment
Operations
Net investment
income .885 .791 .854 .949 .919
Net realized and
unrealized gain
(loss) on
investments 1.237 (1.294) .365 .039 1.465
Total from
investment
operations 2.122 (.503) 1.219 .988 2.384
Less Distributions
Dividends from net
investment income (.840) (.811) (.842) (1.070) (1.039)
Distribution in
excess of net
investment income -- (.019) (.010) -- --
Distribution from
realized gains on
investments -- -- (.060) (.670) (.141)
Distribution in
excess of realized
gains on
investments -- -- (.014) -- --
Net asset value per
share, end of year $ 13.001 $ 11.719 $ 13.052 $ 12.759 $ 13.511
Total return* 18.24% (3.80)% 9.68% 7.45% 19.43%
Net assets, end of
year (000's) $666,960 $561,704 $641,429 $530,880 $470,760
Ratio of total
expenses to average
net assets .32% .33% .31% .31% .31%
Ratio of net
investment income
to average net
assets 6.97% 6.38% 6.47% 6.96% 6.98%
Portfolio turnover
rate 113.72% 74.24% 56.37% 94.26% 97.82%

1990 1989 1988 1987 1986
-------- -------- -------- -------- ---------
Net asset value per
share, beginning of
year $ 12.338 $ 12.060 $ 12.221 $ 14.108 $ 13.301
Income from
Investment
Operations
Net investment
income .826 .982 1.084 1.345 1.002
Net realized and
unrealized gain
(loss) on
investments .293 .775 (.151) (.741) .800
Total from
investment
operations 1.119 1.757 .933 .604 1.802
Less Distributions
Dividends from net
investment income (1.110) (1.199) (1.094) (2.491) (.995)
Distribution in
excess of net
investment income -- -- -- -- --
Distribution from
realized gains on
investments (.040) (.280) -- -- --
Distribution in
excess of realized
gains on
investments -- -- -- -- --
Net asset value per
share, end of year $ 12.307 $ 12.338 $ 12.060 $ 12.221 $ 14.108
Total return* 9.11% 14.57% 7.63% 4.52% 14.07%
Net assets, end of
year (000's) $359,660 $302,209 $260,912 $211,542 $239,203
Ratio of total
expenses to average
net assets .34% .39% .48% .33% .34%
Ratio of net
investment income
to average net
assets 6.75% 7.46% 8.24% 9.29% 8.51%
Portfolio turnover
rate 66.31% 91.64% 66.83%** 53.05%** 31.28%**

Per share data calculated using weighted average number of shares outstanding
throughout the year.

* The total return percentage does not reflect the mortality and expense
charges, or other expenses, applicable to the separate accounts that
invest in the Fund. Inclusion of these expenses would reduce the total
return figures.

** Includes long-term U.S. Government securities.

Additional information about the performance of the Fund is contained in the
Fund's Annual Report dated December 31, 1995. The Annual Report is
incorporated herein by reference and is available, without charge, by writing
to the Fund at the address listed on the cover of this Prospectus or by
calling 1-800-238-6263.

4
<PAGE>

INVESTMENT OBJECTIVE

The investment objective of the Fund is to maximize total return, consistent
with reasonable risk, through investments in a diversified portfolio
consisting primarily of debt securities. The Fund defines reasonable risk as
the degree of risk of loss that an average investor would, in light of the
fund's investment policies, be willing to tolerate in seeking to maximize
total return. It is anticipated that capital appreciation and investment
income will both be major factors in achieving total return. The Fund's
investment objective is fundamental and may not be changed without the vote
of a majority of the outstanding voting securities as defined by the
Investment Company Act of 1940 ("1940 Act"). There can be no assurance that
the Fund will meet its investment objective.

INVESTMENT POLICIES AND RESTRICTIONS

Investment Policies The Fund will invest at least 65% of its total assets in
debt securities. It is anticipated that the portfolio's effective average
maturity will normally be between three and ten years. The Fund will normally
invest at least 70% of its assets in one or more of the following:

1) Debt securities or obligations (other than municipal securities) that are
rated at the time of purchase within the four highest categories assigned by
Moody's Investors Service, Inc. (Moody's), Standard & Poor's Corporation
(Standard & Poor's) or other rating agencies, or, if not rated, that are
considered by the Fund's investment adviser to be of comparable quality. For
purposes of this policy, "debt securities or obligations" may include
long-term obligations of, or guaranteed by, national or state banks, bank
holding companies.

2) Securities of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities.

3) Marketable securities or obligations of, or guaranteed by, foreign
governments (or any instrumentality or subdivision thereof).

4) Commercial paper and other short-term investments having a maturity of
less than one year that are considered by the investment adviser to be
investment grade.

5) Cash or cash equivalents.

Additionally, the Fund may invest in debt securities which have equity
features, including convertible securities, which may be below investment
grade; below investment grade debt securities; and preferred and common
stocks. The Fund may also lend portfolio securities, write and repurchase
covered call options, buy and sell covered put options and buy and sell
interest rate futures contracts and options thereon for hedging purposes. The
Fund may enter into repurchase agreements with domestic banks and
broker-dealers. In addition, although the Fund's investment restrictions
allow it to invest up to 15% of its total assets in illiquid securities
(securities which cannot be sold in seven days without taking a materially
reduced price), the Fund does not intend to invest more than 5% of its total
assets in illiquid securities.

The relative size of the Fund's investments in any grade or type of
securities will vary from time to time depending on a number of factors,
including yields, market supply and economic outlook.

Based on Standard & Poor's bond ratings, the Fund had the following monthly
weighted average distribution, by quality rating, for 1995:

Rating %
------------ -----
AAA 51
AA 7
A 14
BBB 13
BB 9
B 4
Not Rated 2
-----
100

The relative amount of the Fund's investments which will be made in any
particular grade or type of securities will vary from time to time depending
upon a number of factors, including yield, market supply and economic
outlook. The value of debt securities may be affected by changes in general
interest rates. If interest rates increase, such securities tend to decline
in value; if interest rates decline, the value of those securities will
normally rise. Also, there is generally a greater risk associated with
higher-yielding, lower-grade debt securities.

5
<PAGE>
Industry Concentration The Fund will not concentrate its investments in any
one industry, except that the Fund may invest up to 25% of its total assets
in securities of companies principally engaged in any one industry. This
limitation will not, however, apply to securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities. Also, the Fund will not
hold more than 5% of the value of its total assets in the securities of any
one issuer or hold more than 10% of the outstanding voting securities of any
one issuer. This restriction applies only to 75% of the value of the Fund's
total assets and does not include securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities.

Asset-Backed Securities The Fund may purchase securities collateralized by
a specified pool of assets, including automobile loans, home equity loans,
mobile home loans, recreational vehicles or credit card receivables. These
securities are subject to prepayment risk. In periods of declining interest
rates, reinvestment would thus be made at lower and less attractive rates.

Borrowing The Fund may borrow up to 5% of the value of its total assets for
temporary or emergency purposes. The Fund does not intend to borrow for
leveraging purposes. It has the authority to do so, but only if, after the
borrowing, the value of the Fund's net assets, including proceeds from the
borrowings, is equal to at least 300% of all outstanding borrowings.
Leveraging can increase the volatility of the Fund since it exaggerates the
effects of changes in the value of the securities purchased with the borrowed
funds.

Options, Futures and Other Derivatives The Fund may occasionally engage in
hedging and other strategies using other types of derivatives to manage its
exposure to changing interest rates, securities prices and currency exchange
rates, or to increase its investment return. A derivative is a financial
instrument the value of which is "derived" from the performance of an
underlying asset (such as a security or index of securities). In addition to
futures and options, derivatives include such instruments as forward
contracts, swaps, structured notes, and collateralized mortgage obligations
(CMOs). A forward contract is a purchase or sale of a specific quantity of a
commodity, government security, foreign currency, or other financial
instrument at the current price, with delivery and settlement at a specified
future date. A swap is an exchange of one security for another and may be
executed to exchange the maturities of a bond portfolio or the quality of the
issues in a stock or bond portfolio. Structured notes are privately placed
fixed income securities whose coupon and/or final payment depends on the
return of a market index, portfolio or security. Further information about
CMOs is contained in the SAI. Except for the purpose of hedging, the Fund may
not invest more than 5% of its assets in derivatives which management deems
to involve high risk to the Fund, such as inverse floaters, Interest Only and
Principal Only Securities. The Fund may write covered call options and
purchase covered put options, on securities and indices. Put options will be
acquired only for temporary defensive purposes. The Fund may purchase call
options and sell put options to close out positions previously opened by the
Fund. At any one time, the Fund may not have outstanding call options on more
than 30% of its assets and it may not buy put options if more than 3% of the
assets of the Fund would be invested in put options.

The Fund may enter into futures contracts including index futures or options
on futures contracts only for hedging purposes. The Fund may not enter into a
futures contract if the current market prices of instruments required to be
delivered and purchased under open futures contracts would exceed 30% of the
Fund's assets. No more than 5% of the Fund's total assets may be committed to
margin deposits on futures contracts.

Options and futures contracts can be volatile investments and involve certain
risks. The Fund may be unable to limit losses by closing a position due to
lack of a liquid market or similar factors. Losses may also occur if there is
not a perfect correlation between the value of the contracts and the related
securities. The use of futures may involve a high degree of leverage because
of low margin requirements. As a result, small price movements in futures
contracts may result in immediate and potentially unlimited gains or losses
to the Fund. The amount of gains or losses on investments in futures
contracts depends on the portfolio manager's ability to predict correctly the
direction of stock prices, interest rates and other economic factors. Further
information about the use of futures, options and other derivative
instruments, and the associated risks, is contained in the SAI.

High Risk, High-Yield Securities The Fund may invest up to 30% of its total
assets in high risk, high-yield securities, often called junk bonds. These
securities are rated BB or below by Standard & Poor's Corporation (S&P) or Ba
or below by Moody's Investors Services, Inc. (Moody's) (securities with
capacity to meet interest and principal payments but greater vulnerability to
default), or, if unrated, considered by the Investment Adviser to be of
comparable quality. The Fund will not invest in any debt security rated lower
than B by S&P or Moody's. High risk, high-yield securities tend to offer
higher yields than investment-grade bonds because of the additional risks
associated with them. These risks include: a lack of liquidity; an
unpredictable secondary market; a greater likelihood of default; increased
sensitivity to difficult economic and corporate developments; call provisions
which may adversely affect investment returns; and loss of the entire
principal and interest.

6
<PAGE>

International Securities The Fund may invest up to 25% of its total assets
in debt and/or equity international securities including depositary receipts.
Investments in securities of foreign issuers or securities denominated in
foreign currencies involve risks not present in domestic markets. Such risks
include: currency fluctuations and related currency conversion costs; less
liquidity; price or income volatility; less government supervision and
regulation of stock exchanges where securities may be traded, brokers and
listed companies; possible difficulty in obtaining and enforcing judgments
against foreign entities; adverse foreign political and economic
developments; different accounting procedures and auditing standards; the
possible imposition of withholding taxes on income payable on securities or
on capital gains; the possible seizure or nationalization of foreign assets;
the possible establishment of exchange controls or other foreign laws or
restrictions which might adversely affect the payment and transferability of
principal, interest and dividends on securities; higher transaction costs;
possible settlement delays and less publicly available information about
foreign issuers.

Depositary Receipts The Fund can invest in both sponsored and unsponsored
depositary receipts. Unsponsored depositary receipts, which are typically
traded in the over-the-counter market, may be less liquid than sponsored
depositary receipts and therefore may involve more risk. In addition, there
may be less information available about issuers of unsponsored depositary
receipts. The Fund may acquire American Depositary Receipts (ADRs) which are
dollar denominated, although their market price is subject to fluctuations of
the foreign currency in which the underlying securities are denominated. All
depositary receipts will be considered international securities for purposes
of the Fund's investment limitation concerning investment in international
securities.

Mortgage-Backed Securities The Fund may invest in mortgage-backed and other
pass-through securities. Payments of interest and principal on these
securities may be guaranteed by an agency or instrumentality of the U.S.
Government such as the Government National Mortgage Association (GNMA), the
Federal Home Loan Mortgage Corporation (FHLMC) and the Federal National
Mortgage Association (FNMA). These securities represent part ownership of a
pool of mortgage loans and principal is scheduled to be paid back by the
borrower over the length of the loan rather than returned in a lump sum at
maturity. The Fund may also invest in private pass-through securities backed
by pools of conventional fixed-rate or adjustable-rate mortgage loans. In
addition, the Fund may invest in collateralized mortgage obligations (CMOs)
and securities issued by real estate mortgage investment conduits (REMICs).
Mortgage-backed securities are also subject to prepayment risk.

Repurchase Agreements Under a repurchase agreement, the Fund may acquire a
debt instrument for a relatively short period subject to an obligation by the
seller to repurchase and by the Fund to resell the instrument at a fixed
price and time. Assets may be invested in repurchase agreements with domestic
banks and broker-dealers. Such agreements, although fully collateralized,
involve the risk that the seller of the securities may fail to repurchase
them. In that event, the Fund may incur costs in liquidating the collateral
or a loss if the collateral declines in value. If the default on the part of
the seller is due to insolvency and the seller initiates bankruptcy
proceedings, the ability of the Fund to liquidate the collateral may be
delayed or limited.

The Fund's Board of Trustees has established credit standards for issuers of
repurchase agreements entered into by the Fund.

Securities Lending The Fund may lend its portfolio securities; however, the
value of the loaned securities (together with all other assets that are
loaned, including those subject to repurchase agreements) may not exceed
one-third of the Fund's total assets. The Fund will not lend portfolio
securities to affiliates. Though fully collateralized, lending portfolio
securities involves certain risks, including the possibility that the
borrower may become insolvent or default on the loan. In the event of a
disparity between the value of the loaned security and the collateral, there
is the additional risk that the borrower may fail to return the securities or
provide additional collateral. A loan may be terminated at any time by the
borrower or lender upon proper notice.

The Fund is subject to further investment restrictions described in the SAI.

MANAGEMENT OF THE FUND

Trustees The operations of the Fund are managed under the direction of the
Board of Trustees (Trustees). The Trustees set broad policies for the Fund.
Information about the Trustees is found in the SAI.

Investment Adviser ALIAC, the investment adviser for the Fund, is a
Connecticut insurance corporation located at 151 Farmington Avenue, Hartford,
Connecticut 06156. It is an indirect wholly owned subsidiary of Aetna
Retirement Services, Inc., which is in turn a wholly owned subsidiary of
Aetna Life and Casualty Company. ALIAC is registered with the SEC as an
investment adviser and manages over $22 billion in assets including those
held by the Fund.

Under an investment advisory agreement with the Fund, ALIAC is responsible
for managing the assets of the Fund in accordance with the Fund's investment
objectives and policies. ALIAC determines what securities and other
instruments are purchased and sold by the Fund, and is responsible for
obtaining and evaluating financial data relevant to the Fund's portfolio.
ALIAC receives a management fee at an annual rate of 0.25% of the average
daily net assets of the Fund. The Fund intends to solicit shareholders of the
Fund for a change in the management fee to 0.40% of the average daily net
assets of the Fund to be effective August 1, 1996. Any change in the
management fee is subject to the approval of the shareholders.

7
<PAGE>

Portfolio Management Jeanne Wong-Boehm, Managing Director, ALIAC, has been
the Portfolio Manager for Aetna Income Shares for the past three years. Ms.
Wong-Boehm joined ALIAC in 1983 as a fixed income portfolio analyst, and
shortly thereafter assumed portfolio responsibilities for various general
account segments within the Aetna group of companies. In 1989 she was also
assigned primary responsibility for the money market operations.

Expenses and Fund Administration Under an Administrative Services Agreement
with the Fund effective May 1, 1996, ALIAC will provide all administrative
services necessary for the Fund's operations and will be responsible for the
supervision of the Fund's other service providers. ALIAC will also assume all
ordinary recurring direct costs of the Fund such as custodian fees, directors
fees, transfer agency costs and accounting expenses. For the services
provided under the Administrative Services Agreement, ALIAC will receive an
annual fee, payable monthly, at a rate of 0.08% of the average daily net
assets of the Fund.

GENERAL INFORMATION

Declaration of Trust The Fund was organized as a "Massachusetts business
trust" under the laws of Massachusetts on January 25, 1984. It began
operations on May 1, 1984 upon succeeding to the assets of Aetna Income
Shares, Inc. Massachusetts law provides that shareholders of the Fund can,
under certain circumstances, be held personally liable for the obligations of
the Fund. The Fund has been structured, and will be operated in such a way,
so as to ensure as much as possible, that shareholders will not be liable for
obligations of the Fund. The Declaration of Trust (Declaration) contains an
express disclaimer of shareholder liability for acts or obligations of the
Fund under Massachusetts law, and requires that notification of this
disclaimer be given in each agreement, obligation or instrument entered into
by the Fund or the Trustees. A more complete discussion of potential
liability of shareholders of the Fund under Massachusetts law is contained in
the SAI under "Description of Shares -- Shareholder and Trustee Liability."

Capital Stock The Declaration permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest in the Fund. All
shares are nonassessable, other than as disclosed above. There are no
preemptive rights.

As of March 31, 1996, there were 51,544,671 shares of the Fund outstanding,
99% of which were owned by ALIAC and held in its separate accounts to fund
ALIAC's obligations under its VA Contracts and VLI Policies. An additional
.2% of the Fund's shares were owned by affiliates of ALIAC at that date. The
balance of the shares were held directly by shareholders who acquired their
interests before the Fund was prohibited from selling shares both directly to
investors and to fund VA Contracts and VLI Policies. Direct shareholders may
not purchase additional shares except through dividend reinvestments.

Shareholder Inquiries and Distribution Options Any questions about the Fund
can be addressed to the Fund at the address listed on the cover of this
Prospectus or by calling 1-800-238-6263. Shareholders may elect to receive
dividends and capital gains distributions in cash or to reinvest in
additional shares in the Fund. See "Tax Matters--Fund Distributions" below.

Shareholder Meetings The Fund is not required to hold annual shareholder
meetings. The Declaration provides for meetings of shareholders to elect
Trustees at such time as may be determined by the Trustees or as required by
the 1940 Act. If requested by the holders of at least 10% of the Fund's
outstanding shares, the Fund will hold a shareholder meeting for the purpose
of voting on the removal of one or more Trustees and will assist with
communications concerning that shareholder meeting.

Voting Rights Shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held on matters submitted to
the shareholders of the Fund. Voting rights are not cumulative. Persons who
select the Fund for investment through their VA Contract or VLI Policy are
not the shareholders of the Fund, but may have the right to direct the voting
of Fund shares at shareholder meetings if required by law. Participant voting
rights are discussed in the prospectus for the applicable VA Contract or VLI
Policy.

TAX MATTERS

The following discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this prospectus, and is subject
to change by legislative or administrative action. The following discussion
is for general information only; a more detailed discussion of federal income
tax consideration is contained in the SAI. The term "shareholders," as used
below, refers to insurance company separate accounts who hold shares in
connection with variable annuity or variable life insurance contracts, or
other shareholders holding direct shares of the Fund. Holders of VA Contracts
or VLI Policies should consult the prospectuses of their respective contracts
or policies for information concerning federal income tax consequences to
them.

8
<PAGE>

The Fund The Fund intends to continue to qualify as a regulated investment
company by satisfying the requirements under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") concerning: (1) the
diversification of assets; (2) the distribution of income; and (3) the source
of income. It is the policy of the Fund to distribute all of its investment
income (net of expenses) and any capital gains (net of capital losses) to
shareholders in accordance with the timing requirements imposed by the Code.
In addition, the Fund intends to comply with the variable asset
diversification requirements under Section 817(h) of the Code, which are
described more fully in the SAI.

Fund Distributions Distributions by the Fund of net long-term capital gains
are taxable to shareholders as long-term capital gains regardless of the
length of time a shareholder has held the shares. Distributions by the Fund
of its net investment income and its net short-term capital gains are taxable
to shareholders as ordinary income. Distributions paid by the Fund to the
insurance company separate accounts and redemption of Fund shares held by the
separate accounts will not result in taxable income to holders of VA
Contracts and VLI Policies. Contract holders and Participants should review
the prospectus for their VA Contract or VLI Policy for information regarding
the tax treatment of their contracts and policies and distributions from the
Fund to the separate accounts.

In general, shareholders include distributions in their taxable income in the
year in which they are received (whether paid in cash or reinvested).
However, distributions declared in December and paid in January are taxable
as if paid on December 31 of the year of declaration. A statement will be
sent to shareholders indicating the tax status of all distributions made
during the previous year.

Share Redemptions Any gain or loss recognized upon a taxable disposition of
a shareholder's shares generally will be treated as a taxable long-term or
short-term capital gain or loss (depending on whether the shareholder has
held the shares more than one year). Any loss realized upon a taxable
disposition of a Fund's shares may be subject to limitations that are
described more fully in the SAI.

Tax Withholding The Fund will be required to withhold taxes from any
distributions unless the shareholder provides the Fund with a correct social
security or taxpayer identification number or certifies that the shareholder
is a corporation or otherwise exempt from or not subject to withholding by
the Internal Revenue Service (IRS). If a shareholder is subject to backup
withholding, the IRS can require the Fund to withhold 31% of taxable
dividends, capital gains distributions and redemptions.

SALE AND REDEMPTION OF SHARES

ALIAC is the principal underwriter of the Fund's shares. Except for the
reinvestment of dividends described under "General Information--Capital
Stock," shares may only be purchased by ALIAC as the depositor of variable
annuity and variable life insurance separate accounts as directed by the
holders of the VA Contracts or VLI Policies. Refer to the prospectus for the
applicable VA Contract or VLI Policy for information on how to direct
investments in or redemptions from a Fund and any fees that may apply.

Shares of the Fund are sold and redeemed at their net asset value next
determined after receipt of a purchase or redemption order in acceptable
form. Shareholders redeeming directly from the Fund and not through a VA
Contract or VLI Policy must provide a signature guarantee regardless of the
redemption amount. No sales charge or redemption charge is made.

If the value of shares held directly by a shareholder is less than $1,000,
the shares may be liquidated upon six months' notice. Shares will be redeemed
at the net asset value determined on the day the account is closed. The Fund
may suspend redemptions or postpone payments when the New York Stock Exchange
is closed or when trading is restricted for any reason (other than weekends
or holidays) or under emergency circumstances as determined by the SEC.

If such a shareholder holds shares directly having a net asset value of
$5,000 or more, the shareholder may establish a systematic withdrawal
program. Further information about this program may be obtained from the
Fund.

NET ASSET VALUE

The net asset value per share (NAV) of the Fund is determined as of 4:15 p.m.
Eastern time on each day that the New York Stock Exchange is open for
trading. The NAV is computed by dividing the total value of the Fund's
securities, plus any cash or other assets less all liabilities (including
accrued expenses), 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 under the authority of the Trustees.

9
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Service, Inc.

"Aaa" Rating

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

"Aa" Rating

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

"A" Rating

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

"Baa" Rating

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

"Ba" Rating

Bonds 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 other good and bad times over the future. Uncertainty of position
characterizes this class of bond.

"B" Rating

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 that the issue ranks in the lower end of its rating
category.

Standard & Poor's Corporation

"AAA" Rating

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

"AA" Rating

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

"A" Rating

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

"BBB" Rating

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

"BB" Rating

Bonds which are 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" Rating

Bonds which are 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.

10
<PAGE>
INVESTMENT ADVISER

Aetna Life Insurance
and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156

CUSTODIAN

Mellon Bank N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania

TRANSFER, DIVIDEND DISBURSING
AND REDEMPTION AGENT

Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201-0701

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP
CityPlace II
Hartford, Connecticut 06103-4103

[Aetna logo]
Aetna Life Insurance and Annuity Company

<PAGE>

AETNA INCOME SHARES

151 Farmington Avenue
Hartford, CT 06156
1-800-238-6263

Prospectus dated: May 1, 1996

Please read this Prospectus and retain for future reference.

<PAGE>
TABLE OF CONTENTS

FINANCIAL HIGHLIGHTS 3
INVESTMENT OBJECTIVE 4
INVESTMENT POLICIES AND RESTRICTIONS 4
Investment Policies 4
Industry Concentration 5
Asset-Backed Securities 5
Borrowing 5
Options, Futures and Other Derivatives 5
High Risk High-Yield Securities 5
International Securities 6
Depositary Receipts 6
Mortgage-Backed Securities 6
Repurchase Agreements 6
Securities Lending 6
MANAGEMENT OF THE FUND 6
Trustees 6
Investment Adviser 6
Portfolio Management 7
Expenses and Fund Administration 7
GENERAL INFORMATION 7
Declaration of Trust 7
Capital Stock 7
Shareholder Inquiries and Distribution Options 7
Shareholder Meetings 7
Voting Rights 7
TAX MATTERS 7
The Fund 8
Fund Distributions 8
Share Redemptions 8
Tax Withholding 8
SALE AND REDEMPTION OF SHARES 8
NET ASSET VALUE 8
APPENDIX--DESCRIPTION OF CORPORATE BOND RATINGS 9

2
<PAGE>

FINANCIAL HIGHLIGHTS

Years Ended December 31
-----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- ---------
Net asset value per
share, beginning of
year $ 11.719 $ 13.052 $ 12.759 $ 13.511 $ 12.307
-------- -------- -------- -------- ---------
Income from
Investment
Operations
Net investment
income .885 .791 .854 .949 .919
Net realized and
unrealized gain
(loss) on
investments 1.237 (1.294) .365 .039 1.465
-------- -------- -------- -------- ---------
Total from
investment
operations 2.122 (.503) 1.219 .988 2.384
Less Distributions
Dividends from net
investment income (.840) (.811) (.842) (1.070) (1.039)
Distribution in
excess of net
investment income -- (.019) (.010) -- --
Distribution from
realized gains on
investments -- -- (.060) (.670) (.141)
Distribution in
excess of realized
gains on
investments -- -- (.014) -- --
-------- -------- -------- -------- ---------
Net asset value per
share, end of year $ 13.001 $ 11.719 $ 13.052 $ 12.759 $ 13.511
======== ======== ======== ======== =========
Total return* 18.24% (3.80)% 9.68% 7.45% 19.43%
Net assets, end of
year (000's) $666,960 $561,704 $641,429 $530,880 $470,760
Ratio of total
expenses to average
net assets .32% .33% .31% .31% .31%
Ratio of net
investment income
to average net
assets 6.97% 6.38% 6.47% 6.96% 6.98%
Portfolio turnover
rate 113.72% 74.24% 56.37% 94.26% 97.82%

1990 1989 1988 1987 1986
-------- -------- -------- -------- ---------
Net asset value per
share, beginning of
year $ 12.338 $ 12.060 $ 12.221 $ 14.108 $ 13.301
-------- -------- -------- -------- ---------
Income from
Investment
Operations
Net investment
income .826 .982 1.084 1.345 1.002
Net realized and
unrealized gain
(loss) on
investments .293 .775 (.151) (.741) .800
-------- -------- -------- -------- ---------
Total from
investment
operations 1.119 1.757 .933 .604 1.802
Less Distributions
Dividends from net
investment income (1.110) (1.199) (1.094) (2.491) (.995)
Distribution in
excess of net
investment income -- -- -- -- --
Distribution from
realized gains on
investments (.040) (.280) -- -- --
Distribution in
excess of realized
gains on
investments -- -- -- -- --
-------- -------- -------- -------- ---------
Net asset value per
share, end of year $ 12.307 $ 12.338 $ 12.060 $ 12.221 $ 14.108
======== ======== ======== ======== =========
Total return* 9.11% 14.57% 7.63% 4.52% 14.07%
Net assets, end of
year (000's) $359,660 $302,209 $260,912 $211,542 $239,203
Ratio of total
expenses to average
net assets .34% .39% .48% .33% .34%
Ratio of net
investment income
to average net
assets 6.75% 7.46% 8.24% 9.29% 8.51%
Portfolio turnover
rate 66.31% 91.64% 66.83%** 53.05%** 31.28%**

Per share data calculated using weighted average number of shares outstanding
throughout the year.

3
<PAGE>
INVESTMENT OBJECTIVE

INVESTMENT POLICIES AND RESTRICTIONS

Investment Policies The Fund will invest at least 65% of its total assets
in debt securities. It is anticipated that the portfolio's effective average
maturity will normally be between three and ten years. The Fund will normally
invest at least 70% of its assets in one or more of the following:

2) Securities of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities.

3) Marketable securities or obligations of, or guaranteed by, foreign
governments (or any instrumentality or subdivision thereof).

4) Commercial paper and other short-term investments having a maturity of
less than one year that are considered by the investment adviser to be
investment grade.

5) Cash or cash equivalents.

The relative size of the Fund's investments in any grade or type of
securities will vary from time to time depending on a number of factors,
including yields, market supply and economic outlook.

Based on Standard & Poor's bond ratings, the Fund had the following monthly
weighted average distribution, by quality rating, for 1995:

Rating %
------------ -----
AAA 51
AA 7
A 14
BBB 13
BB 9
B 4
Not Rated 2
-----
100

4
<PAGE>
Industry Concentration The Fund will not concentrate its investments in any
one industry, except that the Fund may invest up to 25% of its total assets
in securities of companies principally engaged in any one industry. This
limitation will not, however, apply to securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities. Also, the Fund will not
hold more than 5% of the value of its total assets in the securities of any
one issuer or hold more than 10% of the outstanding voting securities of any
one issuer. This restriction applies only to 75% of the value of the Fund's
total assets and does not include securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities.

5
<PAGE>

The Fund's Board of Trustees has established credit standards for issuers of
repurchase agreements entered into by the Fund.

The Fund is subject to further investment restrictions described in the SAI.

MANAGEMENT OF THE FUND

6
<PAGE>

GENERAL INFORMATION

TAX MATTERS

7
<PAGE>

SALE AND REDEMPTION OF SHARES

NET ASSET VALUE

8
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Service, Inc.

"Aaa" Rating

"Aa" Rating

"A" Rating

"Baa" Rating

"Ba" Rating

"B" Rating

Standard & Poor's Corporation

"AAA" Rating

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

"AA" Rating

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

"A" Rating

"BBB" Rating

"BB" Rating

"B" Rating

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.

9
<PAGE>
INVESTMENT ADVISER

Aetna Life Insurance
and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156

CUSTODIAN

Mellon Bank N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania

TRANSFER, DIVIDEND DISBURSING
AND REDEMPTION AGENT

Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201-0701

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP
CityPlace II
Hartford, Connecticut 06103-4103

[Aetna logo]
Aetna Life Insurance and Annuity Company
<PAGE>

Statement of Additional Information dated: May 1, 1996

AETNA INCOME SHARES

151 Farmington Avenue
Hartford, Connecticut 06156

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current prospectus for Aetna Income Shares dated
May 1, 1996.

A free prospectus is available upon request from the local Aetna Life
Insurance and Annuity Company office, by writing to Aetna Income Shares at
the address listed above or by calling 1-800-238-6263.

Read the prospectus before you invest.

TABLE OF CONTENTS

General Information and History 2
Investment Objective and Policies of the Fund 2
Description of Various Securities and Investment Techniques 3
Trustees and Officers of the Fund 14
Control Persons and Principal Shareholders of the Fund 17
Investment Advisory Agreement 18
Administrative Services Agreement 19
Brokerage Allocation and Trading Policies 19
Description of Shares 20
Sale and Redemption of Shares 21
Principal Underwriter 22
Tax Matters 22
Net Asset Value 27
Custodian 27
Independent Auditors 27
Financial Statements F-1

<PAGE>
GENERAL INFORMATION AND HISTORY

Aetna Income Shares (the "Fund") is an open-end diversified management
investment company which sells its shares of beneficial interest to (i)
variable annuity and variable life insurance separate accounts to fund
variable annuity contracts (VA Contracts) or variable life insurance policies
(VLI Policies) issued by the Aetna Life Insurance and Annuity Company
("ALIAC" or the "Company") and its affiliates and subsidiaries, and (ii)
other shareholders of the Fund only through reinvestment of dividends.

INVESTMENT OBJECTIVE AND POLICIES OF THE FUND

The investment objective of the Fund is to maximize total return, consistent
with reasonable risk, through investments in a diversified portfolio
consisting primarily of debt securities. The Fund defines reasonable risk as
the degree of risk of loss that an average investor would, in light of the
fund's investment policies, be willing to tolerate in seeking to maximize
total return. It is anticipated that capital appreciation and investment
income will both be major factors in achieving such a return. The Fund's
investment adviser may, to a limited extent, cause the Fund to purchase debt
securities which have equity features; preferred or common stock, (the latter
principally for their income potential through dividends and option writing);
or may acquire securities having a mix of these characteristics.

The Fund will operate under the following restrictions, which together with
its investment objective, are matters of fundamental policy and cannot be
changed without the approval of a majority of the outstanding voting
securities of the Fund as defined by the Investment Company Act of 1940 (the
"1940 Act"). This means the lesser of: (i) 67% of the shares of the Fund
present or represented at a shareholders' meeting if the holders of more than
50% of the shares then outstanding are present or represented; or (ii) more
than 50% of the outstanding voting securities of the Fund.

In pursuing its investment objective, the Fund will not:

(1) issue any senior security, as defined in the 1940 Act, except that (a)
the Fund may enter into commitments to purchase securities in accordance
with the Fund's investment program, including reverse repurchase
agreements, delayed-delivery and when-issued securities, which may be
considered the issuance of senior securities; (b) the Fund may engage in
transactions that may result in the issuance of a senior security to the
extent permitted under applicable regulations, interpretations of the
1940 Act or an exemptive order; (c) the Fund may engage in short sales
of securities to the extent permitted in its investment program and
other restrictions; (d) the purchase or sale of futures contracts and
related options shall not be considered to involve the issuance of
senior securities; and (e) subject to fundamental restrictions, the Fund
may borrow money as authorized by the 1940 Act;

(2) hold more than 5% of the value of its total assets in the securities of
any one issuer or hold more than 10% of the outstanding voting
securities of any one issuer; this restriction applies only to 75% of
the value of the Fund's total assets; securities issued or guaranteed by
the U.S. Government, its agencies and instrumentalities are excluded
from this restriction;
[/R]

(3) concentrate its investments in any one industry except that the Fund may
invest up to 25% of its total assets in securities issued by companies
principally engaged in any one industry. This limitation will not,
however, apply to securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities;

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

(5) invest in commodity contracts, except that the Fund may, to the extent
appropriate under its investment program, purchase securities of
companies engaged in such activities, may enter into trans-

2
<PAGE>
actions in financial and index futures contracts and related options,
may engage in transactions on a when-issued or forward commitment basis,
and may enter into forward currency contracts;

(6) borrow money, except that (a) the Fund may enter into certain futures
contracts and options related thereto; (b) the Fund may enter into
commitments to purchase securities in accordance with the Fund's
investment program, including delayed-delivery and when-issued
securities and reverse repurchase agreements; (c) for temporary
emergency purposes, the Fund may borrow money in amounts not exceeding
5% of the value of its total assets at the time the loan is made; and
(d) for purposes of leveraging, the Fund may borrow money from banks
(including its custodian bank) only if, immediately after such
borrowing, the value of the Fund's assets, including the amount
borrowed, less its liabilities, is equal to at least 300% of the amount
borrowed, plus all outstanding borrowings. If, at any time, the value of
the Fund's assets fails to meet the 300% asset coverage requirement
relative only to leveraging, the Fund will, within three days (not
including Sundays and holidays), reduce its borrowings to the extent
necessary to meet the 300% test;

(7) purchase real estate, interests in real estate or real estate limited
partnership interests except that, to the extent appropriate under its
investment program, the Fund may invest in securities secured by real
estate or interests therein or issued by companies, including real
estate investment trusts, which deal in real estate or interests
therein; or

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

The Fund has also adopted certain other investment restrictions which may be
changed by the Fund's Trustees and without shareholder vote. Under such
restrictions, the Fund will not:

(1) invest more than 15% of its total assets in illiquid securities.
Illiquid securities are securities that are not readily marketable or
cannot be disposed of promptly within seven days and in the usual course
of business without taking a materially reduced price. Such securities
include, but are not limited to, time deposits and repurchase agreements
with maturities longer than seven days. Securities that may be resold
under Rule 144A or securities offered pursuant to Section 4(2) of the
1933 Act, as amended, shall not be deemed illiquid solely by reason of
being unregistered. The Investment Adviser shall determine whether a
particular security is deemed to be liquid based on the trading markets
for the specific security and other factors;

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

(3) purchase the securities of any other investment company, except as
permitted under the 1940 Act; or

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

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

DESCRIPTION OF VARIOUS SECURITIES AND INVESTMENT TECHNIQUES

The following information supplements and should be read in conjunction with
the section of the prospectus entitled "Investment Policies and
Restrictions."

3
<PAGE>
U.S. Government Obligations

The types of U.S. Government obligations in which the Fund may invest
include, but are not limited to: (1) direct obligations of the U.S. Treasury,
such as U.S. Treasury bonds, notes, bills and Treasury Certificates of
Indebtedness; (2) instruments issued or guaranteed by U.S. Government
agencies or instrumentalities which are backed by (a) the full faith and
credit of the United States, (b) the credit of the agency or instrumentality
issuing the obligations, or (c) the right of the issuer to borrow from the
U.S. Treasury, such as notes, bonds, and discount notes of U.S. Government
instrumentalities or agencies, including Federal Land Banks, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Farmers Home Administration and Federal National Mortgage Association. (A
U.S. Government instrumentality is a government agency organized under
federal charter with government supervision.

Repurchase Agreements The Fund may enter into repurchase agreements with
domestic banks and broker-dealers meeting certain size and creditworthiness
standards established by the Fund's Board of Trustees. A repurchase agreement
allows the Fund to determine the yield during the Fund's holding period. This
results in a fixed rate of return insulated from market fluctuations during
such period. Such underlying debt instruments serving as collateral will meet
the quality standards of the Fund. The market value of the underlying debt
instruments will, at all times, be equal to the dollar amount invested. Under
the 1940 Act, repurchase agreements are considered loans by the Fund.
Repurchase agreements, although fully collateralized, involve the risk that
the seller of the securities may fail to repurchase them from the Fund. In
that event, the Fund may incur (a) disposition costs in connection with
liquidating the collateral, or (b) a loss if the collateral declines in
value. Also, if the default on the part of the seller is due to insolvency
and the seller initiates bankruptcy proceedings, the Fund's ability to
liquidate the collateral may be delayed or limited. Repurchase agreements
maturing in more than seven days will not exceed 15 percent of the total
assets of the Fund. The Fund does not intend to use reverse repurchase
agreements.

Securities Lending The Fund may lend up to one-third of its total assets,
although it is anticipated that less than 10% of such assets will be on loan
at any one time. In the Company's opinion, lending portfolio securities to
qualified broker-dealers affords the Fund a means of increasing the yield on
its portfolio. All such loans will be fully collateralized with either cash
or direct obligations of the U.S. Government or agencies thereof. The Fund
will be entitled either to receive a fee from the borrower or to retain some
or all of the income derived from its investment of cash collateral. The Fund
will continue to receive the interest or dividends paid on any securities
loaned, or amounts equivalent thereto. Although voting rights will pass to
the borrower of securities, whenever a material event affecting the borrowed
securities is to be voted on, the Fund may terminate the loan to vote such
proxy.

The primary risk the Fund assumes in loaning securities is that the borrower
may become insolvent on a day on which the loaned security is rapidly
increasing in price. In such event, if the borrower fails to return the
loaned securities, the existing collateral might be insufficient to purchase
back the full amount of security loaned, and the borrower would be unable to
furnish additional collateral. The borrower would be liable for any shortage,
but the Fund would be an unsecured creditor as to such shortage and might not
be able to recover all or any part of it. A loan may be terminated at any
time by the borrower or lender upon proper notice.

Foreign Securities The Fund may invest up to 25% of its total assets in
securities or obligations of foreign issuers including marketable securities
of, or guaranteed by, foreign governments (or any instrumentality or
subdivision thereof) and debt securities of foreign companies which generally
are listed on recognized foreign securities exchanges or are traded in a
foreign over-the-counter market. The Fund will invest in securities or
obligations of foreign banks only if such banks have a minimum of $5 billion
in assets and a primary capital ratio of at least 4.25%. The Fund also
invests in foreign securities listed on recognized U.S. securities exchanges
or traded in the U.S. over-the-counter market. Such foreign securities may be
issued by

4
<PAGE>
foreign companies located in developing countries in various regions of the
world. A "developing country" is a country in the initial stages of its
industrial cycle. As compared to investment in the securities markets of
developed countries, investment in the securities markets of developing
countries involves exposure to markets that may have substantially less
trading volume and greater price volatility, economic structures that are
less diverse and mature, and political systems that may be less stable.

Depositary receipts are typically dollar denominated, although their market
price is subject to fluctuations of the foreign currency in which the
underlying securities are denominated. Depositary receipts include: (1)
American Depositary Receipts (ADRs), which are typically designed for U.S.
investors and held either in physical form or in book entry form; (2)
European Depositary Receipts (EDRs), which are similar to ADRs but may be
listed and traded on a European exchange as well as in the United States.
Typically, these securities are traded on the Luxembourg exchange in Europe;
and (3) Global Depositary Receipts (GDRs), which are similar to EDRs although
they may be held through foreign clearing agents such as Euroclear and other
foreign depositaries. All depositary receipts will be considered foreign
securities for purposes of a Fund's investment limitation concerning
investment in foreign securities.

Investments in securities of foreign issuers involve certain risks not
associated with investments in securities of domestic issuers. These risks
include the following:

Currency Risk--The value of the Fund's foreign investments will be effected
by changes in currency exchange rates. The U.S. dollar value of a foreign
security decreases when the value of the U.S. dollar rises against the
foreign currency in which the security is denominated, and increases when the
value of the U.S. dollar falls against such currency.

Political and Economic Risk--The economies of many of the countries in which
the Fund may invest are not as developed as the U.S. economy and may be
subject to significantly different forces. Political or social instability,
expropriation or confiscatory taxation and limitation upon the removal of
funds or other assets could adversely affect the value of the Fund's
investments.

Regulatory Risk--Foreign companies are not registered with the Securities and
Exchange Commission (the "SEC") and are generally not subject to the
regulatory controls imposed on United States issuers and, as a consequence,
there is generally less publicly available information about foreign
securities than is available regarding domestic securities. Foreign companies
are not subject to uniform accounting, auditing and financial standards,
practices and requirements comparable to those applicable to U.S. companies.
Income from foreign securities owned by the Fund may be subject to
withholding taxes imposed at the source which would reduce dividend income
payable to the Fund's shareholders.

Market Risk--The securities markets in many of the countries in which the
Fund may invest have substantially less trading volume than the major U.S.
markets. Consequently, the securities of some foreign issuers may be less
liquid and experience more price volatility than comparable domestic
securities. Indeed, custodian costs, as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government
regulation and supervision of foreign stock exchanges, brokers and issuers
which may make it difficult to enforce contractual obligations. In addition,
transaction costs in foreign commission rates in foreign jurisdictions are
likely to be higher than in the United States.

Interest Rate Futures Contracts and Options on Such Contracts An interest
rate futures contract provides for the future sale by one party and purchase
by another party of a specified amount of a specified financial instrument
(debt security) or index for a specified price at a designated date, time and
place. The Fund may enter into interest rate futures contracts as a hedge
against changes in prevailing levels of interest rates, or in order to
establish more definitely the effective return on securities held or intended
to be acquired by the Fund. The Fund's hedging may include sales of futures
as an offset against the effect of expected increases in interest rates.

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Although techniques other than sales and purchases of futures contracts could
be used to reduce the exposure of the Fund to market fluctuations, the Fund
may be able to hedge its exposure more effectively and perhaps at a lower
cost through using futures contracts. The Fund will not enter into a futures
contract if, as a result thereof, (i) the then current aggregate futures
market prices of financial instruments required to be delivered and purchased
under open futures contracts would exceed 30% of the Fund's total assets,
(taken at market value at the time of entering into the Contract), or (ii)
more than 5% of the Fund's total assets (taken at market value at the time of
entering into the Contract), would be committed to margin deposits on such
futures contracts.

Although interest rate futures contracts typically require actual future
delivery of and payment for the underlying instruments, the contracts are
usually closed out before the delivery date. Closing out an open futures
contract sale or purchase is effected by entering into an offsetting futures
contract purchase or sale, respectively, for the same aggregate amount of the
identical type of underlying instrument and the same delivery date. There can
be no assurance, however, that the Fund will be able to enter into an
offsetting transaction with respect to a particular contract at a particular
time. If the Fund is not able to enter into an offsetting transaction, the
Fund will continue to be required to maintain the margin deposits on the
contract.

Persons who engage in futures contracts transactions may be broadly
classified as "hedgers" and "speculators." Hedgers, such as the Fund, whose
business activity involves investment in securities, use the futures markets
primarily to offset unfavorable changes in value that may occur because of
fluctuations in the value of the securities held or expected to be acquired
by them. Debtors and other obligors may also hedge the interest cost of their
obligations. The speculator, like the hedger, generally expects neither to
deliver nor to receive the financial instrument underlying the futures
contract, but, unlike the hedger, hopes to profit from fluctuations in
prevailing equities prices.

The Fund will not enter into financial futures contracts for speculation, and
will only enter into futures contracts that are traded on national futures
exchanges and are standardized as to maturity date and underlying financial
instrument. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodities Futures Trading Commission ("CFTC").

"Margin" is the amount of funds that must be deposited by the Fund with a
commodities broker in a custodian account in order to initiate futures
trading and to maintain open positions in the Fund's futures contracts. A
margin deposit is intended to assure the Fund's performance of the futures
contract. The margin required for a particular futures contract is set by the
exchange on which the contract is traded and may be significantly modified
from time to time by the exchange during the term of the contract. If the
price of an open futures contract changes (by increase in the case of a sale
or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin.
However, if the value of a position increases because of favorable price
changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will promptly pay the excess to the Fund. These
daily payments to and from the Fund are called variation margin. At times of
extreme price volatility such as occurred during the week of October 19,
1987, intra-day variation margin payments may be required. In computing daily
net asset values, the Fund will mark to market the current value of its open
futures contracts. The Fund expects to earn interest income on its initial
margin deposits.

Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, small price movements in
futures contracts may result in immediate and potentially unlimited loss or
gain to the Fund relative to the size of the margin commitment. For example,
if at the time of purchase 10% of the value of the futures contract is
deposited as margin, a subsequent 10% decrease in the value of the futures
contract would result in a total loss of the margin deposit before any
deduction for the transaction costs, if the contract were then closed out. A
15% decrease in the value of the futures contract would result in a loss
equal to 150% of the original margin deposit, if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount initially

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<PAGE>
invested in the futures contract. However, the Fund would presumably have
sustained comparable losses if, instead of the futures contract, it had
invested in the underlying financial instrument and sold it after the
decline. Furthermore, in the case of a futures contract purchase, the Fund
deposits in a segregated account money market instruments sufficient to meet
all futures contract initial margin requirements.

Restrictions on the Use of Futures and Option Contracts

CFTC regulations require that all short futures positions be entered into for
the purpose of hedging the value of securities held in the Fund's portfolio, and
that all long futures positions either constitute bona fide hedging
transactions, as defined in such regulations, or have a total value not in
excess of an amount determined by reference to certain cash and securities
positions maintained for the Fund, and accrued profits on such positions.

The Fund's ability to engage in the hedging transactions described herein may
be limited by the current federal income tax requirement that a Fund derive
less than 30% of its gross income from the sale or other disposition of stock
or securities held for less than three months.

Covered Call and Put Options on Securities

The Fund may write (sell) covered call options ("call options") and purchase
covered put options ("put options") on securities and indices, and purchase call
and sell put options to close out positions previously opened by the Fund,
provided, however, that it will not have call options outstanding at any one
time on more than 30% of its total assets nor will it buy put options if more
than 3% of the assets of the Fund immediately following such purchase would
consist of put options. The purpose of writing call options and purchasing put
options will be to reduce the effect of price fluctuations of the securities
owned by the Fund (and involved in the options) on the net asset value per share
of the Fund.

A call option gives the holder (buyer) the right to purchase a security at a
specified price (the exercise price) at any time until a certain date (the
expiration date). So long as the obligation of the writer of a call option
continues, he may be assigned an exercise notice by the broker-dealer through
whom such option was settled, requiring him to deliver the underlying
security against payment of the exercise price. This obligation terminates
upon the expiration of the call option, the exercise of the call option, or
by entering into an offsetting transaction. To secure his obligation to
deliver the underlying security in the case of a call option, a writer is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the clearing corporations and of the exchanges.
A put option gives the holder (buyer) the right to sell a security at a
specified price (the exercise price) at any time until a certain date (the
expiration date). The Fund will only write a call option or purchase a put
option on a security which it already owns and will not write call options on
when-issued securities. The Fund may purchase a put option on a security that
it already owns and on stock indices.

The Fund will write call options and purchase put options in standard
contracts listed on national securities exchanges, or write call options with
and purchase put options directly from investment dealers meeting the
creditworthiness criteria of the Company.

When writing a call option, the Fund, in return for the premium, gives up the
opportunity to profit from a price increase in the underlying security above
the exercise price, but conversely retains the risk of loss should the price
of the security decline. If a call option which the Fund has written expires,
the Fund will realize a gain in the amount of the premium; however, such gain
may be offset by a decline in the market value of the underlying security
during the option period. If the call option is exercised, the Fund will
realize a gain or loss from the sale of the underlying security. The Fund
will purchase put options involving portfolio securities only when the
Company believes that a temporary defensive position is desirable in light of
market conditions, but does not desire to sell the portfolio security.
Therefore, the purchase of put options will be used to protect the Fund's
holdings in an underlying security against a substantial decline in market
value. Such protection is, of course, only provided during the life of the
put option when the Fund, as the holder of the put option, is able to sell
the underlying security at the put exercise price regardless of any decline
in the underlying security's market price. By using put options in this
manner, the Fund

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<PAGE>

will reduce any profit it might otherwise have realized in its underlying
security by the premium paid for the put option and by transaction costs. The
security covering the call or put option will be segregated at the Fund's
custodian.

The premium the Fund will receive from writing a call option, or the Fund
will pay when purchasing a put option, will reflect, among other things, the
current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, the length of the option period, and the general
interest rate environment. The premium received by the Fund for writing
covered call options will be recorded as a liability in the statement of
assets and liabilities of the Fund. This liability will be adjusted daily to
the option's current market value. The liability will be extinguished upon
expiration of the option, by the exercise of the option, or by entering into
an offsetting transaction. Similarly, the premium paid by the Fund when
purchasing a put option will be recorded as an asset in the statement of
assets and liabilities of the Fund. This asset will be adjusted daily to the
option's current market value. The asset will be extinguished upon expiration
of the option, by selling of an identical option in a closing transaction, or
exercising the option.

When writing put options on securities, to secure its obligation to pay for
the underlying security, the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the put option. The Fund
therefore foregoes the opportunity of investing the segregated assets or
writing calls against those assets. As long as the obligation of the Fund as
the put writer continues, it may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring the fund to take
delivery of the underlying security against payment of the exercise price.
The Fund has no control over when it may be required to purchase the
underlying security, since it may be assigned an exercise notice at any time
prior to the termination of its obligation as the writer of the put. This
obligation terminates upon expiration of the put, or such earlier time at
which the Fund effects a closing purchase transaction by purchasing a put of
the same series as that previously sold.

Closing transactions will be effected in order to realize a profit on an
outstanding call or put option, to prevent an underlying security from being
called or put, or to permit the exchange or tender of the underlying
security. Furthermore, effecting a closing transaction will permit the Fund
to write another call option, or purchase another put option, on the
underlying security with either a different exercise price or expiration date
or both. If the Fund desires to sell a particular security from its portfolio
on which it has written a call option, or purchased a put option, it will
seek to effect a closing transaction prior to, or concurrently with, the sale
of the security. There is, of course, no assurance that the Fund will be able
to effect such closing transactions at a favorable price. If the Fund cannot
enter into such a transaction, it may be required to hold a security that it
might otherwise have sold, in which case it would continue to be at market
risk on the security. The Fund will pay brokerage commissions in connection
with the sale or purchase of options to close out previously established
option positions. Such brokerage commissions are normally higher as a
percentage of underlying asset values than those applicable to purchases and
sales of portfolio securities.

The exercise price of the options may be below, equal to, or above the
current market values of the underlying securities at the time the options
are written. From time to time, the Fund may purchase an underlying security
for delivery in accordance with an exercise notice of a call option assigned
to it, rather than delivering such security from its portfolio. In such cases
additional brokerage commissions will be incurred. The Fund will realize a
profit or loss from a closing purchase transaction if the cost of the
transaction is less or more than the premium received from the writing of the
call option; however, any loss so incurred in a closing purchase transaction
may be partially or entirely offset by the premium received from a
simultaneous or subsequent sale of a different call or put option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in
part by appreciation of the underlying security owned by the Fund. Any
profits from writing covered call options are considered short-term gain for
federal income tax purposes and, when distributed by the Fund, are taxable as
ordinary income.

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<PAGE>
Additional Risk Factors

In addition to any risk factors which may be described above, the following sets
forth certain information regarding the potential risks associated with the
Fund's futures and options transactions.

Risk of Imperfect Correlation--The Fund's ability to hedge effectively all or
a portion of its portfolio through transactions in futures, options on
futures or options on securities and indexes depends on the degree to which
movements in the value of the securities or index underlying such hedging
instrument correlate with movements in the value of the relevant portion of
the Fund's portfolio. If the values of the portfolio securities being hedged
do not move in the same amount or direction as the underlying security or
index, the hedging strategy for the Fund might not be successful and the Fund
could sustain losses on its hedging transactions which would not be offset by
gains on its portfolio. It is also possible that there may be a negative
correlation between the security or index underlying a futures or option
contract and the portfolio securities being hedged, which could result in
losses both on the hedging transaction and the portfolio securities. In such
instances, the Fund's overall return could be less than if the hedging
transactions had not been undertaken. Stock index futures or options based on
a narrower index of securities may present greater risk than options or
futures based on a broad market index, as a narrower index is more
susceptible to rapid and extreme fluctuations resulting from changes in the
value of a small number of securities. The Fund would, however, effect
transactions in such futures or options only for hedging purposes (or to
close out open positions).

The trading of futures and options on indexes involves the additional risk of
imperfect correlation between movements in the futures or option price and
the value of the underlying index. The anticipated spread between the prices
may be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase
of an option on a futures contract also involves the risk that changes in the
value of underlying futures contract will not be fully reflected in the value
of the option purchased. The risk of imperfect correlation, however,
generally tends to diminish as the maturity date of the futures contract or
termination date of the option approaches. The risk incurred in purchasing an
option on a futures contract is limited to the amount of the premium plus
related transaction costs, although it may be necessary under certain
circumstances to exercise the option and enter into the underlying futures
contract in order to realize a profit. Under certain extreme market
conditions, it is possible that the Fund will not be able to establish
hedging positions, or that any hedging strategy adopted will be insufficient
to completely protect the Fund.

The Fund will purchase or sell futures contracts or options only if, in the
Company's judgment, there is expected to be a sufficient degree of
correlation between movements in the value of such instruments and changes in
the value of the relevant portion of the Fund's portfolio for the hedge to be
effective. There can be no assurance that the Company's judgment will be
accurate.

Potential Lack of a Liquid Secondary Market--The ordinary spreads between
prices in the cash and futures markets, due to differences in the natures of
those markets, are subject to distortions. First, all participants in the
futures market are subject to initial deposit and variation margin
requirements. This could require the Fund to post additional cash or cash
equivalents as the value of the position fluctuates. Further, rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of
the futures or options market may be lacking. Prior to exercise or
expiration, a futures or option position may be terminated only by entering
into a closing purchase or sale transaction, which requires a secondary
market on the exchange on which the position was originally established.
While the Fund will establish a futures or option position only if there
appears to be a liquid secondary market therefor, there can be no assurance
that such a market will exist for any particular futures or option contract
at any specific time. In such event, it may not be possible to close out a
position held by the Fund, which could require the Fund to purchase or sell
the instrument underlying the position, make or receive a cash settlement, or
meet ongoing variation margin requirements. The inability to close out
futures or option positions also could have an adverse impact on the Fund's
ability effectively to hedge its portfolio, or the relevant portion thereof.

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<PAGE>
The liquidity of a secondary market in a futures contract or an option on a
futures contract may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the amount of fluctuation
in the price of a contract during a single trading day and prohibit trading
beyond such limits once they have been reached. The trading of futures and
options contracts also is subject to the risk of trading halts, suspensions,
exchange or clearing house equipment failures, government intervention,
insolvency of the brokerage firm or clearing house or other disruptions of
normal trading activity, which could at times make it difficult or impossible
to liquidate existing positions or to recover excess variation margin
payments.

Risk of Predicting Interest Rate Movements--Investments in futures contracts
on fixed income securities and related indexes involve the risk that if the
Company's investment judgment concerning the general direction of interest
rates is incorrect, the Fund's overall performance may be poorer than if it
had not entered into any such contract. For example, if the Fund has been
hedged against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of the
increased value of its bonds which have been hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Fund has insufficient cash, it may have to sell bonds from its
portfolio to meet daily variation margin requirements, possibly at a time
when it may be disadvantageous to do so. Such sale of bonds may be, but will
not necessarily be, at increased prices which reflect the rising market.

Trading and Position Limits--Each contract market on which futures and option
contracts are traded has established a number of limitations governing the
maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Company does not believe that these
trading and position limits will have an adverse impact on the hedging
strategies regarding the Fund's portfolio.

Mortgage-Related Debt Securities

Federal mortgage-related securities include obligations issued or guaranteed by
the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). GNMA is a wholly owned corporate instrumentality of the United States
whose securities and guarantees are backed by the full faith and credit of the
United States. FNMA, a federally chartered and privately owned corporation, and
FHLMC, a federal corporation, are instrumentalities of the United States, with
Presidentially-appointed board members. The obligations of FNMA and FHLMC are
not explicitly guaranteed by the full faith and credit of the federal
government.

Pass-through mortgage-related securities are characterized by monthly
payments to the holder, reflecting the monthly payments made by the borrowers
who received the underlying mortgage loans. The payments to the
security-holders like the payments on the underlying loans, represent both
principal and interest. Although the underlying mortgage loans are for
specified periods of time, often twenty or thirty years, the borrowers can
repay such loans sooner. Thus, the security holders frequently receive
repayments of principal, in addition to the principal which is part of the
regular monthly payment. A borrower is more likely to repay a mortgage which
bears a relatively high rate of interest. This means that in times of
declining interest rates, some higher yielding securities held by the Fund
might be converted to cash, and the Fund could be expected to reinvest such
cash at the then prevailing lower rates. The increased likelihood of
prepayment when interest rates decline also limits market price appreciation
of mortgage-related securities. If the Fund buys mortgage-related securities
at a premium, mortgage foreclosures or mortgage prepayments may result in
losses of up to the amount of the premium paid since only timely payment of
principal and interest is guaranteed.

As noted in the Prospectus, the Fund may also invest in collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs and REMICs are securities which are collateralized by
mortgage pass-through securities. Cash flows from underlying mortgages are
allocated to various classes or tranches in a predetermined, specified order.
Each sequential tranche has a "stated

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<PAGE>

maturity"--the latest date by which the tranche can be completely repaid,
assuming no prepayments--and has an "average life"--the average time to
receipt of a principal payment weighted by the size of the principal payment.
The average life is typically used as a proxy for maturity because the debt
is amortized, rather than being paid off entirely at maturity, as would be
the case in a straight debt instrument.

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

Asset-Backed Securities

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

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

Asset-backed securities may be subject to the type of prepayment risk
discussed above due to the possibility that prepayments on the underlying
assets will alter the cash flow. Faster prepayments will shorten the
security's average life and slower prepayments will lengthen it.

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

High Risk, High-Yield Securities

The Fund may invest in high risk, high-yield securities ("junk bonds") which are
fixed income securities that offer a current yield above that generally
available on debt securities rated in the four highest categories by Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P")
or, if unrated, considered to be of comparable quality by the investment
adviser. These securities include:

(a) fixed rate corporate debt obligations (including bonds, debentures and
notes) rated Ba or lower by Moody's or BB or lower by S&P;

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

Debt obligations rated BB/Ba or lower are regarded as speculative, and
generally involve more risk of loss of principal and income than higher-rated
securities. Also their yields and market values tend to fluctuate more.
Fluctuations in value do not affect the cash income from the securities but
are reflected in the Fund's net asset value. The greater risks and
fluctuations in yield and value occur, in part, because investors generally
perceive

11
<PAGE>
issuers of lower-rated and unrated securities to be less creditworthy. Lower
ratings, however, may not necessarily indicate higher risks. In pursuing the
Fund's objectives, the Company seeks to identify situations in which the
rating agencies have not fully perceived the value of the security or in
which the Company believes that future developments will enhance the
creditworthiness and the ratings of the issuer. The Fund will not invest in
any debt security rated lower than B.

The yields earned on high risk, high-yield securities (junk bonds) generally
are related to the quality ratings assigned by recognized ratings agencies.
These securities tend to offer higher yields than those of other securities
with the same maturities because of the additional risks associated with
them. These risks include:

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

Also, the financial stress resulting from an economic downturn or adverse
corporate developments could have a greater negative effect on the
ability of issuers of high risk, high-yield securities (junk bonds) to
service their principal and interest payments, to meet projected business
goals and to obtain additional financing, than on more creditworthy
issuers. Holders of these securities could also be at greater risk
because these securities are generally unsecured and subordinated to
senior debt holders and secured creditors. If the issuer of a high risk,
high-yield security (junk bond) owned by the Fund defaults, the Fund may
incur additional expenses to seek recovery. In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of these securities and the Fund's net asset
value. Furthermore, in the case of high risk, high-yield securities (junk
bonds) structured as zero coupon or pay-in-kind securities, their market
prices are affected to a greater extent by interest rate changes and
thereby tend to be more speculative and volatile than securities which
pay interest periodically and in cash.

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

(3) Liquidity and Valuation Risks. High risk, high-yield securities (junk
bonds) are often traded among a small number of broker-dealers rather
than in a broad secondary market. Purchasers of these securities in the
past tended to be institutions rather than individuals, a factor that
further limits the secondary market. Many of these securities may not be
as liquid as investment grade bonds. The ability to value or sell these
securities will be adversely affected to the extent that such securities
are thinly traded or illiquid. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease
or increase the values and liquidity of high risk, high-yield securities
(junk bonds) more than other securities, especially in a thinly-traded
market.

(4) Limitations of Credit Ratings. The credit ratings assigned to high risk,
high-yield securities (junk bonds) may not accurately reflect the true
risks of an investment. Credit ratings typically evaluate the safety of
principal and interest payments rather than the market value risk of such
securities. In addition, credit agencies may fail to adjust credit
ratings to reflect rapid changes in economic or company conditions that
affect a security's market value. Although the ratings of recognized
rating services such as Moody's and S&P are considered, the Company
primarily relies on its own

12
<PAGE>

credit analysis which includes a study of existing debt, capital
structure, ability to service debts and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history and the current
trend of earnings. Thus the achievement of the Fund's investment
objective may be more dependent on the Company's own credit analysis than
might be the case for a fund which does not invest in high risk,
high-yield securities (junk bonds).

(5) Legislation. Legislation may have a negative impact on the market for
high risk, high-yield securities (junk bonds), such as legislation
requiring federally-insured savings and loan associations to divest
themselves of their investments in these securities.

Zero Coupon and Pay-in-Kind Securities

Zero coupon, or deferred interest, securities are debt obligations that do not
entitle the holder to any periodic payment of interest prior to maturity or a
specified date when the securities begin paying current interest (the "cash
payment date") and therefore are issued and traded at a discount from their face
amounts or par value. The discount varies, depending on the time remaining until
maturity or cash payment date, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. The discount, in the
absence of financial difficulties of the issuer, decreases as the final maturity
or cash payment date of the security approaches. The market prices of zero
coupon and deferred interest securities generally are more volatile than the
market prices of securities with similar maturities that pay interest
periodically and are likely to respond to changes in interest rates to a greater
degree than do non-zero coupon securities having similar maturities and credit
quality.

The risks associated with lower-rated debt securities may apply to zero
coupon and pay-in-kind securities. These securities are also subject to the
risk that in the event of a default, the Fund may realize no return on its
investment, because these securities do not pay cash interest.

When-Issued or Delayed-Delivery Securities

During any period that the Fund has outstanding a commitment to purchase
securities on a when-issued or delayed-delivery basis, the Fund will maintain a
segregated account consisting of cash, U.S. Government securities or other
high-quality debt obligations with its custodian bank. To the extent that the
market value of securities held in this segregated account falls below the
amount that the purchasing Fund will be required to pay on settlement,
additional assets may be required to be added to the segregated account. Such
segregated accounts could affect the purchasing Fund's liquidity and ability to
manage its portfolio. When the Fund engages in when-issued or delayed-delivery
transactions, it is effectively relying on the seller of such securities to
consummate the trade; failure of the seller to do so may result in the Fund's
incurring a loss or missing an opportunity to invest funds held in the
segregated account more advantageously.

The Fund will not pay for securities purchased on a when-issued or
delayed-delivery basis, or start earning interest on such securities, until
the securities are actually received. However, any security so purchased will
be recorded as an asset of the Fund at the time the commitment is made.
Because the market value of securities purchased on a when-issued or
delayed-delivery basis may increase or decrease prior to settlement as a
result of changes in interest rates or other factors, such securities will be
subject to changes in market value prior to settlement and a loss may be
incurred if the value of the security to be purchased declines prior to
settlement.

Convertibles

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

Illiquid and Restricted Securities

The Fund may invest up to 15% of its total assets in illiquid securities. For
this purpose, "illiquid securities" are those which cannot be sold in seven days
in the ordinary course of business without taking a materially reduced price.
Because of the absence of a trading market for these investments, the Fund may
take

13
<PAGE>

longer to liquidate the position and may realize less than the amount
originally paid by the Fund. The Fund may purchase securities, which, while
privately placed, are eligible for purchase and sale pursuant to Rule 144A
under the 1933 Act. This rule permits certain qualified institutional buyers,
such as the Fund, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. The Company, under the
supervision of the Board of Trustees of the Fund, will consider whether
securities purchased under Rule 144A and other restricted securities are
illiquid and thus subject to the Fund's restriction of investing no more than
15% of the Fund's total assets in illiquid securities. In making this
determination, the Company will consider the trading markets for the specific
security taking into account the unregistered nature of the Rule 144A
security. In addition, the Company may consider, among other things, the (i)
frequency of trades and quotes, (ii) number of dealers and potential
purchasers, (iii) dealer undertakings to make a market, and (iv) nature of
the security and market place trades. The liquidity of Rule 144A securities
will also be monitored by the Company and, if as a result of changed
conditions, it is determined that a Rule 144A security is no longer liquid,
the Fund's holdings of illiquid securities will be reviewed to assure that
the Fund does not invest more than 15% of its total assets in illiquid
securities. Investing in Rule 144A securities could have the effect of
increasing the amount of the Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities. At
the present time, it is not possible to predict with certainty how the market
for Rule 144A securities will continue to operate.

Warrants

Warrants allow the holder to purchase new shares in the issuing company at a
predetermined price within either a specified length of time or perpetually.
Warrants may be sold individually or attached to preferred stock or bonds.

The purchaser of a warrant expects that the market price of a security will
exceed the purchase price of the warrant plus the exercise price of the
warrant, thus giving him a profit. Since the market price may never exceed
the exercise price before the expiration date of the warrant, the purchaser
of the warrant risks the loss of the entire purchase price of the warrant.

Borrowing

The Fund may borrow up to 5% of the value of its total assets for temporary or
emergency purposes. The Fund may also borrow up to one-third of the value of its
total assets from banks (including its custodian bank) to increase its holdings
of portfolio securities. Leveraging by means of borrowing may affect the Fund's
net asset value by exaggerating any increase or decrease in the value of
portfolio securities, and money borrowed is subject to interest and other costs
which may or may not exceed the income derived from the securities purchased
with borrowed funds. There is no present intention to leverage the Fund.

Portfolio Turnover

Portfolio turnover refers to the frequency of portfolio transactions and the
percentage of portfolio assets being bought and sold in the aggregate during the
year. The Fund does not intend to make a general practice of short-term trading,
although it may occasionally realize short-term gains or losses. Purchases and
sales will be made whenever such action is deemed prudent and consistent with
investment objectives. It is anticipated that under normal market conditions the
average annual portfolio turnover rate will not exceed 125%. A high turnover
rate involves greater expenses and may involve greater risk to the Fund. The
portfolio turnover rates for 1994 and 1995 were 74% and 114%, respectively.

TRUSTEES AND OFFICERS OF THE FUND

The investments and administration of the Fund are under the direction of the
Board of Trustees. The Trustees and executive officers of the Fund and their
principal occupations for the past five years are listed below. Those
trustees who are "interested persons," as defined in the 1940 Act, are
indicated by an asterisk (*). All Trustees and officers hold similar
positions with other investment companies in the same Fund Complex managed by
the Investment Adviser. Fund Complex presently consists of: Aetna Series
Fund, Inc., Aetna Variable Fund, Aetna Income Shares, Aetna Variable Encore
Fund, Aetna Investment Advisers Fund, Inc., Aetna GET Fund (Series B) and
Aetna Generation Portfolios, Inc.

14
<PAGE>
<TABLE>
<CAPTION>

Principal Occupation During Past Five Years (and
Position(s) Held Positions held with Affiliated Persons or Principal
Name, Address and Age with Registrant Underwriters of the Registrant)

<S> <C> <C>
Shaun P. Mathews* Trustee and Vice President, Products Group, Aetna Retirement
151 Farmington Avenue President Services, Inc., February 1996 to Present; Senior Vice
Hartford, Connecticut President, Strategic Markets and Products, ALIAC,
Age 40 February 1993 to February 1996; Chief Executive, Aetna
Investment Services, Inc., October 1995 to Present;
President, Aetna Investment Services, Inc., March 1994
to Present; Director and Chief Operations Officer,
Aetna Investment Services, Inc., July 1993 to Present;
Director and Senior Vice President, Aetna Insurance
Company of America, February 1993 to Present; Senior
Vice President, Pensions, ALIAC, March 1991 to February
1993; Vice President of Aetna Life Insurance Company,
1991 to Present.

James C. Hamilton Vice President Chief Financial Officer, Aetna Investment Services,
151 Farmington Avenue and Treasurer Inc., July 1993 to Present; Director, Vice President
Hartford, Connecticut and Treasurer, Aetna Insurance Company of America,
Age 55 February 1993 to Present; Director, Aetna Private
Capital, Inc., November 1990 to Present; Vice President
and Treasurer, ALIAC, October 1988 to Present; Vice
President and Actuary, Aetna Life Insurance Company,
1988 to Present.

Susan E. Bryant Secretary Counsel, Aetna Life and Casualty Company, March 1993 to
151 Farmington Avenue Present; General Counsel and Corporate Secretary, First
Hartford, Connecticut Investors Corporation, April 1991 to March 1993;
Age 48 Administrator, Oklahoma Department of Securities, March
1986 to April 1991.

Morton Ehrlich Trustee Chairman and Chief Executive Officer, Integrated
1000 Venetian Way Management Corp. (an entrepreneurial company) and
Miami, Florida Universal Research Technologies, 1992 to Present;
Age 61 Director and Chairman, Audit Committee, National Bureau
of Economic Research, 1985 to 1992; President, LIFECO,
Travel Services Corp., October 1988 to December 1991.

Maria T. Fighetti Trustee Manager/Attorney, Health Services, New York City
325 Piermont Road Department of Mental Health, Mental Retardation and
Closter, New Jersey Alcohol Services, 1973 to Present.
Age 52

David L. Grove Trustee Private Investor; Economic/Financial Consultant,
5 The Knoll December 1985 to Present.
Armonk, New York
Age 78

15
<PAGE>

Timothy A. Holt* Trustee Director, Senior Vice President, and Chief Financial
151 Farmington Avenue Officer, ALIAC, February 1996 to Present; Senior Vice
Hartford, Connecticut President, Business Strategy & Finance, Aetna
Age 43 Retirement Services, Inc., February 1996 to Present;
Vice President, Portfolio Management/ Investment Group,
Aetna Life and Casualty Company, June 1991 to February
1996; Treasurer, Aetna Investment Management, Inc.,
February 1990 to June 1991.

Daniel P. Kearney* Trustee Director, President, and Chief Executive Officer,
151 Farmington Avenue ALIAC, December 1993 to Present; Executive Vice
Hartford, Connecticut President, Aetna Life and Casualty Company, December
Age 56 1993 to Present; Group Executive, Aetna Life and
Casualty Company, 1991 to 1993; Director, Aetna
Investment Services, Inc., November 1994 to Present;
Director, Aetna Insurance Company of America, May 1994
to Present.

Sidney Koch Trustee Financial Adviser, self-employed, January 1993 to
455 East 86th Street Present; Senior Adviser, Daiwa Securities America,
New York, New York Inc., January 1992 to January 1993; Executive Vice
Age 61 President, Member of Executive Committee, Daiwa
Securities America, Inc., January 1986 to January 1992.

Corine T. Norgaard** Trustee, Chair Professor, Accounting and Dean of the School of
School of Management Audit Committee Management, Binghamton University (Binghamton, NY),
Binghamton University and Contract August 1993 to Present; Professor, Accounting,
Binghamton, New York Committee University of Connecticut (Storrs, Connecticut),
Age 58 September 1969 to June 1993; Director, The Advest Group
(holding company for brokerage firm).

Richard G. Scheide Trustee Trust and Private Banking Consultant, David Ross Palmer
11 Lily Street Consultants, July 1991 to Present; Executive Vice
Nantucket, Massachusetts President and Manager, Bank of New England, N.A., June
Age 66 1976 to July 1991.
</TABLE>

** Dr. Norgaard is a director of a holding company that has as a subsidiary a
broker-dealer that sells contracts for Aetna Life Insurance and Annuity
Company. The Fund is offered as an investment option under the Contracts.
Her position as a director of the holding company may cause her to be an
"interested person" for purposes of the 1940 Act.

During the year ended December 31, 1995, members of the Boards of the Funds
within the Aetna Mutual Fund Complex who are also directors, officers or
employees of Aetna Life and Casualty Company and its affiliates were not
entitled to any compensation from the Funds. Effective November 1, 1995,
members of the Boards who are not affiliated as employees of Aetna or its
subsidiaries are entitled to receive an annual retainer of $30,000 for
service on the Boards of the Funds within the Aetna Mutual Fund Complex. In
addition, each such member will receive a fee of $5,000 per meeting for each
regularly scheduled Board meeting; $5,000 for each Contract Committee meeting
which is held on any day on which a regular Board meeting is not scheduled;
and $3,000 for each committee meeting other than for a Contract Committee

16
<PAGE>

meeting on any day on which a regular Board meeting is not scheduled. A
Committee Chairperson fee of $2,000 each will be paid to the Chairperson of
the Contract and Audit Committees. All of the above fees are to be allocated
proportionately to each Fund within the Aetna Mutual Fund Complex based on
the net assets of the Fund as of the date compensation is earned.

As of December 31, 1995, the unaffiliated members of the Board of Trustees
were compensated as follows:

Total
Compensation
from
Aggregate Registrant
Compensation and Fund
Name of Person, from Complex Paid
Position Registrant to Trustees
- ------------------------------- ------------- -------------
Corine Norgaard
Trustee and Chairman,
Audit and Contract Committees $3,505 $51,000
Sidney Koch
Trustee and Member,
Audit and Contract Committees $3,169 $47,000
Maria T. Fighetti
Trustee and Member,
Audit and Contract Committees $3,169 $46,000
Morton Ehrlich
Trustee and Member,
Audit and Contract Committees $3,169 $46,000
Richard G. Scheide
Trustee and Member,
Audit and Contract Committees $3,169 $46,500
David L. Grove
Trustee and Member,
Audit and Contract Committees $3,169* $46,500*

* Mr. Grove elected to defer all such compensation.

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS OF THE FUND

As of March 31, 1996, the Company and its affiliates owned 51,031,449 (99%)
shares of the Fund which were allocated to variable annuity and variable life
insurance separate accounts to fund obligations under VA Contracts and VLI
Policies. Contract holders in these separate accounts are provided the right
to direct the voting of Fund shares at shareholder meetings. The Company and
its affiliates vote the shares that they own in these separate accounts in
accordance with contract holders' directions. Undirected shares of the Fund
will be voted for each Account in the same proportion as directed shares. The
Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc.,
which is in turn a wholly owned subsidiary of Aetna Retirement Services, Inc.
and an indirect wholly owned subsidiary of Aetna Life and Casualty Company
located at 151 Farmington Avenue, Hartford, Connecticut 06156.

17
<PAGE>

INVESTMENT ADVISORY AGREEMENT

The Fund has entered into an Investment Advisory Agreement (the "Management
Agreement") with the Company, effective January 1, 1996. A prior investment
advisory agreement, with substantially identical terms, was previously in
effect. Under the Management Agreement and subject to the direction of the
Board of Trustees of the Fund, the Company has responsibility for (i)
supervising all aspects of the operations of the Fund; (ii) selecting the
securities to be purchased, sold or exchanged by the Fund or otherwise
represented in the Fund's investment portfolio, place trades for all such
securities; (iii) formulating and implementing continuing programs for the
purchase and sale of securities; (iv) obtaining and evaluating pertinent
information about significant developments and economic, statistical and
financial data, domestic, foreign or otherwise, whether affecting the economy
generally, the Fund, securities held by or under consideration for the Fund,
or the issuers of those securities; (v) providing economic research and
securities analyses as the Adviser considers necessary or advisable in
connection with the Adviser's performance of its duties hereunder; (vi)
obtaining the services of, contracting with, and providing instructions to
custodians and/or subcustodians of the Fund's securities, transfer agents,
dividend paying agents, pricing services and other service providers as are
necessary to carry out the terms of this Agreement; (vii) preparing financial
and performance reports, calculating and reporting daily net asset values,
and preparing any other financial data or reports, as the Adviser from time
to time, deems necessary or as is requested by the Board; and (viii) taking
any other actions which appear to the Adviser and the Board necessary.

The Management Agreement provides that the Company shall pay (a) the
salaries, employment benefits and other related costs of those of its
personnel engaged in providing investment advice to the Fund, including,
without limitation, office space, office equipment, telephone and postage
costs and (b) any fees and expenses of all Trustees, officers and employees,
if any, of the Fund who are employees of the Company or an affiliated entity
and any salaries and employment benefits payable to those persons. The
Management Agreement provides that the Fund will pay (i) investment advisory
fees; (ii) broker's commissions and certain other transaction fees including
the portion of such fees, if any, which is attributable to brokerage research
services; (iii) fees and expenses of the Fund's independent auditors and
outside legal counsel; (iv) expenses of printing and distributing proxies,
proxy statements, prospectuses and reports to shareholders of the Fund,
except as such expenses may be borne by the distributor; (v) interest and
taxes; (vi) fees and expenses of those of the Fund's Trustees who are not
"interested persons" (as defined by the 1940 Act) of the Fund or the Company;
(vii) costs and expenses of promoting the sale of shares in the Fund,
including preparing prospectuses and reports to shareholders of the Fund;
(viii) administrator, transfer agent, custodian and dividend disbursing agent
fees and expenses; (ix) fees of dividend, accounting and pricing agents
appointed by the Fund; (x) fees payable to the SEC or in connection with the
registration of shares of the Fund under the laws of any state or territory
of the United States or the District of Columbia; (xi) fees and assessments
of the Investment Company Institute or any successor organization or other
association memberships approved by the Board of Trustees; (xii) such
nonrecurring or extraordinary expenses as may arise; (xiii) all other
ordinary business expenses incurred in the operations of the Fund, unless
specifically allocable otherwise by the Management Agreement; (xiv) costs
attributable to investor services, administering shareholder accounts and
handling shareholder relations; (xv) all expenses incident to the payment of
any dividend, distribution, withdrawal of redemption; and (xvi) insurance
premiums on property and personnel (including officers and Trustees) of the
Fund which benefit the Fund. Some of the costs payable by the Fund under the
Management Agreement are being assumed by the Company under the terms of the
Administrative Services Agreement (see "Administrative Services Agreement").

The Management Agreement provides that if, for any fiscal year, the total of
all ordinary business expenses of the Fund, including all investment advisory
fees but excluding brokerage commissions, distribution fees, taxes, interest
and extraordinary expenses and certain other excludable expenses, would
exceed the most restrictive expense limits imposed by any statute or
regulatory authority of any jurisdiction in which shares of the Fund are
offered for sales (unless a waiver is obtained), the Company shall

18
<PAGE>
reduce its advisory fee in order to reduce such excess expenses, but will not
be required to reimburse the Fund for any ordinary business expenses which
exceed the amount of its advisory fee for such fiscal year.

The Management Agreement provides that it will continue in effect from year
to year provided that it is specifically approved at least annually by the
Board of Trustees of the Fund and by a majority of the non-interested
Trustees by votes cast at a meeting called for such purpose. The Management
Agreement provides that it may be terminated at any time by vote of the
Fund's Trustees or by vote of a majority of the Fund's outstanding voting
securities, or the Company, on sixty (60) days' written notice to the other
party. The Management Agreement will terminate automatically in the event of
its assignment.

Pursuant to the terms of the previous management agreement, the Company
received an annual investment advisory fee of 0.25% of the average daily net
assets of the Fund. For the years 1993, 1994 and 1995, the Fund paid the
Company an investment advisory fee of $1,476,853, $1,470,846 and $1,534,803
respectively.

The service mark of Aetna Income Shares and the name "Aetna" have been
adopted by the Fund with the permission of Aetna Life and Casualty Company
and their continued use is subject to the right of Aetna Life and Casualty
Company to withdraw this permission in the event the Company or another
subsidiary or affiliated corporation of Aetna Life and Casualty Company
should not be the investment adviser of the Fund.

ADMINISTRATIVE SERVICES AGREEMENT

The Fund has entered into an Administrative Services Agreement with the
Company effective May 1, 1996 under which the Company has agreed to provide
all administrative services in support of the Fund. In addition, the Company
has agreed to pay on behalf of the Fund, all ordinary recurring direct costs
of the Fund that it would otherwise be required to pay under the terms of the
Investment Advisory Agreement except brokerage costs and other transaction
costs in connection with the purchase and sale of securities for its
portfolio (Transaction Costs). As a result, the Fund's costs and fees are
limited to its advisory fee, the administrative services charge and
Transaction Costs. For the services under the Administrative Services
Agreement, the Company will receive an annual fee, payable monthly, at a rate
of 0.08% of the average daily net assets of the Fund. Prior to May 1, 1996,
the Company had an Administrative Services Agreement that provided for the
reimbursement of a proportionate share of the Company's overhead in
administering the Fund. The Fund was obligated to pay its own direct costs.
The total of the direct costs and administrative costs for the years ended
December 31, 1993, 1994 and 1995 were $337,313, $446,926 and $414,281,
respectively.

The Administrative Services Agreement will remain in effect until January 1,
1997. It will then remain in effect from year-to-year if approved annually by
a majority of the Trustees. It may be terminated by either party on sixty
days' written notice.

BROKERAGE ALLOCATION AND TRADING POLICIES

Subject to the direction of the Fund's Board of Trustees, the Company has
responsibility for making Income Shares' investment decisions, for effecting
the execution of trades for the Fund's portfolio and for negotiating any
brokerage commissions thereon. It is the policy of the Company to obtain the
best quality of execution available, giving attention to net price (including
commissions where applicable), execution capability (including the adequacy
of a firm's capital position), research and other services related to
execution; the relative priority given to these factors will depend on all of
the circumstances regarding a specific trade.

In implementing its trading policy, the Company may place the Fund's
portfolio transactions with such brokers or dealers and for execution in such
markets as, in the opinion of the Company, will lead to best overall quality
of execution for the Fund's portfolio.

19
<PAGE>
The Company currently receives a variety of brokerage and research services
from brokerage firms in return for the execution by such brokerage firms of
trades in securities held by the Fund. These brokerage and research services
include, but are not limited to, quantitative and qualitative research
information and purchase and sale recommendations regarding securities and
industries, analyses and reports covering a broad range of economic factors
and trends, statistical data relating to the strategy and performance of
Income Shares and other investment companies, services related to the
execution of trades in the Fund's securities and advice as to the valuation
of securities. The Company considers the quantity and quality of such
brokerage and research services provided by a brokerage firm along with the
nature and difficulty of the specific transaction in negotiating commissions
for trades in the Fund's securities.

Consistent with federal legislation, the Company may obtain such brokerage
and research services regardless of whether they are paid for (1) by means of
commissions; or (2) by means of separate, non-commission payments. The
Company's judgment as to whether and how it will obtain the specific
brokerage and research services will be based upon its analysis of the
quality of such services and the cost (depending upon the various methods of
payment which may be offered by brokerage firms) and will reflect the
Company's opinion as to which services and which means of payment are in the
long-term best interests of the Fund. The Fund has no present intention to
effect any brokerage transactions in portfolio securities with the Company or
any affiliate of the Fund or the Company.

Certain executive officers of the Company also have supervisory
responsibility with respect to the securities portfolio of the Company's own
general account. Further, the Company also acts as investment adviser to
other investment companies registered under the 1940 Act. The Company has
adopted policies designed to prevent disadvantaging the Fund in placing
orders for the purchase and sale of securities for the Fund. The Company will
normally use its own facilities and there will not be allocations of such
orders between the Fund and the Company's general account. However, to the
extent the Company has other clients, the Fund and another advisory client of
the Company may desire to buy or sell the same publicly traded security at or
about the same time. In such a case, the purchases or sales will normally be
allocated as nearly as practicable on a pro rata basis in proportion to the
amounts to be purchased or sold by each. In some cases the smaller orders
will be filled first. In determining the amounts to be purchased and sold,
the main factors to be considered are the respective investment objectives of
the Fund and the other portfolios, the relative size of portfolio holdings of
the same or comparable securities, availability of cash for investment by the
Fund and the other portfolios, and the size of their respective investment
commitments. Trades may be executed between Funds and such trades are
executed at "current market price" in compliance with SEC Rule 17a-7.

Most purchases and sales of portfolio securities are made in principal
transactions and do not involve payment of brokerage commissions. For 1993,
1994 and 1995, Income Shares paid brokerage commissions of $35,562, $56,222
and $9,900 respectively.

For the fiscal year ended December 31, 1995, there were no portfolio
transactions directed to certain brokers because of research or other
services. No brokerage business was placed with any brokers affiliated with
ALIAC during the last three fiscal years.

DESCRIPTION OF SHARES

Aetna Income Shares was originally established as a Maryland corporation in
1973 and was converted to a Massachusetts business trust on May 1, 1984. It
currently operates under a Declaration of Trust (Declaration) dated January
25, 1984.

The Declaration permits the Trustees to issue an unlimited number of full and
fractional shares of beneficial interest of a single class, each of which
represents a proportionate interest in the Fund equal to each other share.
The Trustees have the power to divide or combine the shares into a greater or
lesser number of shares without thereby changing the proportional beneficial
interest in the Fund.

Upon liquidation of the Fund, shareholders are entitled to share pro rata in
the net assets of the Fund available for distribution to shareholders. Fund
shares are fully paid and nonassessable, except as set forth below.

20
<PAGE>
Shareholder and Trustee Liability

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

The Declaration further provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration
protects a Trustee against any liability to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his or her
office.

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
Trustees (to the extent hereinafter provided) and on other matters submitted
to the vote of shareholders. Participants who select the Fund for investment
through their VA Contract or VLI Policy are not the shareholders of the Fund.
The insurance companies who issue the separate accounts generally pass
through voting to Participants as described in the prospectus for the
applicable VA Contract or VLI Policy. A meeting of the shareholders at which
Trustees were elected was most recently held on April 13, 1994. Thereafter,
no further meeting of shareholders for the purpose of electing Trustees will
be held unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time the Trustees
then in office will call a shareholders' meeting for election of Trustees.
Vacancies occurring between such meetings shall be filled in an otherwise
legal manner if, immediately after filling any such vacancy, at least
two-thirds of the Trustees holding office have been elected by shareholders.
Except as set forth above, the Trustees shall continue to hold office and may
appoint successor Trustees. Trustees may be removed from office (1) at any
time by two-thirds vote of the Trustees; (2) by a majority vote of Trustees
where any Trustee becomes mentally or physically incapacitated; (3) at a
special meeting of shareholders by a two-thirds vote of the outstanding
shares; (4) by written declaration filed with Mellon Bank, N.A., the Fund's
custodian, signed by two-thirds of the Fund's shareholders. Any Trustee may
also voluntarily resign from office. Voting rights are not cumulative, so
that the holders of more than 50% of the shares voting in the election of
Trustees can, if they choose to do so, elect all the Trustees of Income
Shares, in which event the holders of the remaining shares will be unable to
elect any person as a Trustee.

The Declaration may be amended by an affirmative vote of a majority of the
shares at any meeting of shareholders or by written instrument signed by a
majority of the Trustees and consented to by a majority of the shareholders.
The Trustees may also amend the Declaration without the vote or consent of
shareholders if they deem it necessary to conform the Declaration to the
requirements of applicable federal laws or regulations or the requirements of
the regulated investment company provisions of the Internal Revenue Code of
1986, as amended, but the Trustees shall not be liable for failing to do so.

Shares have no preemptive or conversion rights.

SALE AND REDEMPTION OF SHARES

Shares of the Fund are sold and redeemed at the net asset value next
determined after receipt of a purchase or redemption order in acceptable form
by Firstar Trust Company ("Firstar"). No sales charge or redemption charge is
made. The value of shares redeemed may be more or less than the shareholder's

21
<PAGE>
cost, depending upon the market value of the portfolio securities at the time
of redemption. Payment for shares redeemed will be made within seven days
after the redemption request is received in proper form by Firstar. Any
written request to redeem shares must bear the signatures of all the
registered holders of those shares. The signatures must be guaranteed by a
commercial bank, trust company or a member of a national securities exchange.
Firstar will, on request, explain any additional requirements for shares held
in the name of a corporation, partnership, trustee, guardian or in any other
representative capacity. However, the right to redeem Fund shares may be
suspended or payment therefore postponed for any period during which (a)
trading on the New York Stock Exchange is restricted as determined by the SEC
or such Exchange is closed for other than weekends and holidays; (b) an
emergency exists, as determined by the SEC, as a result of which (i) disposal
by the Fund of securities owned by it is not reasonably practicable, or (ii)
it is not reasonably practicable for the Fund to determine fairly the value
of its net assets; or (c) the SEC by order so permits for the protection of
shareholders of the Fund.

An open account is automatically set up and maintained for each shareholder
to facilitate the voluntary accumulation of Fund shares. The open account
system makes unnecessary the issuance and delivery of stock certificates,
thereby relieving shareholders of the responsibility of safekeeping. Through
the open account system, each shareholder is informed of his or her holdings
after any transaction affecting the number of shares he or she owns. Share
certificates will not be issued.

PRINCIPAL UNDERWRITER

The Company is the principal underwriter of the Fund pursuant to a contract
("Distribution Agreement") between it and the Fund. The Distribution
Agreement will remain in effect through December 1996 and may be continued
annually if approved annually by the Board of Trustees of the Fund or by a
vote of holders of a majority of the Fund's shares, and by a vote of a
majority of the Fund's Board of Trustees who are not "interested persons," as
that term is defined in the 1940 Act, of the Company, and who are not
interested persons of the Fund, appearing in person at a meeting called for
the purpose of approving such agreement. This agreement terminates
automatically upon assignment, and may be terminated at any time on sixty
(60) days' written notice by the Fund's Board of Trustees or by vote of
holders of a majority of the Fund's shares without the payment of any
penalty.

TAX MATTERS

The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of the Fund or its shareholders, and the discussions here and
in the Prospectus are not intended as substitutes for careful tax planning.
Holders of VA Contracts or VLI Policies must consult the prospectuses of
their respective contracts or policies for information concerning the federal
income tax consequences of owning such VA Contracts or VLI Policies.

Qualification as a Regulated Investment Company

The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
As a regulated investment company, the Fund generally 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 below.
Distributions by the Fund made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year, will
be considered distributions of income and gains of the taxable year and can
therefore satisfy the Distribution Requirement.

22
<PAGE>
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies (the "Income
Requirement"); and (2) derive less than 30% of its gross income (exclusive of
certain gains on designated hedging transactions that are offset by realized
or unrealized losses on offsetting positions) from the sale or other
disposition of stock, securities or foreign currencies (or options, futures
or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). However, foreign currency gains, including those
derived from options, futures and forwards, will not in any event be
characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options
or futures thereon). Because of the Short-Short Gain Test, the Fund may have
to limit the sale of appreciated securities that it has held for less than
three months. However, the Short-Short Gain Test will not prevent the Fund
from disposing of investments at a loss, since the recognition of a loss
before the expiration of the three-month holding period is disregarded for
this purpose. Interest (including original issue discount) received by the
Fund at maturity or upon the disposition of a security held for less than
three months will not be treated as gross income derived from the sale or
other disposition of such security within the meaning of the Short-Short Gain
Test. However, income that is attributable to realized market appreciation
will be treated as gross income from the sale or other disposition of
securities for this purpose.

In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an
option with respect thereto (but only to the extent attributable to changes
in foreign currency exchange rates), and gain or loss recognized on the
disposition of a foreign currency forward contract, futures contract, option
or similar financial instrument, or of foreign currency itself, except for
regulated futures contracts or non-equity options subject to Code Section
1256, will generally be treated as ordinary income or loss. For purposes of
determining whether capital gain or loss recognized by the Fund on the
disposition of an asset is long-term or short-term, the holding period of the
asset may be affected if (i) the asset is used to close a "short sale" (which
includes for certain purposes the acquisition of a put option) or is
substantially identical to another asset so used, (ii) the asset is otherwise
held by the Fund as part of a "straddle" (which term generally excludes a
situation where the asset is stock and the Fund grants a qualified covered
call option (which, among other things, must not be deep-in-the-money) with
respect thereto) or (iii) the asset is stock and the Fund grants an
in-the-money qualified covered call option with respect thereto. However, for
purposes of the Short-Short Gain Test, the holding period of the asset
disposed of may be reduced only in the case of clause (i) above. In addition,
the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.

Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option
written by the Fund will commence on the date it is written and end on the
date it lapses or the date a closing transaction is entered into.
Accordingly, the Fund may be limited in its ability to write options which
expire within three months and to enter into closing transactions at a gain
within three months of the writing of options.

Transactions that may be engaged in by the Fund (such as regulated futures
contracts, certain foreign currency contracts, and options on stock indexes
and futures contracts) will be subject to special tax treatment as "Section
1256 contracts." Section 1256 contracts are treated as if they are sold for
their fair market value

23
<PAGE>

on the last day of the taxable year, even though a taxpayer's obligations (or
rights) under such contracts have not terminated (by delivery, exercise,
entering into a closing transaction or otherwise) as of such date. Any gain
or loss recognized as a consequence of the year-end deemed disposition of
Section 1256 contracts is taken into account for the taxable year together
with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during that taxable year. Any capital
gain or loss for the taxable year with respect to Section 1256 contracts
(including any capital gain or loss arising as a consequence of the year-end
deemed sale of such contracts) is generally treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss. The Fund, however, may
elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the Fund that
are not Section 1256 contracts. The IRS has held in several private rulings
that gains arising from Section 1256 contracts will be treated for purposes
of the Short-Short Gain Test as being derived from securities held for not
less than three months if the gains arise as a result of a constructive sale
under Code Section 1256, provided that the contract is actually held by the
Fund uninterrupted for a total of at least three months.

Because only a few regulations regarding the treatment of swap agreements and
other financial derivatives have been issued, the tax consequences of
transactions in these types of instruments are not always entirely clear. The
Fund intends to account for derivatives transactions in a manner deemed by it
to be appropriate, but the Internal Revenue Service might not necessarily
accept such treatment. If it did not, the status of a Fund as a regulated
investment company and/or its compliance with the diversification requirement
under Code section 817(h) might be affected. The Fund intends to monitor
developments in this area. Certain requirements that must be met under the
Code in order for the Fund to qualify as a regulated investment company may
limit the extent to which it will be able to engage in swap agreements.

Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess
of net long-term capital gain over net short-term capital loss) for any
taxable year, to elect (unless it has made a taxable year election for excise
tax purposes as discussed below) to treat all or any part of any net capital
loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year.

Finally, the Fund 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 the Fund's taxable year, at least 50% of the value of the
Fund's assets must consist of cash and cash items, U.S. Government
securities, securities of other regulated investment companies, and
securities of other issuers (as to which the Fund has not invested more than
5% of the value of the Fund's total assets in securities of such issuer and
as to which the Fund 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 in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option
(call or put) with respect to a security is treated as issued by the issuer
of the security not the issuer of the option. However, with regard to forward
currency contracts, there does not appear to be any formal or informal
authority which identifies the issuer of such instrument. For purposes of
asset diversification testing, obligations issued by or guaranteed by
agencies and instrumentalities of the U.S. Government such as the Federal
Agricultural Mortgage Corporation, the Farm Credit System Financial
Assistance Corporation, the Federal Home Loan Bank, the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, the
Government National Mortgage Corporation, and the Student Loan Marketing
Association are treated as U.S. Government securities.

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

24
<PAGE>
Qualification of Segregated Asset Accounts

Under Code section 817(h), a segregated asset account upon which a variable
annuity contract or variable life insurance policy is based must be
"adequately diversified." A segregated asset account will be adequately
diversified if it satisfies one of two alternative tests set forth in the
Treasury Regulations. Specifically, the Treasury Regulations provide, that
except as permitted by the "safe harbor" discussed below, as of the end of
each calendar quarter (or within 30 days thereafter) no more than 55% of a
fund's total assets may be represented by any one investment, no more than
70% by any two investments, no more than 80% by any three investments and no
more than 90% by any four investments. For this purpose, all securities of
the same issuer are considered a single investment, and while each U.S.
Government agency and instrumentality is considered a separate issuer, a
particular foreign government and its agencies, instrumentalities and
political subdivisions may be considered the same issuer. As a safe harbor, a
separate account will be treated as being adequately diversified if the
diversification requirements under Subchapter M are satisfied and no more
than 55% of the value of the account's total assets are cash and cash items,
U.S. government securities and securities of other regulated investment
companies.

For purposes of these alternative diversification tests, a segregated asset
account investing in shares of a regulated investment company will be
entitled to "look-through" the regulated investment company to its pro rata
portion of the regulated investment company's assets, provided the regulated
investment company satisfies certain conditions relating to the ownership of
the shares.

Excise Tax on Regulated Investment Companies

A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or,
at the election of a regulated investment company having a taxable year
ending November 30 or December 31, for its taxable year (a "taxable year
election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.

For purposes of the excise tax, a regulated investment company shall: (1)
reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year; and (2) exclude
foreign currency gains and losses from Section 988 transactions incurred
after October 31 of any year (or after the end of its taxable year if it has
made a taxable year election) in determining the amount of ordinary taxable
income for the current calendar year (and, instead, include such gains and
losses in determining ordinary taxable income for the succeeding calendar
year).

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

Fund Distributions

The Fund anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they may qualify for the dividends-received deduction for
corporate shareholders.

The Fund may either retain or distribute to shareholders its net capital gain
for each taxable year. The Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time a shareholder has held its shares or whether
such gain was recognized by the Fund prior to the date on which the
shareholder acquired his shares. All distributions paid to ALIAC or its
affiliates, whether characterized as ordinary income or capital gain, are not
taxable to VA Contract or VLI Policy holders.

25
<PAGE>
If the Fund elects to retain its net capital gain, the Fund will be taxed
thereon (except to the extent of any available capital loss carryovers) at
the 35% corporate tax rate. Where the Fund elects to retain its net capital
gain, it is expected that the Fund also will elect to have shareholders of
record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit
for his pro rata share of tax paid by the Fund on the gain, and will increase
the tax basis for his shares by an amount equal to the deemed distribution
less the tax credit.

Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the Fund's assets to be invested in various
countries is not known.

Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any
excess will be treated as gain from the sale of his shares, as discussed
below.

Distributions paid to ALIAC or its affiliates will be reinvested in
additional shares. Distributions to other shareholders will be reinvested in
additional Fund shares unless Firstar Trust Company, the Fund's transfer
agent, is otherwise notified in writing prior to the record date for such
distributions.

Shareholders receiving a distribution in the form of either cash or
additional shares will be treated as receiving a distribution in an amount
equal to the fair market value of the shares received, determined as of the
reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of the Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Fund, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to
the shareholder.

Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31
of such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the
year.

Sale or Redemption of Shares

Shareholders will recognize gain or loss on the sale or redemption of shares
of the Fund in an amount equal to the difference between the proceeds of the
sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or after
the sale or redemption. In general, any gain or loss arising from (or treated
as arising from) the sale or redemption of shares of the Fund will be
considered capital gain or loss and will be long-term capital gain or loss if
the shares were held for longer than one year. However, any capital loss
arising from the sale or redemption of shares held, or deemed under Code
rules to be held, for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received
on such shares. Although gain or loss realized on shares redeemed through the
direction of VA Contract or VLI Policy holders is taxable to ALIAC or its
affiliates, such VA Contract or VLI Policy holders will not be subject to
tax.

Effect of Future Legislation; Local Tax Considerations

The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect
on the date of this Statement of Additional Information. Future legislative
or administrative changes or court decisions may significantly change the
con-

26
<PAGE>
clusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.

Rules of state and local taxation of ordinary income dividends and capital
gain dividends from regulated investment companies often differ from the
rules for U.S. federal income taxation described above. Shareholders are
urged to consult their tax advisers as to the consequences of these and other
state and local tax rules affecting investment in the Fund.

NET ASSET VALUE

Securities of the Fund are generally valued by independent pricing services.
Equity securities of the Fund which are traded on a registered securities
exchange are based on the last sale price or, if there has been no sale that
day, at the mean of the last bid and asked price on the exchange where the
security is principally traded. Securities traded over the counter are valued
at the mean of the last bid and asked price if current market quotations are
not readily available. Short-term debt securities which have a maturity date
of more than sixty days will be valued at the mean of the last bid and asked
price obtained from principal market makers. Short-term debt securities
maturing in sixty days or less at the date of purchase will be valued using
the "amortized cost" method of valuation. This involves valuing an instrument
at its cost and thereafter assuming a constant amortization of premium or
increase of discount. Long-term debt securities traded on a national
securities exchange are valued at the mean of the last bid and asked price of
such securities obtained from a broker who is a market-maker in the
securities or a service providing quotations based upon the assessment of
market-makers in those securities.

Call options written by the Fund and put options are valued at the mean of
the last bid and asked price on the principal exchange where the option is
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.

CUSTODIAN

Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, Pennsylvania, 15258
serves as custodian for assets of the Fund. The custodian does not
participate in determining the investment policies of the Fund or in deciding
which securities are purchased or sold by the Fund. The Fund, however, may
invest in obligations of the custodian and may purchase or sell securities
from or to the custodian.

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103 serves
as independent auditors to the Fund. KPMG Peat Marwick LLP, provides audit
services, assistance and consultation in connection with SEC filings.

27
<PAGE>

FINANCIAL STATEMENTS

Portfolios of Investments

Statements of Assets and Liabilities

Statements of Operations

Statements of Changes in Net Assets

Notes to Financial Statements

Independent Auditors' Report

F-1

<PAGE>

Aetna Variable Fund
Portfolio of Investments - December 31, 1995
- ------------------------------------------------
Number of Market
Shares Value
------- ---------
COMMON STOCKS (90.8%)

Aerospace and Defense (1.2%)
Kaman Corp. Class A..... 34,700 $ 386,038
Lockheed Martin Corp.... 139,504 11,020,816
McDonnell-Douglas Corp.. 527,200 48,502,399
United Technologies
Corp.................. 75,000 7,115,625
---------
67,024,878
---------
Apparel and Cosmetics (1.5%)
Chic By H I S, Inc.+.... 19,000 104,500
Coats Viyella Plc....... 342,700 931,133
Helene Curtis
Industries, Inc....... 5,000 158,125
Maybelline, Inc......... 39,000 1,413,750
Nike, Inc............... 1,166,000 81,182,749
Wolverine World Wide,
Inc................... 22,500 708,750
---------
84,449,007
---------
Autos and Auto Equipment (0.2%)
Autoliv AB.............. 6,800 398,105
Bandag, Inc............. 33,000 1,786,125
Borg Warner Automotive,
Inc................... 86,700 2,774,400
Kaydon Corp............. 38,000 1,154,250
Masland Corp............ 38,500 539,000
Mitsubishi Motors Corp.. 120,000 978,334
Smith (A.O.) Corp....... 65,000 1,348,750
Volvo AB Class B........ 36,000 738,751
---------
9,717,715
---------
Banks (5.8%)
Associated Banc-Corp.... 14,700 601,781
Banca Popolare Di
Bergamo............... 40,000 553,437
Bank of Boston Corp..... 763,200 35,298,000
Bank of New York Co.,
Inc................... 409,600 19,968,000
Bankers Corp............ 42,000 682,500
BayBanks, Inc........... 41,900 4,116,675
Brooklyn Bancorp, Inc.+. 38,000 1,548,500
Canadian Imperial Bank
of Commerce........... 1 20
CCB Financial Corp...... 14,500 804,750
Charter One Financial,
Inc................... 38,000 1,163,750
Chemical Banking Corp... 1,079,600 63,426,499
CITICORP................ 506,652 34,072,347
Citizens Bancorp........ 10,000 322,500
City National Corp...... 242,900 3,400,600
Coast Savings
Financial, Inc.+...... 27,800 962,575
Comercial Net
Lease Realty.......... 41,700 531,675
Cullen/Frost
Bankers, Inc.......... 38,000 1,900,000
Den Danske Bank......... 16,300 1,126,471
FFY Financial Corp...... 21,500 451,500
First American
Corp. (Tenn.)......... 84,900 4,022,138
First Chicago Corp...... 1,196,772 47,272,493
First Commonwealth
Financial Corp........ 15,600 273,000
First Empire State Corp. 3,900 850,200
First Interstate Bancorp 49,500 6,756,750
First of America Bank
Corp.................. 61,700 2,737,938
First Tennessee
National Corp......... 31,800 1,923,900

Banks (continued)

Golden West Financial
Corp.................. 80,300 $4,436,575
HSBC Holdings Plc....... 124,737 1,887,461
JSB Financial, Inc...... 27,700 876,013
Jyske Bank AS........... 4,500 308,553
KeyCorp................. 63,500 2,301,875
Mark Twain Bancshares,
Inc................... 14,900 577,375
National Australia Bank
Ltd................... 70,000 630,083
Nations Bank, Inc....... 863,900 60,149,037
North Fork
Bancorporation, Inc... 50,000 1,262,500
Northern Trust Corp..... 56,100 3,141,600
Oversea-Chinese Banking. 87,000 1,088,653
PNC Bancorp............. 18,900 1,240,313
Premier Bancorp, Inc.... 22,000 514,250
Queens County Bancorp,
Inc................... 50,000 1,978,125
Reliance Bancorp, Inc... 74,900 1,095,413
River Forest Bancorp,
Inc................... 4,600 117,300
Royal Bank of Canada.... 39,800 908,259
Security Capital Corp... 33,000 1,988,250
Silicon Valley
Bancshares+........... 6,500 156,000
St. Francis Capital
Corp.................. 12,200 283,650
Standard
Financial, Inc.+...... 44,000 643,500
Star Banc Corp.......... 62,100 3,694,950
Susquehanna Bancshares,
Inc................... 5,600 148,400
Trustmark Corp.......... 9,100 207,025
Union Bank.............. 80,200 4,350,850
Zion Bancorporation..... 36,500 2,929,125
---------
331,683,134
---------

Building Materials and Construction (0.7%)
American Buildings Co.+. 53,300 1,199,250
Beazer Homes USA, Inc.+. 55,200 1,138,500
Butler Manufacturing Co. 6,300 247,275
Centex Corp............. 93,800 3,259,550
Champion Enterprises,
Inc.+................. 135,800 4,192,825
Clayton Homes, Inc...... 217,375 4,646,391
Continental Homes
Holding Corp.......... 31,200 768,300
Det Danske
Traelastkompagni...... 4,600 311,259
Elcor Corp.............. 36,800 800,400
Fujita Corp............. 230,000 1,039,019
Granite
Construction, Inc..... 85,900 2,705,850
Jacobs Engineering
Group, Inc.+.......... 8,500 212,500
Kon. Volker Stevin N.V.. 7,000 423,554
Lennar Corp............. 76,000 1,909,500
Lindab AB Class B....... 29,000 596,536
NCI Building Systems,
Inc.+................. 11,000 272,250
Nippon Densetsu Kogyo... 163,000 1,643,352
Radex-Heraklith
Industrial AG......... 12,800 387,663
Redman Industries, Inc.+ 49,700 1,677,375
Skyline Corp............ 32,000 664,000
Stone & Webster, Inc.... 18,000 645,750
Strabag Oesterreich AG.. 3,400 263,003
Texas Industries, Inc... 36,300 1,923,900
Toll Brothers, Inc.+.... 88,000 2,024,000

See Notes to Portfolio of Investments.
<PAGE>

Aetna Variable Fund
Portfolio of Investments - December 31, 1995 (continued)
- ---------------------------------------------
Number of Market
Shares Value
------- ---------
Building Materials and Construction (continued)

Tredegar
Industries, Inc....... 11,000 $ 357,500
U S Home Corp.+......... 20,000 582,500
VA Technologie AG....... 8,800 1,118,503
Vulcan Materials Co..... 35,800 2,062,975
Webb (Del E.) Corp...... 52,900 1,064,613
WHX Corp.+.............. 101,200 1,100,550
---------
39,238,643
---------
Chemicals (2.4%)
ARCO Chemical Co........ 66,200 3,218,975
Cabot Corp.............. 34,800 1,874,850
Chemed Corp............. 28,700 1,115,713
Cytec Industries+....... 29,900 1,865,013
Dexter Corp............. 21,500 507,938
Dow Chemical Co......... 522,400 36,763,899
Du Pont (E.I.) de
Nemours............... 9,100 635,863
Eastman Chemical Co..... 203,800 12,762,975
Fuji Photo Film......... 52,000 1,502,205
Geon Co. (The).......... 39,900 972,563
Goodrich (B.F.) Co...... 64,000 4,360,000
Great Lakes Chemical
Corp.................. 10,400 748,800
Lyondell Petrochemical
Co.................... 174,000 3,980,250
Morton International,
Inc................... 215,300 7,723,888
Norsk Hydro AS.......... 83,800 3,528,086
OM Group, Inc........... 28,200 934,125
PPG Industries, Inc..... 575,000 26,306,250
Praxair, Inc............ 484,500 16,291,313
Shin-Etsu Chemical Co... 50,000 1,037,274
Solvay SA Class A....... 1,000 540,265
Valspar Corp............ 8,400 374,850
Vigoro Corp............. 83,200 5,137,600
Wellman, Inc............ 152,000 3,458,000
---------
135,640,695
---------
Commercial Services (0.4%)
ADVO, Inc............... 24,400 634,400
California Water
Service Co............ 2,100 68,513
Devry, Inc.+............ 85,600 2,311,200
GATX Corp............... 105,300 5,120,213
Health Management
Systems, Inc.+........ 14,200 553,800
Inchcape Plc............ 332,079 1,283,809
Kindercare Learning
Centers, Inc.+........ 65,000 820,625
Manpower, Inc........... 124,200 3,493,125
Measurex Corp........... 42,300 1,194,975
Robert Half
International, Inc.+.. 145,600 6,097,000
Royal PTT Nederland N.V. 38,983 1,417,696
---------
22,995,356
---------

Computer Software (2.9%)
Acxiom Corp.+........... 35,000 958,125
American Management
Systems, Inc.+........ 44,500 1,335,000
Analysts International
Corp.................. 8,700 261,000
Boole & Babbage, Inc.+.. 24,000 588,000
Cadence Design Systems,
Inc.+................. 162,300 6,816,600

Computer Software (continued)

Cheyenne Software, Inc.+ 135,000 $ 3,526,875
Cisco Systems, Inc.+.... 822,900 61,408,912
Computer Associates
International, Inc.... 549,800 31,269,875
Computer Horizons Corp.+ 9,100 345,800
Computer Sciences Corp.+ 85,400 5,999,350
Comshare, Inc.+......... 17,700 460,200
Continum, Inc.+......... 5,600 221,200
Diamond Multimedia
Systems, Inc.+........ 30,900 1,108,538
DST Systems, Inc.+...... 24,200 689,700
Henry (Jack) &
Associates............ 15,300 378,675
Hogan Systems, Inc.+.... 61,500 837,938
Hyperion Software Corp.+ 29,600 629,000
Kronos, Inc.+........... 19,700 935,750
Macneal-Schwendler Corp. 21,000 336,000
Microsoft Corp.+........ 404,000 35,450,999
Project Software &
Development, Inc.+.... 27,600 962,550
Reynolds & Reynolds Co.. 71,600 2,783,450
Security Dynamics
Technologies, Inc.+... 4,400 239,800
Shiva Corp.+............ 5,200 378,300
Softdesk, Inc.+......... 15,700 310,075
SPSS, Inc.+............. 16,800 327,600
Structural Dynamics
Research Corp.+....... 105,000 3,084,375
Sungard Data Systems,
Inc.+................. 125,300 3,571,050
System Software
Associates, Inc....... 28,350 616,613
TGV Software, Inc.+..... 36,800 349,600
---------
166,180,950
---------
Computers and Office Equipment (3.0%)
Acma Ltd................ 78,000 259,173
Adaptec, Inc.+.......... 55,800 2,287,800
Bay Networks, Inc.+..... 113,500 4,667,688
Cabletron Systems, Inc.+ 272,400 22,064,400
CANON, Inc.............. 115,000 2,084,727
Ceridian Corp.+......... 322,200 13,290,750
Champion
Industries, Inc....... 7,500 170,625
Comdisco, Inc........... 92,850 2,100,731
Compaq Computer Corp.+.. 400,000 19,200,000
Computervision Corp.+... 81,200 1,248,450
Dell Computer Corp.+.... 158,800 5,498,450
Digital Equipment Corp.+ 20,200 1,295,325
Fujitsu, Ltd............ 190,000 2,118,172
Harris Corp............. 57,000 3,113,625
HBO & Co................ 19,100 1,463,538
In Focus Systems, Inc.+. 75,500 2,727,438
International Business
Machines, Inc......... 77,000 7,064,750
Komag, Inc.+............ 50,000 2,306,250
Kurabo Industries....... 365,000 1,397,654
Read-Rite Corp.+........ 205,000 4,766,250
Standard Register Co.... 31,700 637,963
Sun Microsystems, Inc.+. 1,118,000 51,008,749
Trident Microsystems,
Inc.+................. 35,300 829,550
Xerox Corp.............. 146,700 20,097,900
---------
171,699,958
---------

See Notes to Portfolio of Investments.
<PAGE>

Aetna Variable Fund
Portfolio of Investments - December 31, 1995 (continued)
- ---------------------------------------------------------
Number of Market
Shares Value
------- -------

Consumer Products (1.5%)
Dekalb Genetics Corp.
Class B............... 8,400 $ 379,040
Eastman Kodak Co........ 716,800 48,025,599
First Brands Corp....... 78,500 3,738,563
Libbey, Inc............. 18,000 405,000
Liz Claiborne, Inc...... 1,029,700 28,574,175
Reckitt & Coleman Plc... 145,646 1,612,307
---------
82,734,694
---------
Diversified (1.7%)
Alusuisse-Lonza Holding
AG.................... 615 488,494
Astec Industries, Inc.+. 21,400 211,325
Dover Corp.............. 1,232,800 45,459,499
Hagemeyer N.V........... 11,016 575,847
Harrisons & Crosfield
Plc................... 638,798 1,586,876
Harsco Corp............. 95,700 5,562,563
Helix Technology Corp... 16,900 667,550
Lonrho Plc.............. 684,510 1,870,476
Lydall, Inc.+........... 19,700 448,175
Opal, Inc.+............. 35,200 448,800
Oriental Holdings Bhd... 156,000 792,596
Orkla AS Class A........ 43,000 2,143,841
Plantronics, Inc.+...... 9,100 328,738
Standex International
Corp.................. 14,100 461,775
Teledyne, Inc........... 49,000 1,255,625
Textron, Inc............ 329,700 22,254,750
Valmet Corp. Class A.... 18,200 456,865
Varlen Corp............. 24,000 516,000
VF Corp................. 165,500 8,730,125
---------
94,259,920
---------
Electrical and Electronics (3.0%)
Amphenol Corp.+......... 88,000 2,134,000
Applied Materials, Inc.+ 110,600 4,354,875
Austria Mikro Systeme
International......... 6,120 993,605
Bang & Olufsen Holding
Co.................... 17,000 524,540
BMC Industries, Inc..... 66,400 1,543,800
Cohu, Inc............... 20,600 525,300
CTS Corporation......... 4,600 173,650
Cypress Semiconductor
Corp.+................ 280,000 3,570,000
Dallas Semiconductor
Corp.................. 55,500 1,151,625
Dovatron International,
Inc.+................. 18,000 607,500
Electro Scientific
Industries, Inc.+..... 13,000 380,250
Esterline Technologies+. 57,000 1,346,625
Glenayre Technologies,
Inc.+................. 66,300 4,127,175
Hadco Corp.+............ 112,400 3,161,250
Hewlett Packard Co...... 651,300 54,546,374
Hitachi Koki............ 185,000 1,678,639
Intel Corp.............. 62,300 3,535,525
Kyocera Corp............ 19,000 1,412,728
Logicon, Inc............ 78,200 2,150,500
Matsushita Electric
Industrial Co. Ltd.... 87,000 1,416,897
Maxim Integrated
Products, Inc.+....... 83,400 3,210,900
Micron Technology, Inc.. 551,900 21,869,038
MTS Systems Corp........ 11,300 372,900

Electrical and Electronics (continued)

Nintendo Co. Ltd........ 17,000 $ 1,293,684
Novellus Systems, Inc.+. 47,300 2,554,200
Philips Electronics N.V. 52,200 1,888,591
Pioneer Standard
Electronics........... 11,300 149,725
Quickturn Design
System, Inc.+......... 92,800 928,000
Ramtron International
Corp.+................ 40,500 263,250
Rohm Co................. 26,000 1,469,439
Seagate
Technology, Inc.+..... 135,300 6,426,750
Telefonaktiebolaget
Ericsson.............. 37,500 735,583
Tencor Instruments+..... 45,300 1,104,188
Texas Instruments, Inc.. 712,200 36,856,349
Unitrode Corp.+......... 22,100 624,325
Wyle Electronics........ 31,500 1,106,438
---------
170,188,218
---------
Electrical Equipment (2.5%)
ADflex Solutions, Inc.+. 38,000 1,016,500
Allgon AB Class B....... 20,000 277,635
Avnet, Inc.............. 85,000 3,803,750
Belden, Inc............. 35,800 921,850
Burr-Brown Corp.+....... 48,450 1,235,475
Charter Power Systems,
Inc................... 14,700 422,625
Cidco, Inc.+............ 67,000 1,708,500
Dionex Corp.+........... 9,000 510,750
Draka Holding N.V....... 14,000 362,423
Emerson Electric Co..... 17,400 1,422,450
Fore Systems, Inc.+..... 16,300 969,850
General Electric Co..... 920,200 66,254,399
Grainger (W. W.), Inc... 101,600 6,731,000
Harman International
Industries............ 50,715 2,034,939
Hitachi Ltd. (Hit.
Seisakusho)........... 217,000 2,187,776
Honeywell, Inc.......... 210,000 10,211,250
International Rectifier
Corp.+................ 236,600 5,915,000
Kemet Corp.+............ 118,400 2,826,800
Kent Electronics Corp.+. 95,100 5,551,463
Linear Technology Corp.. 11,000 431,750
Marshall Industries+.... 35,000 1,124,375
Mentor Graphics Corp.+.. 242,000 4,416,500
Methode Electronics,
Inc. Class A.......... 51,500 733,875
Microchip Technology
Corp.+................ 154,800 5,650,200
Nichicon................ 110,000 1,620,862
Park Electrochemical
Corp.................. 32,400 1,069,200
Pittway Corp. Class A... 12,700 860,425
Raychem Corp............ 59,600 3,389,750
SCI Systems, Inc.+...... 55,000 1,705,000
Sundstrand Corp......... 34,000 2,392,750
Tektronix, Inc.......... 14,700 722,138
Teradyne, Inc.+......... 132,200 3,305,000
Valmont Industries...... 200 4,950
---------
141,791,210
---------

Financial Services (4.3%)
Abbey National Plc...... 132,126 1,304,683
ABN-Amro Holding N.V.... 25,049 1,142,213

See Notes to Portfolio of Investments.
<PAGE>

Aetna Variable Fund
Portfolio of Investments - December 31, 1995 (continued)
- ---------------------------------------------------------

Number of Market
Shares Value
------- -------

Financial Services (continued)
Advanta Corp. Class A... 31,000 $1,185,750
ALBANK Financial Corp... 22,100 663,000
Alex Brown & Sons, Inc.. 72,000 3,024,000
Astoria Financial Corp.. 36,800 1,679,000
AT&T Capital Corp....... 9,700 371,025
Bank of Montreal........ 57,419 1,305,074
Barclays Plc............ 135,600 1,555,836
Bear Sterns Co., Inc.... 237,000 4,710,375
CNA Financial Corp.+.... 32,700 3,711,450
Commercial Federal Corp. 50,000 1,887,500
Crestar Financial Corp. 51,000 3,015,375
Dean Witter Discover
and Co. .............. 436,300 20,506,100
Deposit Guaranty Corp. . 25,800 1,148,100
Edwards (A.G.), Inc. ... 24,800 592,100
Federal National
Mortgage Association . 210,100 26,078,663
Fokus Banken AS+ ....... 80,000 433,042
Fort Wayne
National Corp. ....... 6,400 201,600
Great Financial Corp. .. 40,000 940,000
Greenpoint
Financial Corp. ...... 123,600 3,306,300
Home Financial Corp. ... 54,700 847,850
Household
International, Inc. .. 170,000 10,051,250
HSBC Holdings Plc ...... 25 381
Internationale
Nederlanden Groep N.V. 19,100 1,277,225
Leader Financial Corp. . 70,000 2,616,250
Legg Mason, Inc. ....... 20,600 566,500
Liberty Financial Co. .. 4 121
Lion Land Bhd .......... 471,000 467,475
Merrill Lynch &
Co., Inc. ............ 701,500 35,776,499
Peoples Heritage
Financial Group ....... 71,000 1,615,250
Phoenix Duff & Phelps
Corp ................. 78,000 536,250
Pioneer Group, Inc. .... 16,400 446,900
Promise Co., Ltd. ...... 30,400 1,464,670
Rashid Hussain Bhd ..... 153,000 457,976
RCSB Financial, Inc. ... 55,100 1,308,625
Sanyo Shinpan Finance
Co ................... 20,100 1,656,245
Schweizerischer
Bankverein............ 2,080 851,377
Skandinaviska Enskilda
Banken................ 58,600 486,314
Svenska Handelsbanken .. 30,000 624,679
TCF Financial Corp. .... 30,200 1,000,375
TR Financial Corp. ..... 64,100 1,634,550
Transamerica Corp. ..... 312,100 22,744,288
Travelers, Inc. ........ 1,135,000 71,363,124
Union Planters Corp. ... 152,700 4,867,313
Unitas Bank Ltd. Class
A+.................... 223,700 566,694
United Overseas Bank
Ltd................... 33,600 323,054
---------
242,312,421
---------

Foods and Beverages (6.2%)
Cagle's, Inc. .......... 18,000 252,000
Campbell Soup Co. ...... 339,400 20,364,000
Cerebos Pacific Ltd. ... 107,000 741,322
Coca-Cola Co. .......... 647,100 48,047,174
Coca-Cola Enterprises,
Inc .................. 97,000 2,594,750

Foods and Beverages (continued)
Conagra, Inc. .......... 1,457,564 $ 60,124,514
CPC International, Inc.. 374,100 25,672,613
Cultor Oy .............. 9,500 393,810
Goodmark Foods, Inc. ... 12,900 228,975
Heinz (H.J.) Co. ....... 348,000 11,527,500
Hershey Foods Corp. .... 54,700 3,555,500
Hometown Buffet, Inc.+ . 31,200 345,150
Hormel Foods Corp. ..... 58,000 1,428,250
Hudson Foods, Inc.
Class A............... 148,800 2,566,800
Huhtamaki Group Class I 15,100 365,137
IBP, Inc. .............. 108,600 5,484,300
International
Multifoods Corp. ..... 60,700 1,221,588
Katokichi .............. 63,000 1,313,073
Kroger Co. (The)+ ...... 530,000 19,875,000
Molson Companies Ltd. .. 66,500 1,097,038
Mondavi (Robert) Corp.+ 55,200 1,524,900
Nash-Finch Co. ......... 17,000 310,250
Nestle SA Registered ... 805 892,657
Oester Brau-Beteiligungs 8,200 373,741
PepsiCo, Inc. .......... 870,000 48,611,249
Quaker Oats Co. ........ 500,400 17,263,800
Safeway, Inc.+ ......... 92,300 4,753,450
Sara Lee Corp. ......... 1,738,000 55,398,749
Smith's Food & Drug
Centers, Inc. ........ 39,700 1,002,425
Super Food
Services, Inc. ....... 23,000 299,000
Superfos AS ............ 4,100 358,805
Supervalu, Inc. ........ 220,000 6,930,000
Thorn Apple Valley ..... 17,800 298,150
Unilever N.V ........... 25,800 3,631,350
Universal Foods Corp. .. 23,700 950,963
---------
349,797,983
---------

Health Services (0.5%)
Bergen Brunswig Corp.
Class A .............. 40,000 995,000
Genetics
Institute, Inc.+ ..... 22,100 1,182,350
Health Management
Associates, Inc.+ .... 29,250 764,156
Horizon/CMS Healthcare
Corp.+ ............... 163,900 4,138,475
Invacare Corp. ......... 79,400 2,004,850
Laboratory Corp. of
America+.............. 49,900 467,813
Lincare Holdings, Inc.+. 148,600 3,715,000
Nellcor, Inc.+ ......... 62,500 3,625,000
Sun Healthcare Group,
Inc.+................. 105,000 1,417,500
Tenet Healthcare Corp.+. 318,300 6,604,725
Universal Health
Services, Inc.+....... 63,000 2,795,625
Wellpoint Health
Networks, Inc.+....... 43,300 1,391,013
---------
29,101,507
---------

Health Technology (0.1%)
Alpharma, Inc. Class A .. 14,500 378,813
Spacelabs Medical, Inc.+ 2,900 83,375
Sybron International
Corp.+ ................ 131,800 3,130,250
---------
3,592,438
---------

See Notes to Portfolio of Investments.

<PAGE>

Aetna Variable Fund
Portfolio of Investments - December 31, 1995 (continued)
- ----------------------------------------------------------

Number of Market
Shares Value
------- -------

Home Furnishings and Appliances (0.1%)
Electrolux AB Class B ... 10,500 $ 431,730
Haverty Furniture Co.,
Inc ................... 32,000 444,000
Kimball International,
Inc. Class B .......... 11,500 290,375
Leggett & Platt, Inc. ... 170,000 4,122,500
Oneida Ltd. ............. 19,800 348,975
---------
5,637,580
---------
Hotels and Restaurants (1.7%)
La Quinta Inns, Inc. .... 71,900 1,968,263
Marcus Corp. ............ 13,400 366,825
Marriott International,
Inc ................... 855,800 32,734,350
McDonald's Corp. ........ 1,264,800 57,074,099
Prime Hospitality Corp.+ 110,000 1,100,000
Promus Hotel Corp.+ ..... 13,700 304,825
RFS Hotel
Investors, Inc. ....... 180,000 2,767,500
Sonic Corp.+ ............ 65,600 1,246,400
---------
97,562,262
---------
Household Products (0.1%)
AJL PEPS Trust+ ......... 47,000 916,500
Carlisle Cos., Inc. ..... 7,400 298,775
Premark International,
Inc ................... 80,000 4,050,000
Springs Industries,
Inc. Class A ......... 3,400 140,675
Toro Co. ................ 36,000 1,183,500
Wing Tai Holdings ....... 334,000 682,404
---------
7,271,854
---------
Insurance (3.8%)
Acceptance Insurance
Cos., Inc.+ ......... 3,600 53,550
Aegon N.V ............. 32,481 1,438,535
AFLAC, Inc. ........... 73,600 3,192,400
Allied Group, Inc. .... 18,400 662,400
Allmerica Property &
Casualty Cos., Inc. .. 21,400 577,800
Allstate Corp. ........ 1,205,043 49,557,392
American Bankers
Insurance Group ..... 76,100 2,967,900
American Financial
Group, Inc. ......... 43,700 1,338,313
American General Corp. 112,700 3,930,413
Capital American
Financial Corp....... 13,900 314,488
Cigna Corp. ........... 193,400 19,968,550
CMAC Investment Corp. . 77,700 3,418,800
Conseco, Inc. ......... 31,300 1,960,163
EA-Generali AG ........ 3,600 1,079,578
Equitable of Iowa Cos . 23,400 751,725
Financial Security
Assurance Holdings
Ltd ................. 3,492 86,871
Fremont General Corp. . 72,380 2,659,965
Frontier Insurance
Group, Inc. ......... 9,400 300,800
Fund American
Enterprises, Inc. ... 11,244 837,678
Gallagher (Arthur J.) &
Co .................. 27,200 1,013,200
General Re Corp. ...... 334,500 51,847,499
Guardian Royal Exchange
Plc. ................ 338,000 1,448,389
Healthwise of America,
Inc.+ .............. 41,000 1,599,000
Horace Mann Educators . 89,600 2,800,000
Corp ................
Lawyers Title Corp. ... 8,000 153,000

Insurance (continued)
Loews Corp. ........... 53,000 $ 4,153,875
Maic Holdings, Inc.+ .. 10,600 360,400
Markel Corp.+ ......... 5,000 377,500
Maxicare Health Plans,
Inc.+ ............... 182,000 4,891,250
NAC Re Corp. .......... 15,000 540,000
Old Republic
International Corp. . 128,600 4,565,300
Orion Capital Corp. ... 32,800 1,422,700
Penncorp Financial
Group, Inc. ......... 31,000 910,625
Pohjola Insurance Group 18,000 232,140
Pxre Corp. ............ 15,000 397,500
Reliastar Financial
Corp ................ 34,000 1,508,750
Royal Insurance
Holdings Plc ....... 229,478 1,361,018
Safeco Corp. .......... 218,000 7,521,000
Security-Connecticut
Corp ................ 29,000 786,625
Selective Insurance
Group ............... 32,000 1,136,000
TIG Holdings, Inc. .... 645,000 18,382,500
Transatlantic Holdings,
Inc ................. 42,800 3,140,450
Transport
Holdings, Inc.+...... 4,575 186,431
Trenwick Group, Inc. .. 4,100 230,625
UNI Storebrand AS+ .... 178,500 988,826
Unitrin, Inc. ......... 48,700 2,337,600
Vesta Insurance Group,
Inc ................. 62,000 3,379,000
Winterthur
Schweizerische
Versicherungs........ 670 478,613
Zurich
Versicherungs-
Gesellschaft ........ 3,345 1,002,890
---------
214,250,027
---------
Machinery and Equipment (1.7%)
Acme-Cleveland Corp..... 36,500 684,375
Allied Products, Corp... 20,000 480,000
Applied Power, Inc...... 15,800 474,000
Barnes Group, Inc....... 12,000 432,000
Black & Decker Corp..... 211,300 7,448,325
Blount, Inc. Class A.... 45,000 1,181,250
Brunswick Corp.......... 123,400 2,961,600
Danaher Corp............ 49,700 1,577,975
Electroglas, Inc.+...... 17,700 433,650
Fluor Corp.............. 452,800 29,884,800
FSI International, Inc.+ 22,600 457,650
Georg Fischer AG........ 240 312,853
Global Industrial
Technologies, Inc.+... 105,000 1,981,875
Illinois Tool
Works, Inc............ 142,700 8,419,300
Jenbacher Werke AG...... 3,900 588,644
JLG Industries, Inc..... 40,000 1,190,000
Kone Corp. Class B...... 2,400 200,636
Lam Research Corp.+..... 57,000 2,607,750
Landis & Gyr............ 505 412,532
Parker-Hannifin Corp.... 786,500 26,937,625
Regal Beloit............ 61,500 1,337,625
Tecumseh Products Co.
Class A............... 21,500 1,112,625
Tsubakimoto Chain....... 276,000 1,661,538
Tsukishima Kikai........ 93,700 1,998,352
---------
94,776,980
---------

See Notes to Portfolio of Investments.

<PAGE>

Aetna Variable Fund
Portfolio of Investments - December 31, 1995 (continued)
- -------------------------------------------------------

Number of Market
Shares Value
------- -------
Media and Entertainment (0.7%)
AMC Entertainment+ ..... 8,600 $ 201,025
Belo Corp. Class A ..... 35,600 1,237,100
Callaway Golf Co. ...... 263,600 5,963,950
Carmike Cinemas Class A+ 7,000 157,500
Chris-Craft
Industries, Inc.+ .... 53,900 2,331,175
Clear Channel
Communications, Inc.+ 10,800 476,550
Genting Bhd ............ 99,000 826,625
Granada Group Plc ...... 75,100 752,072
Grand Casinos, Inc.+ ... 96,000 2,232,000
Gtech Holdings Corp.+ .. 238,500 6,201,000
King World Production,
Inc.+ ............... 375,000 14,578,125
Magnum Corp. Bhd ....... 282,000 533,123
Media General, Inc. .... 29,700 902,138
Mirage Resorts, Inc.+ .. 97,000 3,346,500
Regal Cinemas, Inc.+ ... 84,300 2,507,925
---------
42,246,808
---------

Medical Supplies (1.5%)
Baxter
International, Inc. .. 94,800 3,969,750
Coherent, Inc.+ ........ 79,800 3,231,900
Cordis Corp.+ .......... 54,600 5,487,300
Guidant Corp. .......... 272,819 11,526,603
Haemonetics Corp.+ ..... 44,400 788,100
McKesson Corp. ......... 15,900 804,938
Medtronic, Inc. ........ 991,400 55,394,474
North American
Biologicals, Inc.+ ... 187,600 2,016,700
Sola International,
Inc.+ ............... 31,300 790,325
---------
84,010,090
---------

Metals and Mining (2.4%)
Acme Metals, Inc.+ ...... 20,500 292,125
AK Steel Holding Corp. .. 42,000 1,438,500
Alcan Aluminum Ltd. ..... 370,900 11,542,958
Aluminum Co. of America.. 371,500 19,643,063
Asarco, Inc. ............ 190,000 6,080,000
Ashland Coal, Inc. ...... 14,400 307,800
Brenco, Inc. ............ 12,700 130,175
Carpenter Technology
Corp .................. 82,200 3,380,475
Cleveland-Cliffs, Inc. .. 58,000 2,378,000
Commonwealth Aluminum
Corp .................. 80,000 1,240,000
Cyprus Amax Minerals Co. 815,200 21,297,100
Dofasco, Inc. ........... 66,555 841,753
Falconbridge Ltd. ....... 40,200 854,755
Handy & Harman .......... 82,200 1,356,300
J & L Specilty
Steel, Inc. ........... 162,100 3,039,375
Kalmar Industries ....... 16,000 265,564
Kennametal, Inc. ........ 56,300 1,787,525
Kon. Ned. Hoogovens En .. 16 536
Lukens, Inc. ............ 36,100 1,037,875
MAF Bancorp, Inc. ....... 6,380 159,500
Magma Copper Co.+ ....... 157,400 4,387,525
Minerals Technologies,
Inc ................... 18,700 682,550
Mueller ............
Industries, Inc.+
Phelps Dodge Corp. ...... 120,000 3,510,000

Metals and Mining (continued)
Quanex Corp. ............ 15,200 $ 294,500
Santa Fe Pacific Gold ... 424,800 5,150,700
Corp ..................
SSAB Svenskt Sta AB ..... 44,000 451,459
---------
137,210,487
---------

Oil and Gas (10.0%)
Alberta Energy Co. Ltd.+ 55,200 885,329
Amoco Corp. ............. 528,109 37,957,833
Atlantic Richfield Co. .. 45,200 5,005,900
BJ Services Co.+ ........ 83,000 2,407,000
Burmah Castrol Plc ...... 91,700 1,329,768
Camco International,
Inc ................... 70,100 1,962,800
Chesapeake Energy Corp.+ 46,800 1,556,100
Columbia Gas System,
Inc.+ ................. 46,900 2,057,738
Conwest Exploration Co. . 45,600 911,064
Devon Energy Corp. ...... 13,400 341,700
Diamond Shamrock, Inc. .. 64,000 1,656,000
Enron Oil & Gas Co. ..... 66,600 1,598,400
Exxon Corp. ............. 1,665,000 133,408,124
Global Industries Ltd.+ 18,000 540,000
Halliburton Co. ......... 946,100 47,896,312
Imperial Oil Ltd. ....... 1 18
KCS Energy, Inc. ........ 21,000 315,000
Leviathan Gas Pipeline
Partners L. P ......... 65,600 1,861,400
Mobil Corp. ............. 789,900 88,468,799
NGC Corp. ............... 33,000 292,875
OEMV AG ................. 9,500 825,423
Oneok, Inc. ............. 95,000 2,173,125
Panhandle Eastern Corp.. 299,800 8,356,925
Petro-Canada ............ 80,000 923,821
Petronas Gas Bhd ........ 110,000 374,754
Pride Petroleum
Services, Inc.+ ....... 118,000 1,253,750
Royal Dutch Petroleum
Co .................... 812,800 114,706,399
Shell Transport &
Trading Co. ........... 123,000 10,009,125
Smith
International, Inc.+ .. 292,500 6,873,750
Sonat Offshore Drilling
Co .................... 198,800 8,896,300
Sun Company, Inc. ....... 520,900 14,259,638
Tesoro Petroleum Corp.+ 70,000 603,750
Texaco, Inc. ............ 795,800 62,470,299
Tide West Oil Co.+ ...... 14,000 187,250
TransCanada Pipelines
Ltd ................... 1 12
Union Texas Petroleum
Holdings, Inc. ........ 141,200 2,735,750
---------
565,102,231
---------

Paper and Containers (2.0%)
Abitibi-Price, Inc. ..... 51,100 735,272
ACX Technologies, Inc.+ 10,400 157,300
Asia Pulp & Paper Co. ... 146,000 1,186,250
Ltd.+
Bobst SA ................ 105 164,248
Champion International .. 565,200 23,738,400
Corp ..................
Chesapeake Corp. ........ 103,000 3,051,375
Consolidated ............ 72,800 4,085,900
Papers, Inc. ..........
Georgia-Pacific Corp. ... 240,600 16,511,175
Glatfelter (P.H.) Co. ... 24,800 424,700

See Notes to Portfolio of Investments.

<PAGE>

Aetna Variable Fund
Portfolio of Investments - December 31, 1995 (continued)
- --------------------------------------------------------

Number of Market
Shares Value
------- -------

Paper and Containers (continued)
Kymmene OY .............. 23,900 $ 632,974
Leykam-Muerztaler
Papier+ ............... 9,600 304,093
Macmillan Bloedel Ltd. .. 68,500 847,524
MayrMelnhof Karton AG ... 10,500 526,533
Mead Corp. .............. 529,900 27,687,275
Metsa Serla Class B ..... 14,800 456,727
Missouri Och Domsjoe AB . 8,100 345,882
Rayoner, Inc. ........... 123,800 4,131,825
Repola Oy ............... 42,800 808,254
Rock-Tenn Co. Class A ... 2,900 47,125
Stone-Consolidated
Corp.+ ................ 62,400 800,645
Stora Kopparbergs ....... 35,000 411,926
Temple-Inland, Inc. ..... 269,900 11,909,338
Willamette Industries,
Inc ................... 281,500 15,834,375
---------
114,799,116
---------
Pharmaceuticals (7.9%)
Abbott Laboratories ..... 399,800 16,691,650
Alliance Pharmaceutical+ 35,100 478,238
Autoimmune, Inc.+ ....... 15,600 175,500
Becton, Dickinson & Co.. 477,900 35,842,499
Bristol-Myers Squibb Co. 996,100 85,540,087
COR Therapeutics, Inc.+. 119,500 1,000,813
Immulogic
Pharmaceutical Corp.+ . 42,100 810,425
Immunex Corp.+ .......... 11,500 189,750
Johnson & Johnson ....... 1,255,900 107,536,437
Jones Medical
Industries, Inc. ...... 23,900 576,588
Merck & Co., Inc. ....... 586,700 38,575,524
Novo-Nordisk AS ......... 10,800 1,481,054
Pfizer, Inc. ............ 1,508,400 95,029,199
R.P. Scherer Corp.+ ..... 87,400 4,293,525
Rhone-Poulenc Rorer,
Inc ................... 80,000 4,260,000
Roche Holding AG ........ 135 1,070,544
Schering Plough ......... 894,800 48,990,299
Vical, Inc.+ ............ 23,200 281,300
Watson Pharmaceuticals,
Inc.+ ................. 68,400 3,351,600
---------
446,175,032
---------

Printing and Publishing (1.4%)
Banta Corp. ............. 171,200 7,532,800
Cadmus Communications ... 5,300 143,100
Corp ..................
Central Newspapers, ..... 50,700 1,590,713
Inc. Class A
Devon Group, Inc.+ ...... 23,000 668,438
Gannett Company, Inc. ... 286,600 17,590,075
Lee Enterprises, Inc. ... 20,000 460,000
Meredith Corp. .......... 31,200 1,306,500
Mondadori (Arnoldo) ..... 90,000 780,611
Editore SpA
New York Times Co. ...... 280,500 8,309,813
Pulitzer Publishing Co. . 41,000 1,957,750
Scholastic Corp.+ ....... 72,600 5,644,650
Scientific Games ........ 46,800 1,766,700
Holdings Corp.+
Toppan Printing Co. Ltd. 140,000 1,845,766
Tribune Co. ............. 461,000 28,178,625

Printing and Publishing (continued)
VNU-Verenigde ...........
Nederlands Uitgev 6,200 $ 852,012
---------
78,627,553
---------

Real Estate Investment Trusts (3.0%)
AMLI Residential
Properities Trust ..... 55,900 1,118,000
Amoy Properties Ltd. .... 200,000 199,167
Apartment Investment &
Management ............ 27,500 536,250
Associated Estates
Realty Corp. .......... 118,000 2,537,000
Beacon Properties Corp. . 200,800 4,618,400
Bre Properties, Inc.
Class A ............... 42,500 1,514,063
CALI Realty Corp. ....... 85,800 1,876,875
Camden Property Trust ... 90,600 2,163,075
Carr Realty Corp. ....... 36,300 884,813
CBL & Associates
Properties, Inc. ...... 107,900 2,346,825
Centerpoint Properties
Corp .................. 23,400 541,125
Chelsea GCA Realty, Inc. 126,900 3,807,000
Colonial Properties
Trust ................. 111,400 2,840,700
Cousins Properties, Inc. 29,000 587,250
Crescent Real Estate
Equities, Inc. ........ 216,500 7,388,063
Crown America Realty
Trust ................. 228,300 1,797,863
Debartolo Realty Corp. .. 403,300 5,242,900
Developers Diversified
Realty Corp. .......... 172,500 5,175,000
Duke Realty
Investments, Inc. ..... 276,700 8,681,463
Equity Inns, Inc. ....... 186,500 2,144,750
Equity Residential
Properties Trust ...... 242,500 7,426,563
Essex Property
Trust, Inc. ........... 48,000 924,000
Evans Withycombe
Residential, Inc. ..... 35,000 752,500
Excel Realty Trust, Inc. 114,800 2,353,400
First Industrial Realty
Trust, Inc. ........... 118,200 2,659,500
General Growth
Properties ............ 184,900 3,836,675
Healthcare Realty
Trust, Inc. ........... 63,000 1,449,000
HGI Realty, Inc. ........ 150,300 3,438,113
Highwood
Properties, Inc. ...... 310,400 8,768,800
Hong Kong Land Holdings
Ltd ................... 600,000 1,110,000
JP Realty, Inc. ......... 27,000 590,625
Kimco Realty Corp. ...... 187,050 5,097,113
Kranzco Realty Trust .... 45,300 668,175
LTC Properties, Inc. .... 22,400 336,000
Manufactured Home
Communities, Inc. ..... 44,800 784,000
Merry Land & Investment
Co., Inc. ............. 144,000 3,402,000
MGI Properties, Inc. .... 72,300 1,211,025
Mid-America Apartment
Communities, Inc. ..... 52,500 1,299,375
National Golf
Properties, Inc. ...... 97,200 2,223,450
National Health
Investors, Inc. ....... 152,800 5,061,500
O.Y.L. Industries Bhd ... 23,000 178,456
Oasis Residential, Inc.. 264,200 6,010,550
Patriot American
Hospitality, Inc. ..... 46,600 1,199,950
Post Properties, Inc. ... 119,000 3,793,125
Price REIT, Inc. ........ 17,500 485,625
Prime Residential, Inc... 118,900 2,199,650
Public Storage, Inc. .... 429,900 8,168,100
Realty Income Corp. ..... 76,000 1,710,000
Santa Anita Realty
Enterprises, Inc. ..... 5,800 68,875

See Notes to Portfolio of Investments.
<PAGE>

Aetna Variable Fund
Portfolio of Investments - December 31, 1995 (continued)
- --------------------------------------------------------

Number of Market
Shares Value
------- -------

Real Estate Investment Trusts (continued)
RPS Realty Trust ........ 65,900 $ 304,788
Security Capital
Industrial Trust ...... 121,000 2,117,500
Sekisui House ........... 149,000 1,906,645
Smith (Charles E.)
Residential Realty Co. 16,400 387,450
South West
Property Trust ........ 211,900 2,860,650
Spieker Properties, Inc.. 252,100 6,334,013
Starwood Lodging Trust .. 33,800 1,005,550
Storage USA, Inc. ....... 29,500 962,438
Tanger Factory Outlet
Centers, Inc. ......... 94,100 2,352,500
Vornado Realty Trust .... 188,800 7,080,000
Walden Residential
Properties, Inc. ...... 164,800 3,440,200
Weeks Corp. ............. 26,800 673,350
Weingarten Realty
Investors ............. 120,100 4,563,800
Winston Hotels, Inc. .... 46,600 553,375
---------
167,748,986
---------
Retail (2.2%)
Albertson's, Inc. ....... 127,600 4,194,850
Arbor Drugs, Inc. ....... 23,600 495,600
Asda Group Plc .......... 600,000 1,029,374
Big B, Inc. ............. 107,400 1,074,000
Bruno's, Inc. ........... 2,380 24,990
Burton Group Plc ........ 1,263,759 2,639,041
Cardinal Health, Inc. ... 47,600 2,606,100
Casey's General Stores,
Inc ................... 35,100 767,813
CDW Computer Centers,
Inc.+ ................ 12,200 494,100
Claire's Stores, Inc. ... 85,000 1,498,125
Consolidated
Stores Corp.+ ......... 26,200 569,850
Eckerd Corp.+ ........... 27,900 1,245,038
Egghead, Inc.+ .......... 51,500 331,531
Fabri-Centers of
America Class A ...... 11,000 145,750
Fabri-Centers of
America Class B+ ...... 8,100 87,075
Familymart .............. 40,300 1,820,542
Fay's Drug Co. .......... 52,300 392,250
Fingerhut Companies,
Inc ................... 36,000 499,500
General Host Corp.+ ..... 79,600 318,400
Hannaford Brothers, Co. . 71,000 1,748,375
Hudson's Bay Co. ........ 29,100 418,717
Ito-Yokado Co., Ltd. .... 25,000 1,541,370
JUSCO Co. ............... 65,000 1,695,022
Kesko ................... 51,700 644,137
Koninklijke Ahold N.V ... 24,003 980,723
Kroger Equity, Inc.+ .... 22,700 241,188
Laclede Gas Co. ......... 41,200 870,350
Merkur Holding AG ....... 1,225 269,336
Proffitt's Inc.+ ........ 23,000 603,750
Rex Stores Corp.+ ....... 25,000 443,750
Rite Aid Corp. .......... 567,000 19,419,750
Robinson & Co. Ltd. ..... 65,000 271,121
Ross Stores, Inc. ....... 115,000 2,199,375
Ruddick Corp. ........... 26,200 301,300
Russ Berrie & Co., Inc. . 33,000 416,625
Sears, Roebuck & Co. .... 1,335,000 52,064,999

Retail (continued)
Shopko Stores, Inc. ..... 17,600 $ 198,000
Urban Shopping Centers,
Inc ................... 68,200 1,457,775
Viking Office Products,
Inc.+ ................. 41,200 1,915,800
Vons Companies, Inc.+ ... 133,000 3,757,250
Waban, Inc.+ ............ 75,000 1,406,250
Wal-Mart Stores, Inc. ... 416,600 9,321,425
Zale Corp.+ ............. 25,000 403,125
---------
122,823,442
---------
Specialty Consumer Durables (0.1%)
Bio-Rad Labs, Inc.
Class A+ .............. 38,000 1,615,000
Collagen Corp. .......... 26,000 549,250
Fusion Systems Corp.+ ... 12,200 341,600
Polaris Industries, Inc. 147,850 4,343,094
---------
6,848,944
---------
Telecommunications (2.5%)
Ameritech Corp. ......... 1,436,700 84,765,299
AT&T Corp. .............. 729,400 47,228,649
Cascade Communications
Corp.+ ................ 55,100 4,697,275
Case Corp. .............. 99,900 4,570,425
GN Store Nord AS ........ 4,100 329,213
Holophane Corp.+ ........ 68,550 1,490,963
---------
143,081,824
---------
Transportation (1.8%)
Alaska Air Group, Inc.+ 22,100 359,125
American President
Cos., Ltd. ............ 185,300 4,261,900
AMR Corp.+ .............. 677,100 50,274,674
Bergesen d.y. AS Class B 15,000 294,392
British Airways Plc ..... 151,200 1,093,950
Canadian National
Railway Co.+ .......... 134,400 2,016,000
Comair Holdings, Inc. ... 157,500 4,232,813
Conrail, Inc. ........... 117,300 8,211,000
CSX Corp. ............... 140,000 6,387,500
Eagle USA Airfreight,
Inc.+ ................. 9,300 244,125
East Japan Railway Co. .. 244 1,187,417
Expeditors International
of Washington, Inc. ... 27,100 707,988
Florida East Coast
Industries, Inc. ...... 6,500 443,625
Harper Group, Inc. ...... 57,000 1,011,750
Hornbeck Offshore
Services, Inc.+ ....... 24,500 480,813
Kvaerner AS ............. 37,500 1,329,514
M.S. Carriers, Inc.+ .... 38,800 776,000
Malaysian International
Shipping Bhd .......... 93,000 243,580
Navistar International
Corp.+ ................ 645,700 6,779,850
Nippon Express Co. Ltd. . 120,000 1,156,318
Peninsular & Orient
Steam Navigation Co. .. 205,400 1,517,983
PHH Corp. ............... 66,200 3,094,850
Singapore Airlines Ltd. . 119,000 1,110,498
UAL Corp.+ .............. 27,100 4,837,350
Werner Enterprises, Inc. 28,000 567,000
---------
102,620,015
---------

See Notes to Portfolio of Investments.

<PAGE>

Aetna Variable Fund
Portfolio of Investments - December 31, 1995 (continued)
- ---------------------------------------------------------

Number of Market
Shares Value
------- -------

Utilities - Electric (4.6%)
Boston Edison Co. ............ 137,400 $ 4,053,300
California Energy Co.,
Inc.+ ...................... 95,000 1,852,500
Centerior Energy Corp. ....... 66,000 585,750
Central Hudson Gas &
Electric Co. ............... 41,900 1,293,663
Cilcorp, Inc. ................ 30,300 1,283,963
Commonwealth Energy
System, Inc. ............... 24,200 1,082,950
Consolidated Edison Co.
of New York, Inc. .......... 620,000 19,840,000
Destec Energy, Inc.+ ......... 3,600 49,500
DQE, Inc. .................... 152,550 4,690,913
Electrowatt AG ............... 1,720 630,781
Entergy Corp. ................ 744,000 21,762,000
Florida Progress Corp. ....... 112,400 3,976,150
General Public
Utilities Corp. ............ 110,000 3,740,000
Green Mountain Power
Corp ....................... 3,000 83,250
Hawaiian Electric
Industries, Inc. ........... 18,700 724,625
Hokkaido Electric Power Co. .. 140 3,257
Houston Industries, Inc. 200,000 4,850,000
IES Industries, Inc. ......... 86,000 2,279,000
Illinova Corp. ............... 213,600 6,408,000
IPALCO Enterprises, Inc. ..... 10,300 392,688
Korea Electric Power
Corp. ADR .................. 40,000 1,070,000
LG&E Corp. ................... 35,400 1,495,650
MDU Resources Group, Inc. .... 41,400 822,825
Midamerican Energy Co. ....... 25,000 418,750
National Power PLC ADR (d) ... 42,050 388,963
New England Electric
System ..................... 93,000 3,685,125
New York State Electric
& Gas Corp. ................ 226,100 5,850,338
Nipsco Industries, Inc.. ..... 135,200 5,171,400
Northeast Utilities .......... 121,300 2,956,688
Northern States Power Co. .... 115,400 5,669,025
Oklahoma Gas & Electric Co. .. 58,700 2,524,100
Orange & Rockland
Utilities, Inc. ............ 40,000 1,430,000
Pacific Gas and
Electric Co. ............... 410,200 11,639,425
Peco Energy Co. .............. 661,900 19,939,738
Pinnacle West Capital Corp. .. 223,400 6,422,750
Portland General Corp. ....... 132,000 3,844,500
Powergen PLC ADR (d) ......... 42,050 551,906
Public Service Co.
of Colorado+ ............... 124,600 4,407,725
Public Service Co. of
New Mexico+ ................ 180,000 3,172,500
Rochester Gas &
Electric Corp. ............. 69,300 1,567,913
San Diego Gas &
Electric Co. ............... 126,200 2,997,250
SCEcorp ...................... 1,909,800 33,898,950
Sierra Pacific Resources ..... 124,400 2,907,850
Sithe Energies, Inc.+ ........ 587,200 3,523,200
Southwestern Public
Service Co. ................ 19,600 641,900
Texas Utilities Co. .......... 148,700 6,115,288
TNP Enterprises, Inc. ........ 24,300 455,625
Tohoku Electric Power ........ 38,000 917,260
Transalta Corp. .............. 80,800 866,412
Unicom Corp. ................. 1,217,100 39,860,024
United Illuminating Co. ...... 36,000 1,345,500

Utilities - Electric (continued)
Western Resources, Inc. ...... 59,300 $ 1,979,138
WPS Resources Corp. .......... 36,300 1,234,200
---------
259,354,208
---------

Utilities - Oil and Gas (1.0%)
Atlanta Gas Light Co. ........ 223,000 4,404,250
Brooklyn Union Gas Co. (The) . 82,700 2,418,975
Coastal Corp. (The) .......... 366,500 13,652,125
Connecticut Energy Corp. ..... 11,800 262,550
MCN Corp. .................... 34,300 797,475
New Jersey Resources Corp. ... 43,000 1,295,375
Northwest Natural Gas Co. .... 12,100 399,300
Pacific Enterprises .......... 225,100 6,359,075
Phoenix Resource Co., Inc. ... 64,400 1,110,900
Piedmont Natural Gas, Inc. ... 15,500 360,375
Public Service Co. of
North Carolina ............. 4,400 78,650
Southern Indiana Gas &
Electric Co. ............... 15,000 521,250
Valero Energy Corp. .......... 88,000 2,156,000
Washington Gas Light Co. ..... 26,200 537,100
Wicor, Inc. .................. 11,100 357,975
Williams Cos., Inc. .......... 510,100 22,380,638
---------
57,092,013
---------

Utilities - Telephone (4.4%)
Bell Atlantic Corp. .......... 360,000 24,075,000
BellSouth Corp. .............. 1,749,200 76,090,199
Century Telephone
Enterprises ................ 156,000 4,953,000
Cincinnati Bell, Inc. ........ 342,000 11,884,500
Citizens Utilities Co.+ ..... 21,641 275,920
DDI Corp. .................... 214 1,659,638
Frontier Corp. ............... 26,600 798,000
GTE Corp. .................... 351,000 15,444,000
Nippon Telegraph &
Telephone Corp. ............ 229 1,853,667
NYNEX Corp. .................. 280,100 15,125,400
SBC Communications, Inc. ..... 420,000 24,150,000
Southern New England
Telecommunications Corp. ... 135,100 5,370,225
Sprint Corp. ................. 1,695,000 67,588,124
Telecom Italia SpA ........... 350,000 544,927
Tellabs, Inc.+ ............... 37,200 1,376,400
---------
251,189,000
---------

Utilities - Water (0.0%)
Welsh Water Plc .............. 72,083 867,354
Total Common Stocks
(cost $3,891,283,962) ...... $5,141,754,533
---------
PREFERRED STOCKS (3.7%)

Banks (1.2%)
BankAmerica Corp. ............ 981,300 63,539,174
Barnett Banks, Inc. .......... 23,000 2,564,500
Creditanstalt-Bankverein ..... 18,600 956,726
---------
67,060,400
---------

See Notes to Portfolio of Investments.
<PAGE>

Aetna Variable Fund
Portfolio of Investments - December 31, 1995 (continued)
- --------------------------------------------------------

Number of Market
Shares Value
------- -------

Chemicals (0.6%)
Union Carbide Corp. .......... 902,300 $33,836,250
---------
Commercial Services (0.1%)
Alco Standard Corp. .......... 20,800 2,111,200
---------

Computers and Office Equipment (0.0%)
Ceridian Corp. ............... 21,000 1,942,500
---------

Diversified (0.0%)
Sea Containers, Ltd. ......... 36,000 1,575,000
---------

Electrical Equipment (0.7%)
FPL Group, Inc. .............. 785,600 36,432,199
Nokia AB Class A ............. 76,000 2,992,953
---------
39,425,152
---------

Financial Services (0.8%)
Alexander & Alexander(b) ..... 49,000 2,376,500
American Express Exch Note ... 663,900 36,846,449
Phoenix Duff & Phelps Corp. .. 7,800 196,950
Travelers, Inc. .............. 41,800 3,647,050
---------
43,066,949
---------

Foods and Beverages (0.0%)
Corning Delaware L.P. ........ 13,900 700,213
Union Planters Co. ........... 18,600 737,025
---------
1,437,238
---------

Machinery and Equipment (0.0%)
Case Corp.(b) ................ 14,200 1,604,600
---------

Media and Entertainment (0.0%)
AMC Entertainment ............ 15,850 645,888
---------

Metals and Mining (0.1%)
Cyprus Amax Minerals Co. ..... 42,100 2,473,375
---------

Paper and Containers (0.0%)
International
Paper Co.(b) ............... 9,300 413,850
---------

Pollution Control (0.0%)
William Cos., Inc. ........... 27,900 2,064,600
---------

Real Estate Investment Trusts (0.0%)
Security Capital .............
Pacific Trust 19,400 475,300
---------

Retail (0.2%)
Dillard Department
Stores, Inc. ............... 249,500 7,110,750
Tanger Factory Outlet
Centers, Inc. .............. 55,800 1,283,400
---------
8,394,150
---------

Utilities - Oil and Gas (0.0%)
Valero Energy Corp. .......... 37,200 1,915,800
---------

Utilities - Water (0.0%)
Welsh Water Plc .............. 77,850 131,748
Total Preferred Stocks
(cost $165,464,349) ........ $208,574,000
--------
Warrants (0.0%)

Morgan Stanley American
Express Hong ...............
Kong Call+ 294,000 1,249,500
---------
Total Warrants (cost
$1,447,583) ................ $1,249,500
--------

LONG TERM BONDS AND NOTES (1.0%)
Corporate Bonds - Convertible (1.0%)

Building Materials and Construction (0.0%)
Continental Homes
Holding Corp., ............. 700,000 $ 746,069
6.875%, 11/01/02 ---------

Commercial Services (0.0%)
Ogden Corp., 6.00%,
06/01/02 ................... 475,000 446,500
---------

Computer Software (0.0%)
Automatic Data
Processing, Inc.,
0.00%, 02/20/12 ............ 3,800,000 1,838,495
---------

Electrical and Electronics (0 1%)
Motorola, Inc., 0.00%,
09/27/13 ................... 1,000,000 763,750
National Semiconductor
Corp.(b), 6.50%,
10/01/02 ................... 4,650,000 4,312,875
Seagate Technology,
Inc., 6.75%, 05/01/12 ...... 1,860,000 2,180,850
---------
7,257,475
---------

Financial Services (0.1%)
Mitsubishi Bank, 3.00%,
11/30/02 ................... 1,680,000 1,943,592
Old Republic International,
5.75%, 08/15/02 ............ 1,415,000 1,938,550
---------
3,882,142
---------

Health Services (0.0%)
Integrated Health Services,
5.75%, 01/01/01 ............ 930,000 925,350
---------

Household Products (0.0%)
Fieldcrest Cannon, Inc.,
6.00%, 03/15/12 ............ 450,000 307,125
---------

Insurance (0.1%)
Horace Mann Educators
Corp., 6.50%, 12/01/99 ..... 930,000 953,250
NAC Re Corp.(b), 5.25%,
12/15/02 ................... 930,000 930,000
---------
1,883,250
---------

Machinery and Equipment (0.1%)
AGCO Corp., 6.50%,
06/01/08 ................... 1,260,000 4,959,940
Lam Research Corp., 6.00%,
05/01/03 ................... 232,000 462,840
---------
5,422,780
---------

Media and Entertainment (0.0%)
Carnival Corp., 4.50%,
07/01/97 ................... 680,000 986,000
---------

Metals and Mining (0.1%)
Agnico-Eagle Mines
Ltd., 3.50%, 01/27/04 ...... 2,900,000 2,465,461
Allegheny Ludlum Corp.,
5.875%, 03/15/02 ........... 930,000 962,921
Battle Mountain Gold
Co., 6.00%, 01/04/05 ....... 500,000 412,500
---------
3,840,882
---------

Oil and Gas (0.2%)
Apache Corp.(b), 6.00%,
01/15/02 ................... 1,470,000 1,675,800
Baker Hughes, Inc.,
0.00%, 05/05/08 ............ 9,975,000 6,422,916
Consolidated Natural
Gas Co., 7.25%,
12/15/15 ................... 950,000 983,250
Pennzoil Co., 4.75%,
10/01/03 ................... 1,000,000 1,008,750
Pogo Producing, 5.50%,
03/15/04 ................... 1,395,000 1,886,738
---------
11,977,454
---------

See Notes to Portfolio of Investments.

<PAGE>

Aetna Variable Fund
Portfolio of Investments - December 31, 1995 (continued)
- ---------------------------------------------------------
Number of Market
Shares Value
------- -------

Pharmaceuticals (0.0%)
Bindley Western, 6.50%,
10/01/02 ................... $ 930,000 $ 963,713
---------

Pollution Control (0.1%)
Browning-Ferris
Industries, Inc.,
6.75%, 07/18/05 ............ 2,850,000 2,857,125
---------

Printing and Publishing (0.1%)
Omnicom Group(b),
4.50%, 09/01/00 ............ 1,395,000 1,879,763
---------

Retail (0.1%)
Costco Wholesale Inc., ....... 2,225,000 2,147,234
5.75%, 05/15/02
Hechinger Co., 5.50%, ........ 1,500,000 701,250
04/01/12
Office Depot, Inc., .......... 1,100,000 759,000
0.00%, 12/11/07
Proffitt's Inc., 4.75%,
11/01/03 ................... 1,860,000 1,618,200
---------
5,225,684
---------

Telecommunications (0.0%)
Aspect Telecommunications(b),
5.00%, 10/15/03 ............ 930,000 1,660,050
---------

Transportation (0.0%)
AMR Corp., 6.125%,
11/01/24 ................... 930,000 976,128
---------

Utilities - Electric (0.0%)
California Energy Co.,
Inc.(b), 5.00%, 07/31/00 ... 950,000 957,125
Potomac Electric Power, 7.00%,
01/15/18 ..................... 750,000 766,875
---------
1,724,000
Total Corporate Bonds - Convertible
(cost $49,824,523) ......... $54,799,985
---------

U.S. Government Obligations (0.3%)

U.S. Treasury Note(e),
5.125%, 03/31/96............ 900,000 899,859
U.S. Treasury Note(c),
9.25%, 01/15/96............. 3,500,000 13,524,705
---------
Total U.S. Government
Obligations (cost
$14,413,401) ............... $14,424,564
---------
Total Long Term Bonds and
Notes (cost $64,237,924) .. $69,224,549
---------

Short-Term Investments (3.6%)
Abbey National North
America, Comm. Paper,
6.15%, 01/02/96 ........... 25,000,000 25,000,000
Detroit Edison Co.,
Corp. Note, 6.15%,
01/02/96 .................. 17,000,000 17,000,000
General American
Transportation Corp.,
Comm. Paper, 6.05%,
01/12/96 .................. 1,790,000 1,786,992
General Motors
Acceptance Corp.,
Corp. Note, 6.00%,
01/02/96 .................. 33,581,000 33,581,000
IBM Corp., Comm. Paper,
5.95%, 01/03/96 ........... 25,000,000 24,995,868
Public Service Co. of
Colorado, Comm ............
Paper, 6.05%, 01/02/96 .... 9,400,000 9,377,336
Sundstrand Corp., Comm ......
Paper, 6.05%, 01/02/96 .... 39,152,000 39,152,000
TCI Communications,
Inc., Comm. Paper,
6.20%, 01/22/96 ........... 10,000,000 9,965,556
TCI Communications,
Inc., Comm. Paper,
6.38%, 01/09/96 ........... 10,000,000 9,987,594
TCI Communications,
Inc., Comm. Paper,
6.25%, 01/17/96 ........... 9,000,000 8,976,563
Texas Utilities
Electric Co., Comm ........
Paper, 6.30%, 01/05/96 .... 10,000,000 9,994,750
USL Capital Corp.,
Comm. Paper, 6.00%,
01/04/96 .................. 15,000,000 14,995,000
Total Short-Term
Investments
(cost $204,812,657) ....... $ 204,812,659
---------
TOTAL INVESTMENTS ........... $5,625,615,241
(cost $4,327,246,475)(a)
Other assets less
liabilities ............... 35,891,365
---------
Total Net Assets
$5,661,506,606
==============

Notes to Portfolio of Investments
Category percentages are based on net assets.
+Non-income producing security.

(a) The cost of investments for federal income tax purposes amounted to
$4,333,946,215. Unrealized gains and losses, based on identified tax cost at
December 31, 1995 are as follows:

Unrealized gains ....... $1,374,418,711
Unrealized losses ...... (82,749,685)
--------------
Net unrealized gain... $1,291,669,026
==============

(b) Securities that may be resold to "qualified institutional buyers" under rule
144A or securities offered pursuant to Section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines determined by the Board of Trustees.

(c) At December 31, 1995, U.S. Treasury Note, 9.25%, 01/15/96, principal amount
$13,500,000, was pledged to cover margin requirements for open futures
contracts (see Note 1of Notes to Financial Statements). Information concerning
open futures contracts is shown below:

No. of
Long Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
---------- ---------- -------- -----------
All Ordinaries Share
Price Index Futures ....... 260 $10,895,697 March 96 $(53,635)
TSE 35 Index Futures ........ 28 2,562,109 March 96 (23,103)
German DAX Index Futures .... 133 21,202,534 March 96 (104,206)
Topix Index Futures ......... 105 15,598,908 March 96 698,076
Hang Seng Index Futures ..... 59 3,820,4456 March 96 47,044
CAC 40 Stock Index Futures .. 128 9,550,652 March 96 202,045
FTSE 100 Index Futures ...... 50 7,659,894 March 96 (7,452)
--------
$758,769
========

(d) Represents an installment purchase. Remaining amounts to be paid are
$950,241 on February 6, 1996 and $744,133 on September 17, 1996. Future
commitment is collateralized by a U.S. Treasury Note 5.125%, 03/31/96,
principal amount $900,000.

(e) Security segregated as collateral for installment purchase.

See Notes to Financial Statements.

<PAGE>

Aetna Income Shares
Portfolio of Investments - December 31, 1995
- ---------------------------------------------

Principal Market
Amount Value
-------- ------

LONG TERM BONDS AND NOTES (81.3%)
U.S. Government and Agency
Obligations (31.9%)

Agency Mortgage-Backed Securities (6.7%)
Federal Home Loan
Mortgage Corp.
206-B, 2.24%, 07/15/19 ...... $ 1,771,737 $ 1,729,658
Federal National
Mortgage Association,
5.99%, 06/25/19 ........... 2,140,681 1,953,007
Government National
Mortgage Association,
7.50%, 03/15/24 -
10/15/25 .................. 9,665,249 9,949,167
Government National
Mortgage Association,
10.00%, 10/15/09 -
01/15/21 .................. 13,637,980 14,993,250
Government National
Mortgage Association,
10.50%, 02/15/13 -
01/15/21 .................. 14,275,261 15,863,377
Government National
Mortgage Association,
11.00%, 02/15/10 .......... 39,439 44,073
Government National
Mortgage Association,
11.25%, 12/15/15 .......... 88,289 99,214
--------------
44,631,746
--------------

U.S. Agencies (2.9%)
Small Business
Administration 92-20K,
7.55%, 11/01/12 ........... 9,748,247 10,116,731
Student Loan Marketing
Association, 7.82%,
10/14/99 .................. 9,000,000 9,137,610
--------------
19,254,341
--------------

U.S. Treasuries (22.3%)
U.S. Treasury Bond,
5.75%, 08/15/03 ........... 25,000,000 25,308,562
U.S. Treasury Bond,
5.875%, 02/15/04 .......... 20,000,000 20,428,050
U.S. Treasury Bond,
7.25%, 05/15/16 ........... 20,000,00 22,843,649
U.S. Treasury Bond,
7.625%, 02/15/25 .......... 10,000,000 12,229,663
U.S. Treasury Bond,
10.375%, 11/15/12 ......... 15,000,000 20,739,843
U.S. Treasury Note,
6.875%, 03/31/00 -
07/31/99 .................. 45,000,000 47,430,561
--------------
148,980,328
--------------

Total U.S. Government and Agency Obligations
(cost $203,978,001) ... $212,866,415
--------------
Corporate Bonds (44.2%)

Financial Services (14.2%)
American General,
8.125%, 08/15/09 .......... 10,000,000 11,526,850
Associates Corp., 7.95%,
02/15/10 .................. 15,000,000 17,112,374
Capital One Bank,
8.625%, 01/15/97 .......... 5,000,000 5,142,000
Chemical Bank, 6.625%,
01/15/98 .................. 10,000,000 10,202,500
Dean Witter, Discover &
Co., 6.00%, 03/01/98 ........ 6,000,000 6,056,250
Ford Motor Credit Corp.,
FRN, 6.588%, 06/02/98 ..... 7,000,000 7,022,540
Ford Motor Credit Corp.,
FRN, 6.188%, 02/22/99 ..... 15,000,000 14,966,100
General Electric Capital
Corp., 8.625%, 06/15/08 ... 10,000,000 12,106,550
General Electric Capital
Corp., 7.96%, 02/02/98 ... 10,000,000 10,513,000
--------------
94,648,164
--------------

Foreign and Supranationals (12.6%)
African Development
Bank, 8.80%, 09/01/19 ..... $ 11,650,000 $ 14,778,491
Banco Nacional de
Comercia Exterior,
S.N.C., 7.25%, 02/02/04 ... 5,000,000 3,896,875
Bank of China, 6.75%,
03/15/99 .................. 5,000,000 5,081,275
Bank of China, 8.25%,
03/15/14 .................. 5,000,000 4,980,375
China International
Trust, 9.00%, 10/15/06 ... 10,000,000 11,393,050
Interamerican
Development Bank,
12.25%, 12/15/08 .......... 4,000,000 6,168,800
International Bank For
Reconstruction and
Development, 9.25%,
07/15/17 .................. 11,000,000 14,635,500
Korean Development Bank,
9.25%, 06/15/98 ........... 5,000,000 5,365,875
Quebec Province, 7.125%,
02/09/24 .................. 5,000,000 5,043,450
Republic of Argentina,
10.95%, 11/01/99 .......... 3,000,000 3,215,625
Rogers Cablesystem,
10.00%, 03/15/05 .......... 8,500,000 9,158,750
--------------
83,718,066
--------------

Other Corporate Bonds (17.4%)
Alliance Entertainment,
11.25%, 07/15/05 .......... 5,000,000 5,050,000
Bruno's Inc., 10.50%,
08/01/05 .................. 5,000,000 4,962,500
Columbia/HCA Healthcare,
6.91%, 06/15/05 ........... 9,000,000 9,435,375
Georgia-Pacific Corp.,
9.50%, 12/01/11 ............. 10,500,000 12,996,323
Grand Casinos Inc.,
10.125%, 12/01/03 ......... 5,100,000 5,361,375
MGM Grand Hotel, 12.00%,
05/01/02 .................. 8,000,000 8,790,000
News America Holdings
Inc., 9.25%, 02/01/13 ..... 10,000,000 11,805,550
Paramount Communications
Inc., 7.50%, 07/15/23 ..... 11,500,000 11,114,060
Ralph's Grocery, 10.45%,
06/15/04 .................. 5,000,000 5,087,500
Stone Container Corp.,
9.875%, 02/01/01 .......... 4,500,000 4,387,500
Telewest Plc, 11.00%,
10/01/07 .................. 6,850,000 4,144,250
Tenet Healthcare Corp.,
9.625%, 09/01/02 .......... 6,220,000 6,849,775
Time Warner
Entertainment, 9.625%,
05/01/02 .................. 5,000,000 5,798,850
Time Warner, Inc.,
7.45%, 02/01/98 ........... 7,000,000 7,198,380
TRW Inc., 9.35%, 06/04/20 ... 10,000,000 13,353,300
--------------
116,334,738
--------------
Total Corporate Bonds
(cost 274,961,401) .... $294,700,968
--------------
Non-Agency Mortgage-Backed Securities (3.3%)

Asset-Backed Securities (3.3%)
Chase Mortgage Finance,
6.75%, 11/25/09 ........... 10,915,000 10,950,815
First Chicago Master
Trust 94I-a, 6.045%,
01/15/99 .................. 8,000,000 8,012,160
Security Pacific
National Bank, 8.50%,
09/01/16 .................. 353,601 358,734
Security Pacific
National Bank, 8.50%,
03/01/17 .................. 2,905,132 2,883,343
--------------
22,205,052
--------------
Total Non-Agency
Mortgage-Backed
Securities
(cost $21,873,230) ........ $ 22,205,052
--------------

See Notes to Portfolio of Investments.

<PAGE>

Aetna Income Shares
Portfolio of Investments - December 31, 1995 (continued)
- ----------------------------------------------------------

Principal Market
Amount Value
-------- ------

Corporate Bonds - Convertible (1.0%)

Foreign and Supranationals (1.0%)
Petronas Gas Bhd(b),
7.125%, 08/15/05 .......... $ 6,000,000 $ 6,363,750
--------------
Total Corporate Bonds -
Convertible
(cost $5,968,675) ......... $ 6,363,750
--------------
Corporate Notes (0.9%)

Foreign and Supranationals (0.9%)
Swire Pacific, Ltd(b),
8.50%, 09/29/04 ........... 5,500,000 6,047,937
--------------
Total Corporate Notes
(cost $5,491,192) ........... $ 6,047,937
--------------
Total Long Term
Bonds and Notes
(cost $512,272,499) ....... $ 542,184,122
--------------

Number of Market
Shares Value
------- -------
COMMON STOCKS (0.6%)

Banks (0.6%)
CITICORP .................... 60,370 4,059,883
--------------
Total Common Stocks
(cost $3,040,516) ......... $ 4,059,883
--------------

Principal Market
Amount Value
-------- ------
Short-Term Investments (16.5%)
Detroit Edison Co.,
Corp. Note, 6.15%,
01/02/96 .................. $ 20,000,000 $ 20,000,000
Mapco, Inc., Corp. Note,
6.375%, 01/19/96 .......... 10,000,000 9,969,896
Public Service Co. of
Colorado, Comm. Paper,
6.05%, 01/02/96 ........... 10,000,000 9,975,889
Sears Roebuck Acceptance
Corp., Comm. Paper,
6.00%, 01/05/96 ........... 15,000,000 14,992,500
Source One Mortgage
Services Corp., Comm ......
Paper, 6.15%, 01/09/96 ... 10,000,000 9,988,042
Sundstrand Corp., Comm ......
Paper, 6.05%, 01/02/96 ... 27,353,000 27,353,000
TCI Communications,
Inc., Comm. Paper,
6.20%, 01/22/96 ........... 9,500,000 9,498,316
TCI Communications,
Inc., Comm. Paper,
6.38%, 01/09/96 ........... 8,000,000 7,990,076
--------------
Total Short-Term
Investments
(cost $109,767,719) ....... $ 109,767,719
--------------
TOTAL
INVESTMENTS ............... $ 656,011,724
(cost $625,080,734)(a)
Other assets less
liabilities ............... 10,948,765
--------------
Total Net Assets
$ 666,960,489
==============

Notes to Portfolio of Investments

Category percentages are based on net assets.

(a) The cost of investments for federal income tax purposes amount to
$625,730,151. Unrealized gains and losses, based on identified tax cost at
December 31, 1995 are as follows:

Unrealized gains ........ $31,064,363
Unrealized losses ....... (782,790)
===========
Net unrealized gain.... $30,281,573
===========

(b) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to section 4(2) of the Securities Act
of 1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Trustees
.

See Notes to Financial Statements.

<PAGE>

Aetna Variable Encore Fund
Portfolio of Investments - December 31, 1995
- -----------------------------------------------------------

Principal Market
Amount Value
-------- ------

Asset-Backed Securities (3.9%)
Bridgestone/Firestone
Master Trust, Inc.(b),
5.80%, 02/20/96 ........... $ 4,000,000 $ 4,000,000
Dakota Certificates -
Standard Credit Card
Master Trust 1(b),
5.71%, 02/09/96 ........... 7,000,000 6,957,809
Dakota Certificates -
Standard Credit Card
Master Trust 1(b),
5.73%, 01/17/96 ........... 2,000,000 1,995,225
Dakota Certificates -
Standard Credit Card
Master Trust 1(b),
6.05%, 01/04/96 ........... 3,000,000 2,998,992
Dakota Certificates -
Standard Credit Card
Master Trust 1(b),
6.05%, 01/05/96 ........... 2,654,000 2,652,662
Ford Credit Auto Lease,
6.00%, 05/15/96 ........... 1,528,234 1,528,234
--------------
Total Asset-Backed
Securities ................ $ 20,132,922
--------------
Certificates of Deposit (1.9%)

Deutsche Bank AG, 5.98%,
07/15/96 .................... 10,000,000 10,017,400
--------------
Total Certificates of
Deposit ................... $ 10,017,400
--------------
Commercial Paper - Domestic (28.3%)
A.H. Robins Co.,
Inc.(b), 5.70%,
02/07/96 .................. 5,000,000 4,971,500
American Home Products
Corp.(b), 5.55%,
03/26/96 .................. 5,500,000 5,426,685
American Honda Finance
Corp., 5.62%, 04/18/96 ... 3,500,000 3,440,955
American Honda Finance
Corp., 5.65%, 04/22/96 ... 2,000,000 1,965,040
American Honda Finance
Corp., 5.67%, 03/14/96 ... 2,000,000 1,976,480
American Honda Finance
Corp., 5.68%, 03/14/96 ... 3,000,000 2,964,720
Central & Southwest
Corp., 5.75%, 02/13/96 ... 7,300,000 7,251,029
Central & Southwest
Corp., 5.80%, 02/21/96 ... 10,000,000 9,919,444
Ciesco, L.P., 5.90%,
01/03/96 .................. 3,000,000 2,983,521
Cooper Industries, Inc.,
6.00%, 01/02/96 ........... 10,228,000 10,221,181
Cooperative Association
of Tractor Dealers,
Inc., 5.65%, 03/12/96 ..... 1,500,000 1,482,975
Cooperative Association
of Tractor Dealers,
Inc., 5.72%, 02/15/96 ..... 4,000,000 3,972,036
Cooperative Association
of Tractor Dealers,
Inc., 5.72%, 02/28/96 ..... 700,000 693,427
Cooperative Association
of Tractor Dealers,
Inc., 5.75%, 02/08/96 ..... 1,000,000 994,090
Cooperative Association
of Tractor Dealers,
Inc., 5.80%, 01/12/96 ..... 1,000,000 998,389
Cooperative Association
of Tractor Dealers,
Inc., 6.00%, 01/02/96 ..... 14,300,000 14,290,467
Cooperative Association
of Tractor Dealers,
Inc., 6.05%, 01/05/96 ..... 3,000,000 2,972,280
Corporate Asset Funding
Co., Inc., 5.65%,
01/30/96 .................. 2,000,000 1,991,211
Corporate Asset Funding
Co., Inc., 5.65%,
02/15/96 .................. 2,000,000 1,986,189
Corporate Asset Funding
Co., Inc., 6.10%,
01/11/96 .................. 4,000,000 3,993,900
Countrywide Funding
Corp., 5.80%, 02/14/96 ... 8,500,000 8,441,114
Countrywide Funding
Corp., 6.00%, 01/22/96 ... $ 6,000,000 $ 5,980,000
Dealers Capital Access
Trust, Inc., 5.65%,
03/11/96 .................. 2,000,000 1,977,400
Dealers Capital Access
Trust, Inc., 5.70%,
03/05/96 .................. 1,800,000 1,781,334
Dealers Capital Access
Trust, Inc., 5.95%,
01/12/96 .................. 1,600,000 1,597,356
Finova Capital Corp.,
6.10%, 01/03/96 ........... 700,000 696,788
Fleetwood Credit
Corp.(b), 5.80%,
01/24/96 .................. 3,750,000 3,736,708
Fleetwood Credit
Corp.(b), 5.80%,
01/25/96 .................. 4,000,000 3,985,178
Fleetwood Credit Corp.,
5.85%, 01/04/96 ........... 3,000,000 2,988,979
Norwest Financial, Inc.,
5.65%, 02/16/96 ........... 1,000,000 992,938
PSE&G Fuel Corp., 5.85%,
01/18/96 .................. 5,271,000 5,257,295
Sears Roebuck Acceptance
Corp., 6.00%, 01/05/96 ... 8,000,000 7,990,667
Sheffield Receivables
Corp., 5.65%, 02/26/96 ... 4,000,000 3,965,472
Source One Mortgage
Services Corp., 6.15%,
01/09/96 .................. 1,500,000 1,494,363
Source One Mortgage
Services Corp., 6.20%,
01/02/96 .................. 3,500,000 3,497,589
Textron Financial Corp.,
6.00%, 01/08/96 ........... 570,000 569,430
Whirlpool Financial
Corp., 5.72%, 02/05/96 ... 6,000,000 5,967,587
--------------
Total Commercial Paper -
Domestic .................. $ 145,415,717
--------------
Commercial Paper - Foreign (7.2%)
Abbey National North
America, 6.15%,
01/02/96 .................. 3,000,000 3,000,000
British Columbia
(Province of), 5.60%,
03/18/96 .................. 3,200,000 3,160,960
British Columbia
(Province of), 5.60%,
04/12/96 .................. 1,600,000 1,574,752
Export Import Bank of
Korea, 7.85%, 11/01/96 ... 7,525,000 7,661,654
Ford Capital B.V.,
9.00%, 06/01/96 ........... 1,550,000 1,570,600
Government Development
Bank of Puerto Rico,
Mato Rey, 5.80%,
01/19/96 .................. 1,905,000 1,898,555
Government Development
Bank of Puerto Rico,
Mato Rey, 5.80%,
01/31/96 .................. 4,000,000 3,981,311
Skandinaviska Enskilda
Banken Funding, Inc.,
5.76%, 01/16/96 ........... 5,000,000 4,988,800
Svenska Handelsbanken,
Inc., 5.64%, 02/29/96 ..... 4,800,000 4,753,920
Svenska Handelsbanken,
Inc., 5.68%, 02/14/96 ..... 4,500,000 4,469,470
--------------
Total Commercial Paper -
Foreign ................... $ 37,060,022
--------------
Corporate Notes (24.4%)
Bank One, Dayton, N.A.,
5.95%, 10/02/96 ........... 23,600,000 23,600,000
Carco Auto Loan Trust,
5.925%, 11/15/98 .......... 15,500,000 15,551,150
Caterpillar Financial
Services Corp., 5.83%,
07/29/96 .................. 7,000,000 7,000,000
Caterpillar Inc.,
9.125%, 12/15/96 .......... 600,000 619,500
Chrysler Financial
Corp., 6.00%, 04/15/96 ... 1,000,000 1,000,340
Chrysler Financial
Corp., 6.25%, 11/15/96 ... 9,000,000 9,018,000
Columbia/HCA Healthcare
Corp., 5.812%, 07/28/97 ... 4,200,000 4,200,000

See Notes to Portfolio of Investments.

<PAGE>

Aetna Variable Encore Fund
Portfolio of Investments - December 31, 1995 (continued)
- --------------------------------------------------------

Principal Market
Amount Value
-------- ------
Corporate Asset Funding
Co., Inc.(b), 5.841%,
12/02/96 .................. $ 9,000,000 $ 9,000,000
FNB Boston Corp., 6.00%,
05/10/96 .................. 4,000,000 4,005,840
General Motors
Acceptance Corp.,
6.00%, 01/02/96 ........... 2,400,000 2,400,240
General Motors
Acceptance Corp.,
8.625%, 07/15/96 .......... 1,000,000 1,015,810
General Motors
Acceptance Corp.,
8.75%, 02/01/96 ........... 3,500,000 3,503,932
Greyhound Financial
Corp., 6.195%, 02/15/96 ... 4,400,000 4,400,273
Greyhound Financial
Corp., 6.195%, 02/15/96 ... 17,000,000 17,002,317
Hertz Corp., 9.125%,
08/01/96 .................. 1,800,000 1,836,000
Sears Roebuck & Co.,
8.55%, 08/01/96 ........... 1,000,000 1,016,890
Weyerhauser Co., 8.40%,
05/17/96 .................. 20,000,000 20,200,000
--------------
Total Corporate Notes
$ 125,370,292
--------------
Medium Term Notes (24.9%)
American Honda Finance
Corp.(b), 5.959%,
08/01/96 .................. 9,000,000 8,999,010
AT&T Capital Corp.,
7.87%, 07/01/96 ........... 6,000,000 6,069,420
Chrysler Financial
Corp., 7.13%, 09/30/96 .... 900,000 909,837
Dean Witter, Discover &
Co., 5.81%, 09/29/96 ...... 3,000,000 3,002,970
Deere (John) Capital
Corp., 5.929%, 03/11/96 ... 16,750,000 16,695,562
Discover Credit Corp.,
8.92%, 03/15/96 ........... 10,160,000 10,236,199
Fleetwood Credit
Corp.(b), 6.153%,
02/08/96 .................. 6,000,000 6,000,969
Ford Motor Credit Co.,
5.00%, 03/25/96 ........... 3,100,000 3,095,381
Ford Motor Credit Co.,
8.95%, 06/14/96 ........... 1,000,000 1,014,310
Ford Motor Credit Co.,
9.00%, 07/26/96 ........... 1,180,000 1,202,090
Ford Motor Credit Co.,
9.10%, 06/10/96 ........... 3,400,000 3,447,634
Ford Motor Credit Co.,
9.20%, 07/16/96 ........... 500,000 508,965
General Electric Capital
Corp., 5.90%, 01/10/96 .... 10,000,000 9,999,955
General Motors
Acceptance Corp.,
5.805%, 04/13/98 .......... 10,500,000 10,507,602
General Motors
Acceptance Corp.,
6.187%, 04/22/96 .......... 3,350,000 3,366,750
GMAC Australia Finance,
6.082%, 12/06/96 .......... 4,000,000 4,004,696
PACCAR Financial Corp.,
5.83%, 09/20/96 ........... 9,000,000 9,010,080
Potomac Capital
Investment Corp.(b),
6.32%, 02/16/96 ........... 5,000,000 5,001,563
Sears DC Corp., 8.92%,
03/15/96 .................. 1,000,000 1,005,840
Shawmut Bank of
Connecticut, 5.895%,
05/10/96 ...... 24,000,000 24,028,799
--------------
Total Medium Term Notes ..... $ 128,107,632
--------------
U.S. Government Agency
Obligations (10.1%)
Federal Farm Credit
Bank, 5.60%, 04/24/96 ..... 12,000,000 11,993,531
Federal Home Loan Bank,
5.90%, 04/27/98 ........... 20,000,000 19,960,000
Federal National
Mortgage Association,
6.34%, 02/18/97 ........... 10,000,000 10,022,000
Student Loan Marketing
Association, FRN,
5.95%, 01/21/97 ........... 10,000,000 10,012,500
--------------
Total U.S. Government
Agency Obligations
$ 51,988,031
--------------
TOTAL INVESTMENTS
(cost $517,984,607)(a) $ 518,092,016

Other assets less
liabilities ............... (4,055,413)
--------------
Total Net Assets
$ 514,036,603
==============

Notes to Portfolio of Investments

Category percentages are based on net assets.

(a) The cost of investments for federal income tax purposes are identical.
Unrealized gains and losses, based on identified tax cost at December 31,
1995 are as follows:

Unrealized gains ........ $225,013
Unrealized losses ....... (117,604)
========
Net unrealized gain.... $107,409
========

See Notes to Financial Statements.
<PAGE>

Aetna Investment Advisers Fund, Inc
Portfolio of Investments - December 31, 1995
- ---------------------------------------------

Number of Market
Shares Value
------- -------
COMMON STOCKS (62.4%)

Aerospace and Defense (0.6%)
Kaman Corp. Class A ......... 26,000 $ 289,250
Lockheed Martin Corp. ....... 400 31,600
McDonnell-Douglas Corp. ..... 74,900 6,890,799
--------------
7,211,649
--------------

Apparel and Cosmetics (1.2%)
Block Drug Co. Class A ...... 2,472 85,902
Burlington Industries,
Inc.+ ..................... 33,500 439,688
Helene Curtis
Industries, Inc. .......... 10,900 344,713
Herbalife
International, Inc. ....... 1,900 16,388
Maybelline, Inc. ............ 43,200 1,566,000
Nike, Inc. .................. 133,000 9,260,124
Oshkosh B'Gosh, Inc. ........ 25,000 437,500
St. John Knits, Inc. ........ 5,400 286,875
TJX Companies, Inc. (The) ... 102,400 1,932,800
Unifirst Corp. .............. 5,900 106,200
--------------
14,476,190
--------------

Autos and Auto Equipment (0.5%)
Borg Warner Automotive,Inc. . 4,700 150,400
Excel Industries, Inc. ...... 8,300 116,200
Kaydon Corp. ................ 15,000 455,625
PACCAR, Inc. ................ 30,000 1,263,750
Smith (A.O.) Corp. .......... 24,000 498,000
Snap On, Inc. ............... 40,000 1,810,000
Varity Corp.+ ............... 40,000 1,485,000
Wynn's International, Inc. .. 3,400 100,725
--------------
5,879,700
--------------

Banks (3.6%)
Associated Banc-Corp ........ 1,750 71,641
Bank of New York Co., Inc. .. 20,223 985,871
Bankers First Corp. ......... 5,600 156,100
BanPonce Corp. .............. 5,100 197,625
BayBanks, Inc. .............. 7,000 687,750
CCB Financial Corp. ......... 9,100 505,050
Charter One Financial, Inc. . 11,400 349,125
Chemical Banking Corp. ...... 125,100 7,349,624
Citizens Bancorp ............ 11,500 370,875
City National Corp. ......... 112,200 1,570,800
Comerica, Inc. .............. 27,500 1,103,438
Community Bank System, Inc. . 2,600 83,200
Compass Bancshares, Inc. .... 9,400 310,200
Cullen/Frost
Bankers, Inc. ............. 31,800 1,590,000
FFY Financial Corp. ......... 2,000 42,000
First American
Corp. (Tenn.) ............. 16,400 776,950
First Chicago Corp. ......... 169,778 6,706,230
First Commonwealth
Financial Corp. ........... 4,100 71,750
First Empire State Corp. .... 3,500 763,000
First of America Bank
Corp ...................... 30,200 1,340,125
Fulton Financial Corp. ...... 3,400 70,550
KeyCorp ..................... 13,400 485,750
Liberty Bancorp, Inc. ....... 10,200 379,950

Banks (continued)
Mark Twain Bancshares,
Inc ....................... 900 $ 34,875
N.S. Bancorp, Inc. .......... 5,700 220,875
Nations Bank, Inc. .......... 100,400 6,990,349
North Side Savings Bank ..... 17,600 536,800
PNC Bancorp ................. 3,800 249,375
Provident Bancorp ........... 6,400 300,800
Queens County Bancorp,
Inc ....................... 29,600 1,171,050
Reliance Bancorp, Inc. ...... 32,000 468,000
River Forest Bancorp,
Inc ....................... 8,200 209,100
Roosevelt Financial
Group, Inc. ............... 37,700 730,438
Security Capital Corp. ...... 6,200 373,550
Silicon Valley
Bancshares+ ............... 10,600 254,400
Standard Federal
Bancorporation ............ 23,900 941,063
Standard
Financial, Inc.+ .......... 43,900 642,038
Star Banc Corp. ............. 10,900 648,550
Susquehanna Bancshares,
Inc ....................... 1,400 37,100
Trans Financial, Inc. ....... 11,600 207,350
Trustmark Corp. ............. 5,600 127,400
Union Bank .................. 17,600 954,800
Usbancorp, Inc. ............. 2,700 89,100
Webster Financial Corp. ..... 6,200 182,900
Zion Bancorporation ......... 18,500 1,484,625
--------------
42,822,142
--------------

Building Materials and Construction (1.6%)
American Buildings Co.+ .... 24,600 553,500
Ameron, Inc. ................ 5,200 195,650
Beazer Homes USA, Inc.+ .... 41,500 855,938
Butler Manufacturing Co. .... 13,900 545,575
Centex Corp. ................ 90,900 3,158,775
Champion Enterprises, Inc.+ . 75,300 2,324,888
Continental Homes
Holding Corp. ............. 37,100 913,588
Elcor Corp. ................. 12,100 263,175
Granite
Construction, Inc. ........ 59,100 1,861,650
Jacobs Engineering
Group, Inc.+ .............. 4,800 120,000
Lennar Corp. ................ 36,600 919,575
Lone Star Industries ........ 6,000 150,000
MDC Holdings, Inc. .......... 18,400 131,100
NCI Building Systems, Inc.+ . 8,200 202,950
NVR, Inc.+ .................. 32,700 327,000
Pulte Corp. ................. 71,400 2,400,825
Redman Industries, Inc.+ .... 5,100 172,125
Stone and Webster, Inc. ..... 17,400 624,225
Texas Industries, Inc. ...... 25,800 1,367,400
Toll Brothers, Inc.+ ........ 11,100 255,300
Tredegar Industries, Inc. ... 5,000 162,500
U S Home Corp.+ ............. 24,100 701,913
Webb (Del E.) Corp. ......... 17,600 354,200
WHX Corp.+ .................. 75,700 823,238
--------------
19,385,090
--------------

Chemicals (1.1%)
ARCO Chemical Co. ........... 10,800 525,150
Dexter Corp. ................ 18,400 434,700

See Notes to Portfolio of Investments.

<PAGE>

Aetna Investment Advisers Fund, Inc
Portfolio of Investments - December 31, 1995 (continued)
- --------------------------------------------------------

Number of Market
Shares Value
------- -------

Chemicals (continued)
Dow Chemical Co. ............ 74,100 $ 5,214,788
Eastman Chemical Co. ........ 43,200 2,705,400
Geon Co. (The) .............. 11,900 290,063
Goodrich (B.F.) Co. ......... 8,900 606,313
Learonal, Inc. .............. 14,100 324,300
Lyondell Petrochemical Co. .. 45,800 1,047,675
Praxair, Inc. ............... 28,200 948,225
Synalloy Corp. .............. 3,600 76,050
Wellman, Inc. ............... 36,000 819,000
--------------
12,991,664
--------------

Commercial Services (0.5%)
Affiliated Computer
Services, Inc.+ ........... 3,000 112,500
Devry, Inc.+ ................ 22,900 618,300
GATX Corp. .................. 21,700 1,055,163
Health Management
Systems, Inc.+ ............ 14,200 553,800
Interim Services, Inc.+ .... 13,000 451,750
Jenny Craig, Inc.+ .......... 8,500 83,938
Kindercare Learning
Centers, Inc.+ ............ 16,000 202,000
Measurex Corp. .............. 30,300 855,975
Robert Half
International, Inc.+ ...... 13,200 552,750
Terra Industries, Inc. ...... 67,900 959,088
--------------
5,445,264
--------------

Computer Software (3.0%)
Acxiom Corp.+ ............... 13,500 369,563
Analysts International
Corp ...................... 5,600 168,000
Applix, Inc.+ ............... 77,000 2,098,250
Boole and Babbage, Inc.+ .... 3,450 84,525
Cadence Design Systems, Inc.+ 47,900 2,011,800
Cheyenne Software, Inc.+ .... 6,000 156,750
Cisco Systems, Inc.+ ........ 112,300 8,380,387
Computer Associates
International, Inc. ....... 39,900 2,269,313
Computer Horizons Corp.+ .... 14,400 547,200
Computer Sciences Corp.+ .... 80,200 5,634,050
Computer Task Group, Inc .... 24,300 479,925
Comshare, Inc.+ ............. 22,950 596,700
Datastream Systems,
Inc.+ ..................... 38,200 725,800
Diamond Multimedia
Systems, Inc.+ ............ 41,900 1,503,163
Henry (Jack) and
Associates ................ 18,600 460,350
Hogan Systems, Inc.+ ........ 35,400 482,325
Hyperion Software Corp.+ .... 9,800 208,250
Inso Corp.+ ................. 5,000 212,500
Keane, Inc.+ ................ 16,200 358,425
Kronos, Inc.+ ............... 5,100 242,250
Macneal-Schwendler Corp. .... 6,900 110,400
Microsoft Corp.+ ............ 42,600 3,738,150
National Instruments
Corp.+ .................... 6,900 139,725
PHAMIS, Inc.+ ............... 9,200 273,700
Phoenix Technologies
Ltd.+ ..................... 45,200 711,900
Pinnacle Systems, Inc.+ .... 6,300 155,925
Project Software and
Development, Inc.+ ........ 23,300 812,588
Shiva Corp.+ ................ 1,900 138,225
Softdesk, Inc.+ ............. 5,200 102,700

Computer Software (continued)
SPSS, Inc.+ ................. 21,300 $ 415,350
Structural Dynamics
Research Corp.+ ........... 50,800 1,492,250
Sungard Data Systems,
Inc.+ ..................... 12,200 347,700
Triad Systems Corp.+ ........ 22,700 139,038
--------------
35,567,177
--------------

Computers and Office Equipment (2.8%)
American Business
Products, Inc. ............ 6,800 193,800
Bay Networks, Inc.+ ......... 27,400 1,126,825
Cabletron Systems, Inc.+ .... 10,900 882,900
Ceridian Corp.+ ............. 43,100 1,777,875
Comdisco, Inc. .............. 34,700 785,088
Compaq Computer Corp.+ ...... 70,000 3,360,000
Computervision Corp.+ ....... 98,600 1,515,975
Dell Computer Corp.+ ........ 32,700 1,132,238
Harris Corp. ................ 30,000 1,638,750
In Focus Systems, Inc.+ .... 65,700 2,373,413
International Business
Machines, Inc. ............ 7,600 697,300
Komag, Inc.+ ................ 9,000 415,125
Moore Corp., Ltd. ........... 125,000 2,328,125
New England Business
Service, Inc. ............. 5,000 109,375
Optical Data Systems, Inc.+ . 11,900 300,475
Read-Rite Corp.+ ............ 109,900 2,555,175
Standard Register Co. ....... 20,800 418,600
Sun Microsystems, Inc.+ ..... 139,600 6,369,249
Xerox Corp. ................. 38,100 5,219,700
--------------
33,199,988
--------------

Consumer Products (1.1%)
Eastman Kodak Co. ........... 132,600 8,884,199
Liz Claiborne, Inc. ......... 141,700 3,932,175
--------------
12,816,374
--------------

Diversified (1.3%)
Astec Industries, Inc.+ .... 6,800 67,150
Dover Corp. ................. 172,400 6,357,249
Harsco Corp. ................ 22,900 1,331,063
Johnson Controls, Inc. ...... 15,000 1,031,250
Katy Industries ............. 15,000 138,750
Opal, Inc.+ ................. 11,700 149,175
Standex International
Corp ...................... 4,900 160,475
Textron, Inc. ............... 60,000 4,050,000
Varlen Corp. ................ 30,300 651,450
VF Corp. .................... 42,000 2,215,500
--------------
16,152,062
--------------

Electrical and Electronics (2.5%)
Applied Materials, Inc.+ .... 30,000 1,181,250
BMC Industries, Inc. ........ 80,500 1,871,625
CTS Corporation ............. 5,200 196,300
Cypress Semiconductor
Corp.+ .................... 49,500 631,125
Dallas Semiconductor
Corp ...................... 18,800 390,100
Dovatron International,
Inc.+ ..................... 18,000 607,500
Esterline Technologies+ .... 43,800 1,034,775
Glenayre Technologies,
Inc.+ ..................... 12,750 793,688

See Notes to Portfolio of Investments.

<PAGE>

Aetna Investment Advisers Fund, Inc
Portfolio of Investments - December 31, 1995 (continued)
- --------------------------------------------------------
Number of Market
Shares Value
------- -------
Electrical and Electronics (continued)
Hewlett Packard Co. ......... 78,400 $ 6,565,999
Intel Corp. ................. 8,800 499,400
Logicon, Inc. ............... 7,600 209,000
Maxim Integrated
Products, Inc.+ ........... 29,500 1,135,750
Micron Technology, Inc. ..... 106,100 4,204,213
National Service
Industries, Inc. .......... 28,500 922,688
Pioneer Standard
Electronics ............... 2,950 39,088
Quickturn Design
System, Inc.+ ............. 30,800 308,000
Ramtron International
Corp.+ .................... 8,600 55,900
Rogers Corp.+ ............... 2,000 43,500
Seagate
Technology, Inc.+ ......... 24,100 1,144,750
Siliconix, Inc.+ ............ 5,600 207,200
Sterling Electronics
Corp.+ .................... 7,400 126,725
Tencor Instruments+ ......... 37,600 916,500
Texas Instruments, Inc. ..... 96,800 5,009,400
Triquint Semiconductor,
Inc.+ ..................... 32,100 433,350
Ultratech Stepper, Inc.+ .... 12,800 329,600
Unitrode Corp.+ ............. 16,900 477,425
Wyle Electronics ............ 4,100 144,013
--------------
29,478,864
--------------
Electrical Equipment (2.3%)
ADflex Solutions, Inc.+ .... 11,000 294,250
Avnet, Inc. ................. 17,400 778,650
Burr-Brown Corp.+ ........... 18,150 462,825
C-Cube Microsystems,
Inc.+ ..................... 22,200 1,387,500
Dionex Corp.+ ............... 1,800 102,150
Fluke Corp. ................. 36,500 1,377,875
Fore Systems, Inc.+ ......... 18,900 1,124,550
General Electric Co. ........ 118,600 8,539,199
International Rectifier
Corp.+ .................... 63,000 1,575,000
Kemet Corp.+ ................ 46,600 1,112,575
Kent Electronics Corp.+ .... 31,800 1,856,325
Marshall Industries+ ........ 5,600 179,900
Mentor Graphics Corp.+ ...... 54,400 992,800
Merix Corp.+ ................ 13,900 417,000
Methode Electronics,
Inc. Class A .............. 23,800 339,150
Park Electrochemical Corp. .. 58,900 1,943,700
Raychem Corp. ............... 60,700 3,452,313
Sundstrand Corp. ............ 8,500 598,188
Tektronix, Inc. ............. 5,200 255,450
Teradyne, Inc.+ ............. 36,700 917,500
Valmont Industries .......... 4,600 113,850
--------------
27,820,750
--------------
Financial Services (2.8%)
Advanta Corp. Class A ....... 15,800 604,350
Alex Brown and Sons, Inc. ... 25,700 1,079,400
Astoria Financial Corp. ..... 41,700 1,902,563
ATandT Capital Corp. ........ 7,500 286,875
Bear Stearns Co., Inc. ...... 13,300 264,338
BHC Financial, Inc. ......... 8,200 147,600
Commercial Federal Corp. .... 4,800 181,200
Crestar Financial Corp. ..... 16,000 946,000

Financial Services (continued)
Deposit Guaranty Corp. ...... 30,400 $ 1,352,800
Federal National
Mortgage Association ...... 35,000 4,344,375
Great Financial Corp. ....... 46,600 1,095,100
Greenpoint
Financial Corp. ........... 20,500 548,375
Home Financial Corp. ........ 34,300 531,650
Household
International, Inc. ....... 21,300 1,259,363
Leader Financial Corp. ...... 39,800 1,487,525
Merrill Lynch and
Co., Inc. ................. 30,000 1,530,000
Morgan Keegan, Inc. ......... 15,900 200,738
Patlex Corp.+ ............... 2,625 38,719
Peoples Heritage
Financial Group ........... 16,500 375,375
Phoenix Duff and Phelps
Corp ...................... 17,700 121,688
RCSB Financial, Inc. ........ 18,500 439,375
TR Financial Corp. .......... 21,500 548,250
Transamerica Corp. .......... 53,400 3,891,525
Travelers, Inc. ............. 160,000 10,059,999
Union Planters Corp. ........ 22,700 723,563
--------------
33,960,746
--------------
Foods and Beverages (2.7%)
Cagle's, Inc. ............... 3,500 49,000
Campbell Soup Co. ........... 42,600 2,556,000
Coca-Cola Co. ............... 74,800 5,553,900
CPC International, Inc. ..... 3,200 219,600
Goodmark Foods, Inc. ........ 3,700 65,675
Heinz (H.J.) Co. ............ 45,000 1,490,625
Hometown Buffet, Inc.+ ...... 10,400 115,050
Hormel Foods Corp. .......... 21,800 536,825
Hudson Foods, Inc.
Class A ................... 18,700 322,575
IBP, Inc. ................... 23,500 1,186,750
International
Multifoods Corp. .......... 45,200 909,650
Kroger Co. (The)+ ........... 15,000 562,500
Mondavi (Robert) Corp.+ .... 20,800 574,600
Nash-Finch Co. .............. 6,600 120,450
PepsiCo, Inc. ............... 140,000 7,822,499
Quaker Oats Co. ............. 70,600 2,435,700
Safeway, Inc.+ .............. 14,900 767,350
Sara Lee Corp. .............. 135,100 4,306,313
Smith's Food and Drug
Centers, Inc. ............. 65,300 1,648,825
Supervalu, Inc. ............. 11,300 355,950
Universal Foods Corp. ....... 8,400 337,050
--------------
31,936,887
--------------
Health Services (0.6%)
Genetics Institute, Inc.+ ... 17,800 952,300
Laboratory Corp. of
America+ .................. 67,900 636,563
Lincare Holdings, Inc.+ .... 56,600 1,415,000
Nellcor, Inc.+ .............. 27,172 1,575,976
NovaCare, Inc.+ ............. 44,600 228,575
Prime Medical Services,
Inc.+ ..................... 9,500 85,500
RightCHOICE Managed
Care, Inc.+ ............... 13,600 176,800
Universal Health
Services, Inc.+ ........... 40,900 1,814,938
Wellpoint Health
Networks, Inc.+ ........... 27,000 867,375
--------------
7,753,027
--------------

See Notes to Portfolio of Investments.

<PAGE>

Aetna Investment Advisers Fund, Inc
Portfolio of Investments - December 31, 1995 (continued)
- --------------------------------------------------------

Number of Market
Shares Value
------- -------
Health Technology (0.0%)
Spacelabs Medical, Inc.+ .... 6,400 $ 184,000
Sybron International
Corp.+ .................... 10,400 247,000
--------------
431,000
--------------

Home Furnishings and Appliances (0.0%)

Kimball International,
Inc. Class B .............. 7,000 176,750
Oneida, Ltd. ................ 8,600 151,575
--------------
328,325
--------------

Hotels and Restaurants (1.3%)
Lone Star Steakhouse
and Saloon+ ............... 23,200 890,300
Marcus Corp. ................ 10,400 284,700
Marriott International, Inc. 92,400 3,534,300
McDonald's Corp. ............ 177,000 7,987,124
Prime Hospitality Corp.+ .... 44,200 442,000
Promus Hotel Corp.+ ......... 47,700 1,061,325
Rio Hotel and Casino, Inc.+ . 47,000 558,125
Rock Bottom
Restaurants, Inc.+ ........ 21,000 273,000
--------------
15,030,874
--------------

Household Products (0.1%)
Premark International, Inc. . 5,000 253,125
Springs Industries,
Inc. Class A .............. 8,400 347,550
Toro Co. .................... 20,800 683,800
--------------
1,284,475
--------------

Insurance (2.5%)
Allied Group, Inc. .......... 26,400 950,400
Allmerica Property and
Casualty Cos., Inc. ....... 40,200 1,085,400
Allstate Corp. .............. 162,478 6,681,907
American Bankers
Insurance Group ........... 27,000 1,053,000
American National
Insurance Co. ............. 3,700 246,050
Capital RE Corp. ............ 3,700 113,775
Commerce Group, Inc. ........ 19,800 408,375
Conseco, Inc. ............... 16,700 1,045,838
Financial Security
Assurance Holdings Ltd. ... 2,821 70,165
Foremost Corp. of America ... 4,000 203,000
Fremont General Corp. ....... 48,800 1,793,400
Fund American
Enterprises, Inc. ......... 4,600 342,700
Healthwise of America,
Inc.+ ..................... 34,800 1,357,200
Home Beneficial Corp.
Class B ................... 2,400 57,600
Horace Mann Educators
Corp ...................... 2,400 57,600
Lawyers Title Corp. ......... 3,700 70,763
Loews Corp. ................. 6,000 470,250
Maxicare Health Plans,
Inc.+ ..................... 40,000 1,075,000
Mercury General Corp. ....... 12,000 573,000
MMI Cos., Inc. .............. 3,000 72,000
Old Republic
International Corp. ....... 31,500 1,118,250
Orion Capital Corp. ......... 21,300 923,888
Presidential Life Corp. ..... 12,200 120,475
Pxre Corp. .................. 15,000 397,500
Reinsurance Group of
America ................... 22,000 805,750
Safeco Corp. ................ 100,000 3,450,000
Security-Connecticut
Corp ...................... 17,900 485,538
Selective Insurance
Group ..................... 17,700 628,350

Insurance (continued)
Transatlantic Holdings,
Inc ....................... 8,700 $ 638,363
Transnational Re Corp.
Class A ................... 20,500 502,250
Transport
Holdings, Inc.+ ........... 600 24,450
Vesta Insurance Group, Inc. . 19,500 1,062,750
Washington National Corp. ... 15,900 439,238
--------------
29,547,875
--------------

Machinery and Equipment (1.3%)
Acme-Cleveland Corp. ........ 8,600 161,250
Barnes Group, Inc. .......... 6,500 234,000
Bearings, Inc. .............. 6,400 187,200
Blount, Inc. Class A ........ 36,000 945,000
Brunswick Corp. ............. 115,400 2,769,600
Central Sprinkler Corp.+ .... 8,500 301,750
Cooper Cameron Corp.+ ....... 26,300 933,650
Fluor Corp. ................. 20,400 1,346,400
FSI International, Inc.+ .... 59,100 1,196,775
Global Industrial
Technologies, Inc.+ ....... 14,100 266,138
Graco, Inc. ................. 9,800 298,900
Hughes Supply, Inc. ......... 15,900 449,175
IDEX Corp. .................. 4,000 163,000
Illinois Tool
Works, Inc. ............... 45,000 2,655,000
JLG Industries, Inc. ........ 39,900 1,187,025
Lam Research Corp.+ ......... 10,000 457,500
Lindsay Manufacturing Co.+ .. 5,300 204,050
Oceaneering
International, Inc.+ ...... 22,200 285,825
Raymond Corp. (The)+ ........ 11,810 268,678
Regal Beloit ................ 46,200 1,004,850
Zero Corp. .................. 6,900 122,475
--------------
15,438,241
--------------

Media and Entertainment (0.8%)
AMC Entertainment+ .......... 35,500 829,813
Callaway Golf Co. ........... 47,200 1,067,900
Carmike Cinemas Class A+ .... 8,400 189,000
Chris-Craft
Industries, Inc.+ ......... 11,700 506,025
Gtech Holdings Corp.+ ....... 56,900 1,479,400
King World Production,
Inc.+ ..................... 107,000 4,159,625
Media General, Inc. ......... 20,300 616,613
Mirage Resorts, Inc.+ ....... 14,800 510,600
Regal Cinemas, Inc.+ ........ 2,400 71,400
--------------
9,430,376
--------------

Medical Supplies (1.5%)
Coherent, Inc.+ ............. 30,200 1,223,100
Cordis Corp.+ ............... 13,100 1,316,550
Daig Corp.+ ................. 11,800 271,400
Guidant Corp. ............... 71,363 3,015,087
Haemonetics Corp.+ .......... 44,000 781,000
Life Technologies, Inc. ..... 8,000 218,000
McKesson Corp. .............. 9,100 460,688
MediSense, Inc.+ ............ 35,500 1,122,688
Medtronic, Inc. ............. 113,600 6,347,399
North American
Biologicals, Inc.+ ........ 62,700 674,025

See Notes to Portfolio of Investments.

<PAGE>

Aetna Investment Advisers Fund, Inc
Portfolio of Investments - December 31, 1995 (continued)
- --------------------------------------------------------

Number of Market
Shares Value
------- -------
Medical Supplies (continued)
Respironics, Inc.+ .......... 9,300 $ 195,300
Sola International,
Inc.+ ..................... 56,600 1,429,150
Utah Medical Products,
Inc.+ ..................... 14,800 293,225
Vital Signs, Inc. ........... 37,700 994,338
--------------
18,341,950
--------------

Metals and Mining (1.6%)
AK Steel Holding Corp. ...... 14,000 479,500
Alumax, Inc.+ ............... 16,300 499,188
Aluminum Co. of America ..... 47,200 2,495,700
Asarco, Inc. ................ 27,800 889,600
Ashland Coal, Inc. .......... 3,100 66,263
Carpenter Technology Corp. .. 23,400 962,325
Castle (A.M.) and Co. ....... 16,800 472,500
Cleveland-Cliffs, Inc. ...... 2,300 94,300
Commonwealth Aluminum Corp. . 4,000 62,000
Cyprus Amax Minerals Co. 116,600 3,046,175
Handy and Harman ............ 28,700 473,550
J & L Specilty
Steel, Inc. ............... 36,700 688,125
MAF Bancorp, Inc. ........... 5,900 147,500
Magma Copper Co.+ ........... 30,300 844,613
Mueller
Industries, Inc.+ ......... 48,000 1,404,000
Phelps Dodge Corp. .......... 98,000 6,100,500
Zeigler Coal Holding Co. .... 28,600 396,825
--------------
19,122,664
--------------

Oil and Gas (6.2%)
Amoco Corp. ................. 13,409 963,774
Atlantic Richfield Co. ...... 4,900 542,675
Berry Petroleum Co. ......... 19,300 195,413
Box Energy Corp. Class
B+ ........................ 19,800 170,775
Camco International,
Inc ....................... 7,200 201,600
Chesapeake Energy Corp.+ .... 16,950 563,588
Coda Energy, Inc.+ .......... 19,000 141,313
Columbia Gas System,
Inc.+ ..................... 9,300 408,038
Devon Energy Corp. .......... 8,600 219,300
Diamond Shamrock, Inc. ...... 25,500 659,813
El Paso Natural Gas Co. ..... 34,200 970,425
Enron Oil and Gas Co. ....... 2,700 64,800
Exxon Corp. ................. 191,000 15,303,874
Fina, Inc. Class A .......... 2,500 126,250
Halliburton Co. ............. 132,900 6,728,062
Leviathan Gas Pipeline
Partners L. P ............. 43,500 1,234,313
Mobil Corp. ................. 106,000 11,871,999
NGC Corp. ................... 40,600 360,325
NUI Corp. ................... 19,000 332,500
Oneok, Inc. ................. 34,200 782,325
Panhandle Eastern Corp. ..... 36,200 1,009,075
Pride Petroleum
Services, Inc.+ ........... 119,400 1,268,625
Royal Dutch Petroleum
Co ........................ 113,000 15,947,124
Smith
International, Inc.+ ...... 63,000 1,480,500
Sonat Offshore Drilling Co. . 57,700 2,582,075
Sun Company, Inc. ........... 73,100 2,001,113

Oil and Gas (continued)
Tesoro Petroleum Corp.+ .... 60,900 $ 525,263
Texaco, Inc. ................ 88,500 6,947,249
Tide West Oil Co.+ .......... 9,000 120,375
Wiser Oil Co. ............... 21,100 253,200
--------------
73,975,761
--------------

Paper and Containers (1.1%)
ACX Technologies, Inc.+ .... 9,200 139,150
Champion International
Corp ...................... 69,900 2,935,800
Chesapeake Corp. ............ 35,000 1,036,875
Consolidated
Papers, Inc. .............. 14,100 791,363
Mead Corp. .................. 100,000 5,225,000
Mercer International,
Inc.+ ..................... 42,800 877,400
Rayoner, Inc. ............... 21,800 727,575
Temple-Inland, Inc. ......... 800 35,300
Willamette Industries,
Inc ....................... 14,900 838,125
--------------
12,606,588
--------------

Pharmaceuticals (5.7%)
Abbott Laboratories ......... 70,100 2,926,675
Alliance Pharmaceutical+ .... 13,500 183,938
American Home Products
Corp ...................... 106,800 10,359,599
Autoimmune, Inc.+ ........... 38,400 432,000
Barr Laboratories, Inc.+ .... 5,400 160,650
Becton, Dickinson
and Co. ................... 117,400 8,804,999
Bristol-Myers Squibb Co. .... 142,800 12,262,949
COR Therapeutics, Inc.+ .... 39,800 333,325
ICN Pharmaceuticals,
Inc ....................... 35,539 684,121
Immulogic
Pharmaceutical Corp.+ .... 23,100 444,675
Immunex Corp.+ .............. 4,300 70,950
Johnson & Johnson ........... 165,400 14,162,374
Jones Medical
Industries, Inc. .......... 29,000 699,625
Merck and Co., Inc. ......... 60,200 3,958,150
Pfizer, Inc. ................ 33,000 2,079,000
R.P. Scherer Corp.+ ......... 28,900 1,419,713
Rhone-Poulenc Rorer,
Inc ....................... 12,700 676,275
Schering Plough ............. 97,600 5,343,600
Vical, Inc.+ ................ 26,500 321,313
Watson Pharmaceuticals,
Inc.+ ..................... 47,000 2,303,000
--------------
67,626,931
--------------

Printing and Publishing (0.5%)
American Media, Inc. ........ 32,000 136,000
Banta Corp. ................. 30,700 1,350,800
Cadmus Communications
Corp ...................... 32,100 866,700
Central Newspapers,
Inc. Class A ............. 21,500 674,563
Devon Group, Inc.+ .......... 13,600 395,250
Harte-Hanks
Communications ............ 12,000 237,000
New York Times Co. .......... 23,600 699,150
Pulitzer Publishing Co. ..... 6,300 300,825
Scholastic Corp.+ ........... 10,000 777,500
Washington Post Co. ......... 2,000 564,000
--------------
6,001,788
--------------

See Notes to Portfolio of Investments.

<PAGE>

Aetna Investment Advisers Fund, Inc
Portfolio of Investments - December 31, 1995 (continued)
- --------------------------------------------------------

Number of Market
Shares Value
------- -------
Real Estate Investment Trusts (0.0%)
Santa Anita Realty
Enterprises, Inc. ......... 2,300 $ 27,313
Smith (Charles E.)
Residential Realty Co. .... 5,900 139,388
--------------
166,701
--------------

Retail (0.9%)
Carson Pirie Scott and Co.+ . 31,800 632,025
Claire's Stores, Inc. ....... 33,200 585,150
Designs, Inc.+ .............. 5,400 37,800
Egghead, Inc.+ .............. 17,100 110,081
Fay's Drug Co. .............. 43,200 324,000
Friedman's, Inc. Class A+ ... 12,100 232,925
General Host Corp.+ ......... 59,500 238,000
Hannaford Brothers Co. ...... 5,500 135,438
Hills Stores Co.+ ........... 6,400 63,200
Mercantile Stores Co., Inc. . 18,000 832,500
Proffitt's, Inc.+ ........... 8,500 223,125
Rex Stores Corp.+ ........... 10,000 177,500
Riser Foods, Inc. Class A ... 5,400 87,075
Ross Stores, Inc. ........... 38,900 743,963
Ruddick Corp. ............... 29,600 340,400
Russ Berrie and Co. Inc. .... 8,000 101,000
Sears, Roebuck and Co. ...... 115,000 4,485,000
Waban, Inc.+ ................ 37,600 705,000
Wal-Mart Stores, Inc. ....... 42,100 941,988
Weis Markets, Inc. .......... 5,000 141,250
--------------
11,137,420
--------------

Specialty Consumer Durables (0.2%)
Bio-Rad Labs, Inc. ..........
Class A+ .................. 3,400 144,500
Fusion Systems Corp.+ ....... 24,400 683,200
Polaris Industries, Inc. .... 60,000 1,762,500
Superior Surgical
Manufacturing Co. ......... 9,100 86,450
--------------
2,676,650
--------------

Telecommunications (1.4%)
Ameritech Corp. ............. 93,000 5,487,000
Ascend Communications,
Inc.+ ..................... 13,300 1,078,963
ATandT Corp. ................ 99,900 6,468,524
Cascade Communications
Corp.+ .................... 13,200 1,125,300
Case Corp. .................. 22,200 1,015,650
Harmonic Lightwaves,
Inc.+ ..................... 8,800 96,800
Holophane Corp.+ ............ 16,650 362,138
Lincoln
Telecommunications Co. .... 8,800 185,900
U.S. Robotics Corp.+ ........ 6,700 587,925
--------------
16,408,200
--------------

Transportation (0.9%)
Alaska Air Group, Inc.+ .... 7,300 118,625
American President Cos Ltd .. 40,600 933,800
AMR Corp.+ .................. 52,500 3,898,125
Comair Holdings, Inc. ....... 57,000 1,531,875
Expeditors
International of
Washington, Inc. .......... 9,800 256,025
Florida East Coast
Industries, Inc. .......... 9,100 621,075
Hornbeck Offshore
Services, Inc.+ ........... 8,100 158,963

Transportation (continued)
M.S. Carriers, Inc.+ ........ 4,500 $ 90,000
Navistar International
Corp.+ .................... 88,500 929,250
PHH Corp. ................... 19,600 916,300
Rural/Metro Corp.+ .......... 9,100 205,888
UAL Corp.+ .................. 4,900 874,650
--------------
10,534,576
--------------

Utilities - Electric (4.2%)
Boston Edison Co. ........... 30,300 893,850
California Energy Co.,
Inc.+ ..................... 36,500 711,750
Centerior Energy Corp. ...... 33,200 294,650
Central Hudson Gas and
Electric Co. .............. 28,500 879,938
Central Louisiana
Electric .................. 7,000 188,125
Central Vermont Public
Service ................... 19,200 256,800
Cilcorp, Inc. ............... 19,100 809,363
Consolidated Edison Co.
of New York, Inc. ......... 90,000 2,880,000
Destec Energy, Inc.+ ........ 25,100 345,125
DQE, Inc. ................... 36,400 1,119,300
Entergy Corp. ............... 107,800 3,153,150
Florida Progress Corp. ...... 41,600 1,471,600
General Public
Utilities Corp. ........... 14,300 486,200
Green Mountain Power Corp. .. 7,400 205,350
Hawaiian Electric
Industries, Inc. .......... 8,800 341,000
Houston Industries, Inc. .... 36,000 873,000
IES Industries, Inc. ........ 16,200 429,300
Illinova Corp. .............. 51,100 1,533,000
Interstate Power Co. ........ 18,000 598,500
IPALCO Enterprises, Inc. .... 10,300 392,688
LGandE Corp. ................ 8,900 376,025
MDU Resources Group, Inc. ... 13,200 262,350
New England Electric System . 16,700 661,738
New York State Electric
and Gas Corp. ............. 54,100 1,399,838
Nipsco Industries, Inc. ..... 40,700 1,556,775
Northeast Utilities ......... 66,600 1,623,375
Northern States Power Co. ... 22,800 1,120,050
Northwestern Public
Service Co. ............... 11,000 308,000
Oklahoma Gas and
Electric Co. .............. 25,100 1,079,300
Orange and Rockland
Utilities, Inc. ........... 10,000 357,500
Peco Energy Co. ............. 4,700 141,588
Pinnacle West Capital Corp. . 54,200 1,558,250
Portland General Corp. ...... 31,000 902,875
Public Service Co.
of Colorado+ .............. 36,100 1,277,038
Rochester Gas and
Electric Corp. ............ 19,400 438,925
SCEcorp ..................... 352,400 6,255,100
Sierra Pacific Resources .... 76,500 1,788,188
Southwestern Public
Service Co. ............... 21,900 717,225
Texas Utilities Co. ......... 6,700 275,538
TNP Enterprises, Inc. ....... 31,800 596,250
Unicom Corp. ................ 209,100 6,848,024
United Illuminating Co. ..... 27,700 1,035,288
Western Resources, Inc. ..... 9,600 320,400
WPS Resources Corp. ......... 26,500 901,000
--------------
49,663,329
--------------

See Notes to Portfolio of Investments.

<PAGE>

Aetna Investment Advisers Fund, Inc
Portfolio of Investments - December 31, 1995 (continued)
- --------------------------------------------------------

Number of Market
Shares Value
------- -------
Utilities - Oil and Gas (1.2%)
Atlanta Gas Light Co. ....... 31,400 $ 620,150
Coastal Corp. (The) ......... 60,000 2,235,000
Connecticut Energy Corp. .... 10,000 222,500
Energen Corp. ............... 30,800 743,050
Indiana Energy, Inc. ........ 21,900 522,863
MCN Corp. ................... 45,400 1,055,550
New Jersey Resources Corp. .. 28,200 849,525
Northwest Natural Gas Co. ... 6,900 227,700
Pacific Enterprises ......... 59,400 1,678,050
Pennsylvania
Enterprises, Inc. ......... 13,500 511,313
Piedmont Natural Gas, Inc. .. 5,200 120,900
Public Service Co. of
North Carolina ............ 18,000 321,750
South Jersey
Industries, Inc. .......... 10,200 235,875
Southern Indiana Gas
and Electric Co. .......... 11,700 406,575
Washington Gas Light Co. .... 21,200 434,600
Wicor, Inc. ................. 29,600 954,600
Williams Cos., Inc. ......... 72,300 3,172,163
--------------
14,312,164
--------------

Utilities - Telephone (2.9%)
Bell Atlantic Corp. ......... 120,000 8,024,999
BellSouth Corp. ............. 161,600 7,029,599
GTE Corp. ................... 110,000 4,840,000
NYNEX Corp. ................. 39,900 2,154,600
SBC Communications, Inc. .... 59,900 3,444,250
Southern New England
Telecommunications Corp. .. 26,300 1,045,425
Sprint Corp. ................ 199,300 7,947,087
Tellabs, Inc.+ .............. 19,500 721,500
--------------
35,207,460
--------------

Utilities - Water (0.0%)
Philadelphia Suburban
Corp ...................... 6,300 130,725
Southern California
Water Co. ................. 6,300 127,575
--------------
258,300
--------------
Total Common
Stocks (cost $618,645,994). $ 746,429,222
--------------

PREFERRED STOCKS (1.8%)

Aerospace and Defense (0.3%)
Kaman Corp. ................. 74,562 $ 3,588,296
--------------

Banks (0.7%)
BankAmerica Corp. ........... 137,300 8,890,174
--------------

Chemicals (0.4%)
Union Carbide Corp. ......... 120,000 4,500,000
--------------

Electrical Equipment (0.4%)
FPL Group, Inc. ............. 107,500 4,985,313
--------------

Financial Services (0.0%)
Phoenix Duff and Phelps
Corp. ....................... 1,770 44,693
--------------

Total Preferred
Stocks
(cost $17,519,988) ........ $ 22,008,476
--------------

LONG TERM BONDS AND NOTES (27.5%)
Corporate Bonds (12.1%)
App International
Finance, 10.25%,
10/01/00 .................... 4,650,000 $ 4,626,750
App International
Finance, 11.75%,
10/01/05 .................... 6,500,000 6,402,499
African Development
Bank, 8.80%, 09/01/19 ....... 7,000,000 8,879,779
American General
Finance, 8.45%,
10/15/09 .................... 7,000,000 8,354,114
CMS Energy, 0.00%,
10/01/99 .................... 6,000,000 6,245,520
Centennial Cellular
Corp., 10.125%,
05/15/05 .................... 10,150,000 10,695,562
Continental Cablevision(b),
8.30%, 05/15/06 ............. 7,000,000 7,034,999
Exide Corp., 10.75%,
12/15/02 .................... 2,000,000 2,177,500
Exide Corp., 10.00%,
04/15/05 .................... 7,595,000 8,259,562
General Motors
Acceptance Corp.,
6.15%, 01/16/01 ............. 9,350,000 9,416,010
Grand Casinos Inc.,
10.125%, 12/01/03 ........... 1,400,000 1,471,750
News American Holdings,
8.50%, 02/23/25 ............. 9,300,000 10,797,392
Pitney Bowes Credit
Corp., 8.55%, 09/15/09 ...... 13,100,00 15,906,019
Pittston Co., 4.00%,
07/01/97 .................... 3,249,000 3,090,611
Ralph's Grocery,
10.45%, 06/15/04 ............ 10,000,000 10,174,999
Stone Container Corp.,
9.875%, 02/01/01 ............ 11,980,000 11,680,49
Telewest Plc, 11.00%,
10/01/07 .................... 14,850,000 8,984,249
Viacom, Inc., 8.00%,
07/07/06 .................... 10,000,000 10,187,499
--------------
Total Corporate Bonds
(cost $133,549,124) ......... $ 144,385,313
--------------
U.S. Government and Agency Obligations (10.2%)
Federal Home Loan
Mortgage Corp.,
6.00%, 11/15/08 ............. 8,200,000 7,956,377
U.S. Treasury Bond,
7.625%, 02/15/25 ............ 4,650,000 5,686,793
U.S. Treasury Note,
6.25%, 08/31/96 ............. 20,050,000 20,169,021
U.S. Treasury Note,
7.50%, 01/31/97 ............. 36,600,000 37,469,112
U.S. Treasury Note,
5.75%, 10/31/00 ............. 16,600,000 16,843,729
U.S. Treasury Strip,
5.82%, 05/15/04 ............. 54,000,000 33,987,559
--------------
Total U.S. Government and
Agency Obligations (cost
$118,524,772) ............... $ 122,112,591
--------------
Non-Agency Mortgage-Backed Securities (2.9%)
American Southwest
Financial Securities
Corp., 8.00%, 01/18/09 ...... 7,723,998 8,153,644
Chase Mortgage Finance,
6.75%, 11/25/09 ............. 5,000,000 5,016,406
Kidder Peabody
Acceptance Corp.,
6.50%, 11/25/25 ............. 5,000,000 4,926,563
Kidder Peabody
Acceptance Corp.,
8.80%, 04/01/07 ............. 5,000,000 5,539,063
Merrill Lynch Mortgage
Investors, Inc.,
7.795%, 06/15/21 ............ 10,474,943 10,808,831
--------------
Total Non-Agency Mortgage-Backed
Securities (cost
$31,628,543) ................ $ 34,444,507
--------------

See Notes to Portfolio of Investments.

<PAGE>

Aetna Investment Advisers Fund, Inc
Portfolio of Investments - December 31, 1995 (continued)
- --------------------------------------------------------

Principal Market
Amount Value
-------------- --------------

Foreign Obligations (1.0%)
Transportadora de Gas
de Sur, S.A., 7.75%,
12/23/98 .................... $ 4,600,000 $ 4,424,625
Poland Discount Bond,
7.125%, 10/27/24 ............ 10,000,000 7,549,999
--------------
Total Foreign Obligations
(cost $12,429,630) .......... $ 11,974,624
--------------
Corporate Notes (0.9%)
Swire Pacific, Ltd(b),
8.50%, 09/29/04 ............. 10,000,000 10,996,249
--------------
Total Corporate Notes
(cost $9,983,986) ........... $ 10,996,249
--------------
Corporate Bonds - Convertible (0.4%)
Aerospace and Defense (0.4%)
Kaman Corp., 6.00%,
03/15/12 .................... 6,275,000 5,145,500
--------------
Total Corporate Bonds - Convertible
(cost $4,310,202) ........... $ 5,145,500
--------------
Total Long Term Bonds and Notes
(cost $310,426,257) ......... $ 329,058,784
--------------
Short-Term Investments (6.4%)
Dealers Capital Access
Trust, Inc., Comm Paper,
5.65%, 03/11/96 ...... 10,000,000 9,996,639
Ford Motor Credit Co.,
Medium Term Notes,
5.00%, 03/25/96 ............. 42,868,000 42,868,000
Mid-Atlantic Fuel Co.,
Comm. Paper, 6.25%,
01/03/96 .................... 6,610,000 6,608,852
Sundstrand Corp., Comm
Paper, 6.05%, 01/02/96 ...... 5,031,000 5,031,000
Tenneco Inc., Comm
Paper, 6.45%, 01/08/96 ...... 10,000,000 9,989,250
U.S. Treasury Note,
Time Deposit, 9.25%,
01/15/96 .................... 2,000,000 2,003,660
--------------
Total Short-Term Investments
(cost $76,496,160) .......... $ 76,497,401
--------------
TOTAL INVESTMENTS
(cost
$1,023,088,399)(a) .......... $1,173,993,883
Other assets less
liabilities ................. 21,993,197
--------------
Total Net Assets ............ $1,195,987,080
==============

Notes to Portfolio of Investments

Category percentages are based on net assets.

+Non-income producing security.
(a) The cost of investments for federal income tax purposes amount to
$1,023,533,297. Unrealized gains and losses, based on identified tax cost at
December 31, 1995 are as follows:

Unrealized gains ....... $162,810,456
Unrealized losses ...... (12,349,870)
=========
Net unrealized gain... $150,460,586
=========
(b) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to section 4(2) of the Securities Act
of 1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Trustees.

See Notes to Financial Statements.

<PAGE>

Statements of Assets and Liabilities-December 31, 1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Aetna Aetna
Aetna Aetna Variable Investment
Variable Income Encore Advisers
Fund Shares Fund Fund, Inc.
--------- ---------- -------- -------------
<S> <C> <C> <C> <C>
Assets:
Investments, at market value (Note 1) .. $5,625,615,241 $656,011,724 $518,092,016 $1,173,993,883
Cash ................................... 535,257 -- 46,948 33,041
Cash denominated in foreign currencies . 3,960,054 -- -- --
Receivable for:
Dividends and interest .............. 10,604,251 10,161,902 4,169,334 7,255,433
Investments sold .................... 53,648,138 -- -- 15,036,915
Fund shares sold .................... 5,145 1,076,696 1,687,308 1,327,196
Recoverable taxes ................... 40,839 -- -- --
Gross unrealized gain on forward
foreign currency
exchange contracts (Note 6)....... 1,519,200 -- -- --
----------- ---------- ---------- -----------
Total assets ..................... 5,695,928,125 667,250,322 523,995,606 1,197,646,468
----------- ---------- ---------- -----------
Liabilities:
Payable for:
Cash overdraft ....................... -- 49,782 -- --
Dividends ............................ 186,007 -- -- --
Investments purchased ................ 4,797,025 -- 9,828,872 1,343,532
Fund shares redeemed ................. 27,367,904 6,613 -- --
Variation margin ..................... 187,177 -- -- --
Gross unrealized loss on forward
foreign currency exchange contracts 409,223 -- -- --
(Note 6) ............................
Accrued investment advisory fees ....... 1,239,311 144,406 110,457 259,737
Accrued administrative and service fees 163,441 18,012 10,479 28,670
Accrued custodian fees ................. 67,961 11,546 9,195 26,932
Other liabilities ...................... 3,470 59,474 -- 517
----------- ---------- ---------- -----------
Total liabilities ................ 34,421,519 289,833 9,959,003 1,659,388
----------- ---------- ---------- -----------
Net assets applicable to outstanding
shares ............................... $5,661,506,606 $666,960,489 $514,036,603 $1,195,987,080
============== ============ ============ ==============
Net assets represented by:
Paid-in capital ........................ $4,415,828,671 $649,822,576 $485,162,242 $959,579,062
Net unrealized gain..................... 1,300,188,239 30,930,990 107,409 150,905,484
Undistributed/(Distributions in excess
of) net investment income............... 13,766,310 (116,781) 28,830,703 1,726,572
Accumulated net realized gain (loss).... (68,276,614) (13,676,296) (63,751) 83,775,962
-------------- ------------- ------------ -------------
Total--representing net assets
applicable to outstanding
shares ......................... $5,661,506,606 $666,960,489 $514,036,603 $1,195,987,080
============== ============ ============ ==============

Par value .............................. $ 1.00 $ 1.00 $ 1.00 $ 0.001
Shares outstanding ..................... 194,850,885 51,297,679 38,656,540 82,469,336
Net asset value per share .............. $ 29.06 $ 13.00 $ 13.30 $ 14.50
Cost of investments .................... $4,327,246,475 $625,080,734 $517,984,607 $1,023,088,399
Cost of foreign currencies ............. $ 3,996,218 -- -- --
</TABLE>

See Notes to Financial Statements.

<PAGE>

Statements of Operations--Year Ended December 31, 1995
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Aetna Aetna
Aetna Aetna Variable Investment
Variable Income Encore Advisers
Fund Shares Fund Fund, Inc.
--------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Investment Income: (Note 1)
Interest ................................. $ 14,942,399 $ 44,108,048 $30,657,854 $29,055,521
Dividends ................................ 122,668,124 499,880 -- 16,607,313
-------------- ------------ ----------- ------------
137,610,523 44,607,928 30,657,854 45,662,834
Foreign taxes withheld ................... (1,384,488) -- -- (179,507)
-------------- ------------ ----------- ------------
Total investment income ............ 136,226,035 44,607,928 30,657,854 45,483,327
-------------- ------------ ----------- ------------
Expenses: (Note 2)
Investment advisory fee .................. 12,573,737 1,534,803 1,242,199 2,674,612
Administrative personnel and service fees 1,869,356 206,010 118,541 327,918
Custodian and transfer agent fees ........ 129,807 83,918 21,652 69,546
Trustees'/Directors' fees ................ 15,095 15,095 15,095 15,095
Audit fees ............................... 27,901 25,013 22,700 27,353
Miscellaneous ............................ 160,785 84,245 99,852 143,253
-------------- ------------ ----------- ------------
Total expenses ..................... 14,776,681 1,949,084 1,520,039 3,257,777
-------------- ------------ ----------- ------------
Net investment income..................... 121,449,354 42,658,844 29,137,815 42,225,550
-------------- ------------ ----------- ------------
Net Realized and Unrealized Gain (Loss): (Notes 1 and 3)
Net realized gain (loss) on:
Sale of investments .................... 608,181,649 5,369,075 (52,156) 98,063,466
Written options ........................ (142,053) -- -- --
Futures and forward foreign exchange 10,915,948 56,354 -- (10,223,135)
contracts .............................
Foreign currency related transactions .. (470,670) 123,002 -- 227,175
-------------- ------------ ----------- ------------
Net realized gain/(loss) on
investments....................... 618,484,874 5,548,431 (52,156) 88,067,506
-------------- ------------ ----------- ------------
Net change in unrealized gain (loss) on:
Investments ............................ 653,868,627 53,970,465 472,281 125,951,337
Futures and forward foreign exchange 1,868,745 -- -- --
contracts .............................
Foreign currency related transactions .. (49,272) -- -- --
-------------- ------------ ----------- ------------
Net change in unrealized gain on
investments....................... 655,688,100 53,970,465 472,281 125,951,337
-------------- ------------ ----------- ------------
Net realized and change in unrealized gain 1,274,172,974 59,518,896 420,125 214,018,843
-------------- ------------ ----------- ------------
Net increase in net assets resulting from
operations ............................. $1,395,622,328 $102,177,740 $29,557,940 $256,244,393
============== ============ =========== ============
</TABLE>

See Notes to Financial Statements.

<PAGE>

Statements of Changes in Net Assets - Years Ended December 31, 1995 and 1994
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Aetna Variable Fund Aetna Income Shares
------------------------ -----------------------
1995 1994 1995 1994
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Operations:
Net investment income..................... $ 121,449,354 $118,921,019 $42,658,844 $37,526,101
Net realized gain (loss)on investments.... 618,484,874 692,123,546 5,548,431 (14,516,626)
Net change in unrealized gain (loss)on
investments............................. 655,688,100 (854,769,952) 53,970,465 (47,425,831)
-------------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations ............. 1,395,622,328 (43,725,387) 102,177,740 (24,416,356)
-------------- ------------ ----------- -----------
Distributions to Shareholders: (Note 1)
From net investment income ............... (121,467,727) (119,240,804) (40,862,116) (37,526,100
In excess of net investment income ....... -- -- -- (908,894)
From net realized gains .................. (812,495,987) (573,117,509) -- --
-------------- ------------ ----------- -----------
Decrease in net assets from (933,963,714) (692,358,313) (40,862,116) (38,434,994)
distributions to shareholders .........
-------------- ------------ ----------- -----------
Share Transactions:
Proceeds from shares sold ................ 293,617,310 339,330,848 70,377,292 52,636,460
Net asset value of shares issued upon
reinvestment of distributions .......... 933,736,815 692,177,111 40,782,267 38,350,232
Payments for shares redeemed ............. (451,382,489) (859,162,291) (67,218,527) (107,860,652)
-------------- ------------ ----------- -----------
Net increase (decrease) in net assets
from share transactions ............... 775,971,636 172,345,668 43,941,032 (16,873,960)
-------------- ------------ ----------- -----------
Change in net assets ..................... 1,237,630,250 (563,738,032) 105,256,656 (79,725,310)
Net assets:
Beginning of year ........................ 4,423,876,356 4,987,614,385 61,703,833 641,429,143
-------------- ------------- ----------- -----------
End of year .............................. $5,661,506,606 $4,423,876,356 $666,960,489 $561,703,833
============== ============ =========== ===========

End of year net assets includes
undistributed (distributions in excess
of) net investment income .............. $ 13,766,310 $9,617,086 $(116,781) $(2,092,866)
============== ============ =========== ===========
Share Transactions
Shares sold .............................. 10,162,782 11,045,632 5,565,388 4,260,197
Shares issued upon reinvestment .......... 31,806,470 25,965,977 3,165,606 3,224,948
Shares redeemed .......................... (15,783,222) (27,976,805) (5,364,352) (8,698,147)
-------------- ------------- ----------- -----------
Net increase (decrease)................... 26,186,030 9,034,804 3,366,642 (1,213,002)
============== ============ =========== ===========
</TABLE>

See Notes to Financial Statements.

<PAGE>

Statements of Changes in Net Assets - Years Ended December 31, 1995 and 1994
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Aetna Variable Aetna Investment
Encore Fund Advisers Fund, Inc.
---------------------- ----------------------
1995 1994 1995 1994
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Operations:
Net investment income..................... $29,137,815 $17,683,948 $42,225,550 $ 36,334,686
Net realized gain (loss)on investments.... (52,156) -- 88,067,506 26,834,272
Net change in unrealized gain (loss)on
investments............................. 472,281 (404,280) 125,951,337 (66,993,020)
----------- ----------- ----------- ------------
Net increase (decrease) in net assets
resulting from operations ............. 29,557,940 17,279,668 256,244,393 (3,824,062)
----------- ----------- ----------- ------------
Distributions to Shareholders: (Note 1)
From net investment income ............... (385,007) (17,696,304) (52,754,265) (34,225,507)
From net realized gains .................. -- -- (25,336,005) (5,204,325)
----------- ----------- ----------- ------------
Decrease in net assets from
distributions to shareholders ......... (385,007) (17,696,304) (78,090,270) (39,429,832)
----------- ----------- ----------- ------------
Share Transactions:
Proceeds from shares sold ................ 245,248,012 338,351,549 74,184,396 118,669,062
Net asset value of shares issued upon
reinvestment of distributions .......... 385,007 17,696,304 78,090,270 39,429,832
Payments for shares redeemed ............. (243,808,588) (252,841,342) (92,449,914) (77,284,617)
----------- ----------- ----------- ------------
Net increase in net assets from share
transactions .......................... 1,824,431 103,206,511 59,824,752 80,814,277
----------- ----------- ----------- ------------
Change in net assets ..................... 30,997,364 102,789,875 237,978,875 37,560,383
Net assets:
Beginning of year ........................ 483,039,239 380,249,364 958,008,205 920,447,822
----------- ------------ ----------- ------------
End of year .............................. $514,036,603 $483,039,239 $1,195,987,088 $958,008,205
=========== ============ =========== ============

End of year net assets includes
undistributed net investment income .... $28,830,703 $ 66,300 $1,726,572 $ 11,804,800
=========== =========== =========== ============
Share Transactions
Shares sold .............................. 19,041,695 26,697,083 5,556,544 9,425,078
Shares issued upon reinvestment .......... 28,953 1,409,510 5,582,169 3,232,168
Shares redeemed .......................... (18,919,850) (19,935,586) (7,030,152) (6,216,426)
----------- ------------ ----------- ------------
Net increase.............................. 150,798 8,171,007 4,108,561 6,440,820
=========== =========== =========== ============
</TABLE>

See Notes to Financial Statements.

<PAGE>

Notes to Financial Statements
December 31, 1995

1. Summary of Significant Accounting Policies
Aetna Variable Fund (Variable Fund) is registered under the Investment Company
Act of 1940 as a diversified open-end management investment company whose shares
are currently sold to Aetna Life Insurance and Annuity Company ("Company"), an
Aetna Life Insurance Company Separate Account, and other shareholders of the
Variable Fund only through reinvestment of dividends. The Company's shares are
allocated to certain of its variable life/annuity accounts. The Company's
accounts and affiliates held 98% of the Variable Fund's shares outstanding at
December 31, 1995. The investment objective of Variable Fund is to maximize
total return through investments in a diversified portfolio of common stocks and
securities convertible into common stock.

Aetna Income Shares (Income Shares) is registered under the Investment Company
Act of 1940 as a diversified open-end management investment company whose shares
are currently sold to the Company for allocation to certain of its variable
life/annuity accounts and other shareholders of Income Shares only through
reinvestment of dividends. The Company's accounts and affiliates held 99% of
Income Shares' outstanding shares at December 31, 1995. The investment objective
of Income Shares is to maximize total return, consistent with reasonable risk,
through investments in a diversified portfolio consisting primarily of debt
securities.

Aetna Variable Encore Fund (Encore Fund) is registered under the Investment
Company Act of 1940 as a diversified open-end management investment company
organized by the Company to serve as an investment vehicle for certain of the
Company's variable life/annuity accounts. The Company's accounts held 100% of
Encore Fund's outstanding shares at December 31, 1995. The investment objective
of Encore Fund is to provide high current return, consistent with preservation
of capital and liquidity, through investment in high-quality money market
instruments.

Aetna Investment Advisers Fund, Inc. (Advisers Fund) is registered under the
Investment Company Act of 1940 as a diversified open-end management investment
company whose shares are currently sold to the Company for allocation to certain
of its variable life/annuity separate accounts. The separate accounts held 100%
of Advisers Fund's shares outstanding at December 31, 1995. The investment
objective of Advisers Fund is to produce the maximum investment return
consistent with reasonable safety of principal.

Variable Fund, Income Shares, Encore Fund, and Advisers Fund are referred to
individually as a "Fund", collectively the "Funds".

The accompanying financial statements of the Funds have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect amounts
reported therein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the Funds.

a. Valuation of Investments
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or, for over-the-counter
securities, at the mean of the bid and asked prices. Short-term investments
maturing in more than sixty days for which market quotations are readily
available are valued at current market value. Short-term investments maturing
in less than sixty days are valued at amortized cost which when combined with
accrued interest approximates market. Securities for which market quotations
are not considered to be readily available are valued in good faith using
methods approved by the Board of Trustees/Directors.

The accounting records of the Funds are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a
foreign currency are translated into U.S. dollars at the prevailing rates of
exchange at the end of the period. Purchases and sales of securities, income
receipts, and expense payments are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the transactions.

<PAGE>

1. Summary of Significant Accounting Policies (continued)

b. Option Contracts
The Funds may purchase put and call options and write covered call options as
a hedge against adverse movements in the value of portfolio holdings or to
increase market exposure.

Option contracts are valued daily. Unrealized gains or losses are recorded
based upon the last sales price on the principal exchange on which the option
is traded.

The Funds will realize a gain or loss upon the expiration or closing of the
option contract. When an option is exercised, the proceeds on sales for a
written call option, the purchase cost of the security for a written put
option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.

The risk in writing a call option is that the Funds give up the opportunity
for profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Funds may incur a
loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Funds pay a premium
whether or not the option is exercised. Risks may also arise from an illiquid
secondary market, or from the inability of counterparties to meet the terms
of the contract.

c. Futures and Foreign Currency Exchange Contracts
A futures contract is an agreement between two parties to buy and sell a
specific amount of a commodity, security or financial instrument including an
index of stocks at a set price on a future date. The Funds "sell" futures
contracts as a hedge against declines in the value of portfolio securities.
The Funds may also purchase futures contracts to gain market exposure as it
may be more cost effective than purchasing individual securities.

Upon entering into a futures contract, each Fund is required to deposit with
a broker, an amount (initial margin) equal to a percentage of the purchase
price indicated by the futures contract. Subsequent deposits (variation
margin) are received or paid each day by each Fund equal to the daily
fluctuations in the market value of the contract. These amounts are recorded
by each Fund as unrealized gains or losses. When a contract is closed, each
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it
was closed. Generally, futures contracts are closed prior to expiration.

A forward foreign currency exchange contract is an agreement to pay or
receive specific amounts of a currency at a future date in exchange for
another currency at an agreed upon exchange rate. The Funds may use forward
foreign currency exchange contracts to hedge certain foreign currency assets.
Contracts are recorded at market value and marked-to-market daily.

The risks associated with futures and forward foreign currency exchange
contracts may arise from an imperfect correlation between the change in
market value of the securities held by the Funds and the price of futures
contracts. Risks may also arise from an illiquid secondary market, or from
the inability of counterparties to meet the terms of the contract.

Realized and unrealized gains or losses on futures and foreign currency
exchange contracts are reflected in the accompanying financial statements.
For federal tax purposes, any futures and forward foreign currency exchange
contracts which remain open at the end of the fiscal year are
marked-to-market and the resultant net gain or loss is included in federal
taxable income.

<PAGE>

1. Summary of Significant Accounting Policies (continued)

d. Federal Income Taxes
As qualified regulated investment companies, the Funds are relieved of
federal income and excise taxes by distributing their net taxable investment
income and capital gains, if any, in compliance with the applicable
provisions of the Internal Revenue Code.

e. Distributions
The Funds distribute all net investment income and net capital gains, if any,
to shareholders semi-annually. Distributions from net investment income are
based on taxable net income. Distributions are recorded on the ex-dividend
date. Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency-related contracts and deferred losses on wash sales.

f. Other
Investment transactions are accounted for on the day following trade-date,
except same day settlements which are accounted for on the trade date.
Interest income is recorded on an accrual basis. Discounts and premiums on
securities purchased are amortized, using an effective yield method, over the
life of the respective security. Dividend income and stock splits are
recorded on the ex-dividend date. Realized gains and losses from investment
transactions are determined on an identified cost basis.

2. Investment Advisory Fee and Other Expenses
Each Fund pays the Company (its investment adviser) an investment advisory
fee at an annual rate of one-quarter of one percent (.25%) of its average
daily net assets.

In addition, the Funds have entered into a management agreement (Agreement)
with the Company. Under the Agreement, the Company is paid a fee for certain
administrative and personnel services incurred by the Funds. This fee is
equal to the direct costs incurred by the Company to administer the funds.
For the year ended December 31, 1995, each Fund paid the Company the
following administrative personnel and service fees:

Administrative
Personnel and
Service Fees
Aetna Variable Fund $1,869,356
Aetna Income Shares 206,010
Aetna Variable Encore Fund 118,541
Aetna Investment Advisers Fund, Inc. 327,918

Other than expenses specifically assumed by the Company under the Agreement,
all expenses incurred in the operation of the Fund are borne by the Fund.

3. Purchases and Sales of Investments
Purchases and sales of investment securities, excluding short-term
investments, for all Funds except Aetna Variable Encore Fund, a money market
fund, for the year ended December 31, 1995 were:

Cost of Proceeds from
Purchases Sales
-------------- --------------
Aetna Variable Fund $4,676,479,269 $4,621,060,432
Aetna Income Shares 603,648,415 600,896,809
Aetna Investment Advisers Fund, Inc. 1,436,109,752 1,421,202,594

<PAGE>

4. Capital Loss Carryforward
At December 31, 1995, for federal income tax purposes, Aetna Income Shares
and Aetna Variable Encore Fund had the following capital loss carryforwards
available to offset future long term capital gains of approximately:

Capital Loss Carryforward Year of Expiration
------------------------- ------------------
Aetna Income Shares $13,000,000 2002

Aetna Variable Encore Fund 64,000 2003

5. Options
The following reflects the Funds call and put option activity for the year
ended December 31, 1995:

Aetna Variable Fund

Put Options Purchased
---------------------------------------------
Number of
Option Premium Realized
Contracts Paid Gain (Loss)
--------- -------- ---------
Outstanding December 31, 1994 - $ - $ -
Purchased.................... 2,000 177,380 -
Closed....................... (1,472) (131,243) (95,916)

Expired...................... (528) (46,137) (46,137)
--------- -------- ---------
Outstanding December 31, 1995 - $ - $(142,053)
--------- -------- ---------
Aetna Investment Advisers Fund, Inc.

Call Options Written
---------------------------------------------
Number of Deferred
Option Premium Realized
Contracts Received Gain (Loss)
---------- --------- ----------
Outstanding December 31, 1994 - $ - $ -
24 610,160 -
Written.................... (24) (610,160) -
Exercised.................. - - -

Outstanding December 31, 1995 - $ - $ -
---------- --------- ----------
<PAGE>

6. Forward Foreign Currency Exchange Contracts
At December 31, 1995, Aetna Variable Fund had the following open forward
foreign currency exchange contracts that obligate the Fund to deliver
currencies at specified future dates. The unrealized gain of $1,109,977 on
these contracts is included in the accompanying financial statements. The
terms of the open contracts are as follows:

<TABLE>
<CAPTION>
Currency U.S. $Value Currency U.S. $Value
Exchange to be as of to be as of Unrealized
Date Delivered December 31, 1995 Received December 31, 1995 Gain (Loss)
---- --------- ----------------- -------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
2/9/96 7,136,000 $6,229,159 6,320,638 $6,320,638 $91,479
Swiss Franc U.S. Dollar
------------------------------------------------------------------------------------
2/9/96 642,570 642,570 752,000 656,436 13,866
U.S Dollar Swiss Franc
------------------------------------------------------------------------------------
1/3/96 2,289,000 413,111 410,289 410,289 (2,822)
Danish Krone U.S. Dollar
------------------------------------------------------------------------------------
4/18/96 13,130,000 2,374,820 2,353,637 2,353,637 (21,183)
Danish Krone U.S. Dollar
------------------------------------------------------------------------------------
1/3/96 1,851,000 2,879,076 2,850,984 2,850,984 (28,092)
British Pound U.S. Dollar
------------------------------------------------------------------------------------
3/1/96 1,489,752 1,489,752 968,000 1,500,574 10,822
U.S. Dollar British Pound
------------------------------------------------------------------------------------
6/14/96 15,116,000 23,380,690 23,076,464 23,076,464 (304,226)
British Pound U.S. Dollar
------------------------------------------------------------------------------------
6/14/96 2,273,335 2,273,335 1,481,000 2,290,738 17,403
U.S. Dollar British Pound
------------------------------------------------------------------------------------
1/2/96 1,350,406 1,350,406 2,162,550,000 1,365,419 15,013
U.S. Dollar Italian Lira
------------------------------------------------------------------------------------
3/13/96 1,960,304,000 19,005,410 19,681,569 19,681,569 676,159
Japanese Yen U.S. Dollar
------------------------------------------------------------------------------------
6/19/96 1,799,400,000 17,447,682 18,140,026 18,140,026 692,344
Japanese Yen U.S. Dollar
------------------------------------------------------------------------------------
4/18/96 14,405,000 9,040,297 8,987,397 8,987,397 (52,900)
Dutch Guilder U.S. Dollar
------------------------------------------------------------------------------------
4/15/96 3,470,000 2,471,334 2,473,448 2,473,448 2,114
Singapore U.S. Dollar
Dollar
------------------------------------------------------------------------------------
$1,109,977
============
</TABLE>

7. Federal Tax Status of Dividends Declared During the Fiscal Year (Unaudited)
As of December 31, 1995, the following funds declared long term capital
gain dividends as follows:
Variable Fund $0.791 July 1995
3.310 December 1995
Investment Advisers 0.300 December 1995

All of the income dividends paid by each fund were ordinary income for
Federal Income Tax purposes. The percentage of income dividends that were
qualifying dividends for the corporate dividends received deduction were:

Qualifying Dividend
-------------------
Variable Fund 44%
Investment Advisers 17%

<PAGE>

Independent Auditors' Report

The Shareholders and Board of Trustees/Directors of Aetna Variable Fund, Aetna
Income Shares, Aetna Variable Encore Fund and Investment Advisers Fund, Inc.:

We have audited the accompanying statements of assets and liabilities of Aetna
Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund and Aetna
Investment Advisers Fund, Inc. (the Funds), including the portfolios of
investments, as of December 31, 1995, the related statements of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and financial highlights for each of
the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Aetna
Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund and Aetna
Investment Advisers Fund, Inc. as of December 31, 1995, the results of their
operations for the year then ended, the changes in their net assets for each of
the years in the two-year period then ended and financial highlights for each of
the years in the five-year period then ended in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP

Hartford, Connecticut
February 16, 1996

<PAGE>

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements:
(1) Included in Part A:
Financial Highlights
(2) Included in Part B:
Portfolios of Investments
Statements of Assets and Liabilities as of December 31, 1995
Statements of Operations for the year ended December 31, 1995
Statements of Changes in Net Assets for the years ended
December 31, 1995 and 1994
Notes to Financial Statements
Independent Auditors' Report

(b) Exhibits:
(1) Charter (Declaration of Trust)
(2) Amended Bylaws (adopted by Board of Trustees September
14, 1994)
(3) Not Applicable
(4) Instruments Defining rights of Holders - Article VI of the
Declaration of Trust which is included in this filing as
Exhibit 24(b)(1) sets forth the rights of shareholders;
Copies of Securities Issued and Registered by Registrant1
(5) Investment Advisory Agreement2
(6) Distribution Agreement3
(7) Not Applicable
(8) Custodian Agreements and Depository Contracts
(9) Administrative Services Agreement
(10.1) Opinion of Counsel4
(10.2) Consent of Counsel
(11) Consent of Independent Auditors
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(17) Financial Data Schedule
(18) Powers of Attorney5

1. Incorporated herein by reference to the Registration Statement on Form
N-1A (File No. 2-47232), as filed with the Securities and Exchange
Commission on May 1, 1984.
2. Incorporated herein by reference to Post-Effective Amendment No. 42 to the
Registration Statement on Form N-1A (File No. 2-47232), as filed with the
Securities and Exchange Commission on April 26, 1994.
3. Incorporated herein by reference to Post-Effective Amendment No. 26 to the
Registration Statement on Form N-1A (File No. 2-47232), as filed with the
Securities and Exchange Commission on April 18, 1985.
4. Incorporated herein by reference to Registrant's 24f-2 Notice for the fiscal
year ended December 31, 1995, as filed with the Securities and Exchange
Commission on February 29, 1996.
5. Incorporated herein by reference to Post-Effective Amendment No. 48 to the
Registration Statement on Form N-1A (File No. 2-51739), as filed
electronically with the Securities and Exchange Commission on April 25,
1996.

Item 25. Persons Controlled by or Under Common Control

Registrant is a Massachusetts business trust for which separate
financial statements are filed. As of March 31, 1996, ownership of the
Registrant's outstanding shares of beneficial interest was as follows:

Aetna Insurance Company of America .038%
Aetna Life Insurance Company .167%
Aetna Life Insurance and Annuity Company98.966%
Outside .829%

Aetna Insurance Company of America is a wholly owned subsidiary of
Aetna Life Insurance and Annuity Company and Aetna Life Insurance and
Annuity Company is a wholly owned subsidiary of Aetna Retirement
Holdings, Inc., which is in turn a wholly owned subsidiary of Aetna
Retirement Services, Inc. and an indirectly wholly owned subsidiary of
Aetna Life and Casualty Company.

A diagram of all persons directly or indirectly under common control
with the Registrant is incorporated herein by reference to Item 26 of
Post-Effective Amendment No. 5 to the Registration Statement on Form
N-4 (File No. 33-75986) filed electronically with the Securities and
Exchange Commission on April 12, 1996, as supplemented by
Post-Effective Amendment No. 6 to Registration Statement on Form N-4
(File No. 33-75986) filed electronically on April 22, 1996.

Item 26. Number of Holders of Securities

(1) Title of Class (2) Number of Record
-------------- ----------------
Holders
-------

Shares of Beneficial Interest 384 as of March 31, 1996
$1.00 par value

<PAGE>

Item 27. Indemnification

Article V of the Registrant's Declaration of Trust, incorporated
herein by reference to Exhibit 24(b)(1) to the Registrant's
Registration Statement on Form N-1A filed May 1, 1984 (File No.
2-47232), provides indemnification for Registrant's trustees and
officers.

In addition, the Registrant's trustees and officers are covered
under director and officer liability policies issued by National
Union Fire Insurance Company, which generally indemnify the
Registrant's trustees and officers for judgments and expenses in
proceedings brought against them solely by reason of their positions
as trustees and officers (in the absence of gross neglect or
misfeasance). The policy expires on October 1, 1996.

Item 28. Business and Other Connections of Investment Adviser

The Investment Adviser is an insurance company that issues variable and
fixed annuities, variable and universal life insurance policies and
acts as depositor for separate accounts holding assets for variable
contracts and policies. The following table summarizes the business
connections of the directors and principal officers of the Investment
Adviser.

- -------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s)
with Investment Adviser Held
Since Oct. 31,
1993/Addresses*/**

- -------------------------------------------------------------------------------
Daniel P. Kearney Director, President President (since December
and Chief Executive 1993), Aetna Life Insurance and
Officer Annuity Company; Executive Vice
President (since December
1993), and Group Executive,
Financial Division (February
1991 - December 1993), Aetna
Life and Casualty Company.
Director: Aetna Investment
Services, Inc. (since November
1994); Aetna Insurance Company
of America (since May 1994);
MBIA, Inc. (since 1992).

Christopher J. Burns Director and Senior Senior Vice President, Sales &
Vice President Service (since February 1996),
and Senior Vice President, Life
(March 1991 - February 1996),
Aetna Life Insurance and
Annuity Company. Director:
Aetna Financial Services, Inc.
(since January 1996); Aetna
Investment Services, Inc.
(since July 1992).

Laura R. Estes Director and Senior Senior Vice President, Manage/
Vice President Design Products & Services
(since February 1996), and
Senior Vice President, Pensions
(March 1991 - February 1996),
Aetna Life Insurance and
Annuity Company. Director:
Aetna Financial Services, Inc.
(since January 1996); Aetna
Investment Services, Inc.
(since July 1993).

Timothy A. Holt Director, Senior Vice Senior Vice President, Strategy
President and Chief & Finance and Chief Financial
Financial Officer Officer (since February 1996),
Aetna Life Insurance and Annuity
Company; Vice President, Portfolio
Management/Investment Group
(August 1992 - February 1996),
Aetna Life and Casualty Company.

Gail P. Johnson Director and Vice Vice President, Service and
President Retain Customers (since
February 1996); Vice President,
Defined Benefit Services
(September 1994 - February 1996);
Vice President, Plan Services,
Pensions and Financial Services
(December 1992 - September 1994)
-- Aetna Life Insurance and
Annuity Company.

John Y. Kim Director and Senior President (since December
Vice President 1995), Aeltus Investment
Management, Inc.; Chief Investment
Officer (since May 1994), Aetna
Life and Casualty Company;
Managing Director (September 1993
- April 1994), Mitchell Hutchins
Institutional Investors (New York,
New York).

Shaun P. Mathews Director and Vice Vice President, Products Group
President (since February 1996); Senior
Vice President, Strategic
Markets and Products (February
1993 - February 1996) -- Aetna
Life Insurance and Annuity
Company. Director: Aetna
Investment Services, Inc.
(since July 1993); Aetna
Insurance Company of America
(since February 1993).

Glen Salow Director and Vice Vice President, Information
President Technology (since February
1996), Vice President, Information
Technology, Investments and
Financial Services (February 1995
- February 1996), Vice President,
Investment Systems (1992 - 1995),
AIT - Aetna Life Insurance and
Annuity Company.

Creed R. Terry Director and Vice Vice President, Select and
President Manage Markets, Market
Strategist (August 1995 - February
1996), Aetna Life Insurance and
Annuity Company; President (1991 -
1995), Chemical Technology
Corporation (a subsidiary of
Chemical Bank).

Zoe Baird Senior Vice President Senior Vice President and
and General Counsel General Counsel (since April
1992), Aetna Life and Casualty
Company; Director: Zurn
Industries, Inc. (since April
1993); Southern New England
Telecommunication Corp. and
Southern New England Telephone
Company (since November 1990).

Susan E. Schechter Counsel and Corporate Counsel (since November 1993),
Secretary Aetna Life and Casualty
Company; Associate Attorney
(September 1986 - October 1993),
Steptoe & Johnson.

Eugene M. Trovato Vice President and Vice President and Treasurer,
Treasurer, Corporate Corporate Controller (since
Controller February 1996), Vice President
and Controller (February 1995 -
February 1996), Aetna Life
Insurance and Annuity Company;
Vice President, Financial
Reporting (December 1991 -
February 1995), Aetna Life and
Casualty Company.

Diane B. Horn Vice President and Vice President and Chief
Chief Compliance Compliance Officer (since
Officer February 1996), and Senior
Compliance Officer (August 1993 -
February 1996), Aetna Life
Insurance and Annuity Company.

* The principal business address of each person named is 151 Farmington
Avenue, Hartford, Connecticut 06156.
** Certain officers and directors of the investment adviser currently hold
(or have held during the past two years) other positions with affiliates
of the Registrant which are not deemed to be principal positions.

<PAGE>

Item 29. Principal Underwriters

a) In addition to serving as the principal underwriter for the
Registrant, Aetna Life Insurance and Annuity Company (ALIAC) also
acts as the principal underwriter for Aetna Variable Fund; Aetna
Series Fund, Inc.; Aetna Generation Portfolios, Inc.; Variable
Life Account B and Variable Annuity Accounts B, C and G (separate
accounts of ALIAC registered as unit investment trusts), and
Variable Annuity Account I (a separate account of Aetna Insurance
Company of America registered as a unit investment trust).
Additionally, ALIAC is the investment adviser for Aetna Variable
Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna
Investment Advisers Fund, Inc., Series B of Aetna GET Fund, Aetna
Series Fund, Inc. and Aetna Generation Portfolios, Inc. ALIAC is
also the depositor of Variable Life Account B and Variable
Annuity Accounts B, C and G.

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

Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant

Daniel P. Kearney Director and President Director

Timothy A. Holt Director, Senior Vice Director
President and Chief Financial
Officer

Christopher J. Burns Director and Senior Vice
President

Laura R. Estes Director and Senior Vice
President

Gail P. Johnson Director and Vice President

John Y. Kim Director and Senior Vice
President

Shaun P. Mathews Director and Vice President Director and
President
Glen Salow Director and Vice President

Creed R. Terry Director and Vice President

Zoe Baird Senior Vice President and
General Counsel

Susan E. Schechter Corporate Secretary and Counsel

Eugene M. Trovato Vice President and Treasurer,
Corporate Controller

Diane B. Horn Vice President and Chief
Compliance Officer

* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.

Item 30. Location of Accounts and Records

As required by Section 31(a) of the 1940 Act and the Rules promulgated
thereunder, the Registrant and its investment adviser, ALIAC, maintain
physical possession of each account, book or other documents, except
shareholder records, at its principal offices at 151 Farmington Avenue,
Hartford, Connecticut 06156.

Shareholder records are maintained by the transfer agent, Firstar Trust
Company, 615 East Michigan Street, Milwaukee, Wisconsin 53261.

Item 31. Management Services

Not applicable.

Item 32. Undertakings

The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Fund's latest annual report to
shareholders, upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
Aetna Income Shares (Registrant) has duly caused this Post-Effective Amendment
No. 44 to the Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Hartford, and State of
Connecticut, on the 25th day of April, 1996.

AETNA INCOME SHARES
Registrant

By Shaun P. Mathews *
Shaun P. Mathews
President

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons on April 25, 1996 in the capacities indicated.

Signature Title

Shaun P. Mathews* President and Trustee
- -----------------------------
(Principal Executive Officer)

Morton Ehrlich* Trustee
- -----------------------------

Maria T. Fighetti* Trustee
- -----------------------------

David L. Grove* Trustee
- -----------------------------

Timothy A. Holt* Trustee
- -----------------------------

Daniel P. Kearney* Trustee
- -----------------------------

Sidney Koch* Trustee
- -----------------------------

Corine T. Norgaard* Trustee
- -----------------------------

Richard G. Scheide* Trustee
- -----------------------------

James C. Hamilton* Vice President and Treasurer
- -----------------------------
(Principal Financial and Accounting
Officer)

By: /s/ Julie E. Rockmore
*Julie E. Rockmore
Attorney-in-Fact

<PAGE>

AETNA INCOME SHARES
EXHIBIT INDEX

Exhibit No. Exhibit Page

99-(b)(1) Declaration of Trust ____

99-(b)(2) Amended Bylaws ____

99-(b)(4) Instruments Defining Rights of Holders *

99-(b)(5) Investment Advisory Agreement *

99-(b)(6) Distribution Agreement *

99-(b)(8) Custodian Agreements and Depository Contracts ____

99-(b)(9) Administrative Services Agreement ____

99-(b)(10.1) Opinion of Counsel *

99-(b)(10.2) Consent of Counsel ____

99-(b)(11) Consent of Independent Auditors ____

99-(b)(18) Powers of Attorney *

27 Financial Data Schedule ____

* Incorporated herein by reference.

DECLARATION OF TRUST

AETNA INCOME SHARES
<PAGE>

TABLE OF CONTENTS

ARTICLE I....................................................................1
The Trust.................................................................1
1.1. Name................................................................1
1.2. Definitions.........................................................1

ARTICLE II...................................................................2
Board of Trustees.........................................................2
2.1. Number; Service.....................................................2
2.2. Election of Trustees at 1984 Meeting of Shareholders................3
2.3. Term of Office of Trustees..........................................3
2.4. Termination of Service and Appointment of Trustees..................3
2.5. By-Laws.............................................................4
2.6. Officers............................................................4

ARTICLE III..................................................................4
Powers of Trustees........................................................4
3.1. General.............................................................4
3.2. Investments.........................................................4
3.3. Legal Title.........................................................5
3.4. Borrow Money........................................................5
3.5. Delegation; Committees..............................................5
3.6. Collection and Payment..............................................6
3.7. Expenses............................................................6
3.8. Miscellaneous Powers................................................6
3.9. Further Powers......................................................6

ARTICLE IV...................................................................7
Advisory, Management and Distribution Arrangements........................7
4.1. Advisory and Management Arrangements................................7
4.2. Distribution Arrangements...........................................7
4.3. Parties to Contract.................................................7
4.4. Provisions and Amendments...........................................8

ARTICLE V....................................................................8
Limitations of Liability of Shareholders, Trustees and Others.............8
5.1. No Personal Liability of Shareholders, Trustees, etc................8
5.2. Non-Liability of Trustees, and Others...............................8
5.3. Indemnification.....................................................9
5.4. No Bond Required of Trustees.......................................10
5.5. No Duty of Investigation; Notice in Trust Instruments..............10
5.6. Reliance on Experts................................................11

<PAGE>

ARTICLE VI..................................................................11
Shares of Beneficial Interest............................................11
6.1. Beneficial Interest................................................11
6.2. Rights of Shareholders.............................................11
6.3. Trust Only.........................................................11
6.4. Issuance of Shares.................................................12
6.5. Register of Shares.................................................12
6.6. Transfer Agent.....................................................12
6.7. Transfer of Shares.................................................12

ARTICLE VII.................................................................13
Custodians...............................................................13
7.1. Appointment and Duties.............................................13
7.2. Central Certificate System.........................................13

ARTICLE VIII................................................................14
Redemption...............................................................14
8.1. Redemption.........................................................14
8.2. Involuntary Redemption of Shares; Disclosure of Holding............14
8.3. Redemptions of Small Accounts; Service Charges on Small Accounts...15

ARTICLE IX..................................................................15
Determination of Net Asset Value, Net Income and Distributions...........15
9.1. Net Asset Value....................................................15
9.2. Distributions to Shareholders......................................15
9.3. Power to Modify Foregoing Procedures...............................16

ARTICLE X...................................................................16
Shareholders.............................................................16
10.1. Meetings of Shareholders..........................................16
10.2. Voting Powers.....................................................16
10.3. Notice of Meetings................................................17
10.4. Record Date for Meeting...........................................17
10.5. Proxies...........................................................17
10.6. Reports...........................................................18
10.7. Inspection of Records.............................................18
10.8. Shareholder Action by Written Consent.............................18

ARTICLE XI..................................................................18
Duration; Termination of Trust; Amendment; Mergers, Etc..................18
11.1. Duration..........................................................18
11.2. Termination.......................................................19
11.3. Amendment Procedure...............................................19
11.4. Merger, Consolidation and Sale of Assets..........................20

<PAGE>

ARTICLE XII.................................................................20
Miscellaneous............................................................20
12.1. Notices...........................................................20
12.2. Filing............................................................21
12.3. Resident Agent....................................................21
12.4. Governing Law.....................................................21
12.5. Reliance by Third Parties.........................................21
12.6. Provisions in Conflict With Law or Regulations....................22
12.7. Trust Name........................................................22

<PAGE>

DECLARATION OF TRUST

AETNA INCOME SHARES

THE DECLARATION OF TRUST of Aetna Income Shares (the "Trust") is made this
25th day of January, 1984 by the parties signatory hereto, as trustees (the
"Trustees").

W I T N E S S E T H :

WHEREAS, the Trustees desire to form a trust fund, Aetna Income Shares, as
a Massachusetts Business Trust to participate in a reorganization with Aetna
Income Shares, Inc., whereby Aetna Income Shares, Inc., would be converted from
a Maryland Corporation to a Massachusetts Business Trust pursuant to an
Agreement and Plan of Reorganization and Liquidation involving the Trust, and
the shareholders of Aetna Income Shares, Inc. would become shareholders of the
Trust pursuant to the Reorganization;

WHEREAS, the Trustees desire to use the Trust for the investment and
reinvestment of funds contributed thereto;

NOW, THEREFORE, the Trustees hereby declare that all money and property
contributed to the trust fund hereunder shall be held and managed under this
Declaration of Trust IN TRUST for the benefit of the holders from time to time
of the shares of beneficial interest issued hereunder as herein set forth below.

ARTICLE I

The Trust

1.1. Name.

The name of the trust created hereby shall be "Aetna Income Shares",
and so far as may be practicable the Trustees shall conduct the activities of
the Trust, execute all documents and sue or be sued under that name, which name
(and the word "Trust" wherever hereinafter used) shall refer to the Trustees as
Trustees, and not individually, and shall not refer to the officers, agents,
employees or Shareholders of the Trust.

1.2. Definitions.

As used in this Declaration of Trust, the following terms shall have
the following meanings:

<PAGE>

The terms "Affiliated Person", "Assignment", "Commission", "Interested
Person", "Majority Shareholder Vote" (the 67% or 50% requirement of the third
sentence of Section 2(a)(42) of the Investment Company Act of 1940, whichever
may be applicable) and "Principal Underwriter" shall have the meanings given
them in the Investment Company Act of 1940, as amended from time to time.

"Declaration" shall mean this Declaration of Trust as amended from time to
time.

"Fundamental Policies" shall mean the investment restrictions set forth in
the Prospectus and designated as fundamental policies therein.

"Person" shall mean and include individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.

"Prospectus" shall mean the currently effective Prospectus of the Trust
under the Securities Act of 1933 as amended.

"Shareholders" shall mean all holders of record of outstanding Shares.

"Shares" means the equal proportionate units of interest into which the
beneficial interest in the Trust shall be divided from time to time and includes
fractions of Shares as well as whole Shares.

"Trustees" refer to the individual Trustees in their capacity as Trustees
hereunder of the Trust and their successor or successors for the time being in
office as such Trustees;

"Trust Property" shall mean all property, real or personal, tangible or
intangible, owned or held by or for the account of the Trust.

The "1940 Act" refers to the Investment Company Act of 1940 and the
regulations promulgated thereunder, as amended from time to time.

ARTICLE II

Board of Trustees

2.1. Number; Service.

The Board of Trustees shall consist of not less than three and not
more than fifteen Trustees as determined by vote of the Board, or in the absence
thereof, shall consist of the number of Trustees last elected at a meeting of
Shareholders. The business and affairs of the

2
<PAGE>

Trust shall be managed by the Trustees, and they shall have all powers
necessary and desirable to carry out that responsibility. The Trustees who
shall serve until the election of Trustees at the 1984 Meeting of
Shareholders shall be Donald G. Conrad, David L. Grove, James E. Mulvihill,
Corine T. Norgaard, and Dean E. Wolcott.

2.2. Election of Trustees at 1984 Meeting of Shareholders.

In the year 1984, on a date fixed by the Trustees which shall be
prior to the effective time of Reorganization of Aetna Income Shares, Inc., the
Shareholders shall elect Trustees.

2.3. Term of Office of Trustees.

The Trustees shall hold office during the lifetime of this Trust,
and until its termination as hereinafter provided; except (a) that any Trustee
may resign his trust by written instrument signed by him and delivered to the
other Trustees, which shall take effect upon such delivery or upon such later
date as is specified therein; (b) that any Trustee may be removed at any time by
written instrument signed by at least two-thirds of the number of Trustees prior
to such removal, specifying the date when such removal shall become effective;
(c) that any Trustee who requests in writing to be retired or who has become
mentally or physically incapacitated may be retired by written instrument signed
by a majority of the other Trustees, specifying the date of his retirement; and
(d) a Trustee may be removed at any special meeting of Shareholders of the Trust
by a vote of two-thirds of the outstanding Shares or by written instrument
signed by the holders of at least two-thirds of the outstanding shares.

2.4. Termination of Service and Appointment of Trustees.

In case of the death, resignation, retirement, removal or mental or
physical incapacity of any of the Trustees, or in case a vacancy shall, by
reason of an increase in number, or for any other reason, exist, the remaining
Trustees shall fill such vacancy by appointing such other person as they in
their discretion shall see fit. Such appointment shall be effected by the
signing of a written instrument by a majority of the Trustees in office. Within
three months of such appointment, the Trustees shall cause notice of such
appointment to be mailed to each Shareholder at his address as recorded on the
books of the Trust. An appointment of a Trustee may be made by the Trustees then
in office and notice thereof mailed to Shareholders as aforesaid in anticipation
of a vacancy to occur by reason of retirement, resignation or increase in number
of Trustees effective at a later date, provided that said appointment shall
become effective only at or after the effective date of said retirement,
resignation or increase in the number of Trustees. As soon as any Trustee so
appointed shall have accepted this Trust, the trust estate shall vest in the new
Trustee or Trustees, together with the continuing Trustees, without any further
act or conveyance. Any appointment authorized by this Section 4 is subject to
the provisions of Section 16(a) of the 1940 Act.

<PAGE>

2.5. By-Laws.

The Trustees may adopt and from time to time amend or repeal the
by-laws for the conduct of the business of the Trust.

2.6. Officers.

The Trustees shall annually elect a President, one or more
Vice-Presidents, a Secretary and a Treasurer and may elect such other officers
as they deem appropriate. The Trustees may authorize the President or any Vice
President to appoint such other officers or agents with such powers as the
Trustees may deem to be advisable. The President shall be a Trustee. The general
powers of the officers shall be set forth in the by-laws.

ARTICLE III

Powers of Trustees

3.1. General.

The Trustees shall have exclusive and absolute control over the
Trust Property and over the business of the Trust to the same extent as if the
Trustees were the sole owners of the Trust Property and business in their own
right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees may perform such acts as in their sole discretion are
proper for conducting the business of the Trust. The enumeration of any specific
power herein shall not be construed as limiting such discretion and power. Such
powers of the Trustees may be exercised without order of or resort to any court.

3.2. Investments.

The Trustees shall have power, subject to any applicable limitation
in this Declaration of Trust and in the By-Laws of the Trust, to:

(a) conduct, operate and carry on the business of an investment
company;

(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or otherwise
deal in or dispose of negotiable or non-negotiable instruments, obligations,
evidences of indebtedness, certificates of deposit or indebtedness, commercial
paper, repurchase agreements, reverse repurchase agreements and other
securities, including, without limitation, those issued, guaranteed or sponsored
by any state, territory or possession of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or by
the United States Government or its agencies or instrumentalities, or
international instrumentalities, or by any bank, savings institution,
corporation or other business entity organized under the laws of the United
States and, to the extent provided in the Prospectus and not prohibited by the
Fundamental Policies, organized under foreign laws; and to exercise any and all
rights, powers and privileges of ownership or

<PAGE>

interest in respect of any and all such investments of every kind and
description, including, without limitation, the right to consent and otherwise
act with respect thereto, with power to designate one or more persons, firms,
associations or corporations to exercise any of said rights, powers and
privileges in respect of any of said instruments; and the Trustees shall be
deemed to have the foregoing powers with respect to any additional securities in
which the Trust may invest should the investment policies set forth in the
Prospectus or the Fundamental Policies be amended.

The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.

3.3. Legal Title.

Legal Title to all the Trust Property shall be vested in the
Trustees as joint tenants except that the Trustees shall have power to cause
legal title to any Trust Property to be held by or in the name of one ore more
of the Trustees, or in the name of any other Person as nominee, on such terms as
the Trustees may determine, provided that the interest of the Trust is
appropriately protected.

Upon the resignation, removal or death of a Trustee, that Trustee shall
automatically cease to have any right, title or interest in any of the Trust
Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.

3.4. Borrow Money.

Subject to the Fundamental Policies and the Trust By-Laws, the
Trustees shall have power to borrow money or otherwise obtain credit and to
secure the same by mortgaging, pledging or otherwise subjecting as security the
assets of the Trust, including the lending of portfolio securities, and to
endorse, guarantee, or undertake the performance of any obligation, contract or
engagement of any other person, firm, association or corporation.

3.5. Delegation; Committees.

The Trustees shall have power, consistent with their continuing
exclusive authority over the management of the Trust and the Trust Property, to
delegate to committees of Trustees or to officers, employees or agents of the
Trust, the doing of such things and the execution of such instruments as the
Trustees may deem expedient, to the same extent as such delegation is permitted
to directors of a Massachusetts business corporation and is permitted by the
1940 Act.

<PAGE>

3.6. Collection and Payment.

The Trustees shall have power to collect all property due to the
Trust; to pay all claims, including taxes, against the Trust Property; to
prosecute, defend, compromise or abandon any claims relating to the Trust
Property; to foreclose any security interest securing any obligations, by virtue
of which any property is owed to the Trust; and to enter into releases,
agreements and other instruments.

3.7. Expenses.

The Trustees shall have power to incur and pay any expenses which in
the opinion of the Trustees are necessary to carry out any of the purposes of
this Declaration, and to pay reasonable compensation from the funds of the Trust
to themselves as Trustees. The Trustees may pay themselves such compensation for
special services, including legal, underwriting, syndicating and brokerage
services, as they in good faith may deem reasonable, as well as reimbursement
for expenses reasonably incurred by themselves on behalf of the Trust.

3.8. Miscellaneous Powers.

The Trustees shall have the power to: (a) employ or contract with
such Persons as the Trustees may deem desirable for the transaction of the
business of the Trust, provided that the selection and retention of independent
public accountants be done in a manner consistent with the 1940 Act; (b) enter
into joint ventures, partnerships and any other combinations or associations;
(c) purchase, and pay for out of Trust Property, insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, investment advisers,
distributors, selected dealers or independent contractors of the Trust against
all claims arising by reason of holding any such position or by reason of any
action taken or omitted by any such Person in such capacity, whether or not
constituting negligence, or whether or not the Trust would have the power to
indemnify such Person against such liability; (d) establish pension,
profit-sharing, share purchase, and other retirement, incentive and benefit
plans for any Trustees, officers, employees and agents of the Trust; (e) to the
extent permitted by law and the By-Laws indemnify any Person with whom the Trust
has dealings, including any adviser, administrator, manager, underwriter,
transfer agent, custodian and selected dealers, to such extent as the Trustees
shall determine; (f) guarantee indebtedness or contractual obligations of
others; and (g) determine and change the fiscal year of the Trust and the method
in which its accounts shall be kept.

3.9. Further Powers.

The Trustees shall have power to conduct the business of the Trust
and carry on its operations in any and all of its branches and maintain offices
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as

6
<PAGE>

they deem necessary, proper or desirable in order to promote the interests of
the Trust although such things are not herein specifically mentioned. Any
determination as to what is in the interest of the Trust made by the Trustees in
good faith shall be conclusive. The Trustees will not be required to obtain any
court order to deal with the Trust Property.

ARTICLE IV

Advisory, Management and Distribution Arrangements

4.1. Advisory and Management Arrangements.

Subject to a Majority Shareholder Vote, the Trustees may in their
discretion enter into advisory, administration or management contracts whereby
the other party to such contract shall undertake to furnish the Trustees with
advisory, administrative and management services. Notwithstanding any contrary
provisions of this Declaration, the Trustees may authorize any adviser,
administrator or manager (subject to such instructions as the Trustees may
adopt) to effect purchases, sales, loans or exchanges of portfolio securities on
behalf of the Trustees, or may authorize any officer, employee or Trustee to
effect such purchases, sales, loans or exchanges pursuant to recommendations of
any such adviser, administrator or manager (and all without further action by
the Trustees). Any purchases, sales, loans and exchanges shall be deemed to have
been authorized by all of the Trustees.

4.2. Distribution Arrangements.

The Trustees may enter into contracts providing for the sale of the
Shares of the Trust to net the Trust not less than the net asset value per
share. The Trust may either agree to sell the Shares to the other party to the
contract or appoint such other party its sales agent for such Shares. In either
case, the contract shall be on such terms and conditions as the Trustees may in
their discretion determine not inconsistent with the provisions of this Article
IV or the By-Laws. The contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust and may provide
that such other party may enter into selected dealer agreements with registered
securities dealers to further the purpose of the distribution or repurchase of
the Shares.

4.3. Parties to Contract.

Any contract of the character described in Section 4.1 and 4.2 of
this Article IV or in Article VII may be entered into with any corporation,
firm, trust or association, although one or more of the Trustees or officers of
the Trust may be an officer, director, Trustee, shareholder, or member of such
other party to the contract, and no such contract shall be invalidated or
rendered voidable by reason of the existence of any such relationship, nor shall
any person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by reason of said
contract or accountable for any profit realized directly or indirectly
therefrom, provided that the contract when entered into was reasonable and fair
and not inconsistent with the provisions of this Article IV or the by-laws. The
same person (including a

<PAGE>

firm, corporation, trust, or association) may be the other party to contracts
entered into pursuant to Section 4.1 and 4.2 above or Article VII, and any
individual may be financially interested or otherwise affiliated with persons
who are parties to any or all of the contracts mentioned in this Section 4.3.

4.4. Provisions and Amendments.

Any contract entered into pursuant to Section 4.1 and 4.2 of this
Article IV shall be consistent with and subject to the requirements of Section
15 of the 1940 Act with respect to its continuance in effect, its termination,
and the method of authorization and approval of such contract or renewal
thereof, and no amendment to any contract entered into pursuant to Section 4.1
shall be effective unless assented to by a Majority Shareholder Vote.

ARTICLE V

Limitations of Liability of Shareholders, Trustees and Others

5.1. No Personal Liability of Shareholders, Trustees, etc.

No Shareholder shall be subject to any personal liability to any
Person in connection with Trust Property or the acts, obligations or affairs of
the Trust. No Trustee, officer, employee or agent of the Trust shall be subject
to any personal liability to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of a duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability, he shall not on account thereof be
held to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities, to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him. The rights accruing to a Shareholder under
this Section 5.1 shall not exclude any other right to which such Shareholder may
be lawfully entitled, nor shall anything herein contained restrict the right of
the Trust to indemnify or reimburse a Shareholder in any appropriate situation
even though not specifically provided herein.

5.2. Non-Liability of Trustees, and Others.

No Trustee, officer, employee or agent of the Trust shall be liable
to the Trust, its Shareholders, or to any Shareholder, Trustee, officer,
employee, or agent for any action or failure to act (including the failure to
compel in any way any former or acting Trustee to redress any breach of trust),
except upon a showing of bad faith, willful misfeasance, gross negligence or
reckless disregard of duties.

<PAGE>

5.3. Indemnification.

(a) Every person who is or was a Trustee, officer or employee of
this Trust or a director, officer or employee of any corporation which he served
at the request of this Trust (and his firm, executors and administrators) shall
have a right to be indemnified by this Trust against all liability and
reasonable expenses incurred by him in connection with or resulting from any
claim, action, suit or proceeding in which he may become involved as a party or
otherwise by reason of his being or having been a Trustee, officer or employee
of this Trust or a director, officer or employee of such corporation, provided
(1) said claim, action, suit or proceeding shall be prosecuted to a final
determination and he shall be vindicated on the merits, or (2) in the absence of
such final determination vindicating him on the merits, the Board shall
determine that he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Trust, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; said determination to be made (i) by the Board, by a
majority vote of a quorum consisting of disinterested Trustees; or (ii) if such
quorum is not obtainable or if a quorum of disinterested Trustees so directs, by
independent legal counsel in a written opinion, or (iii) by the Shareholders.

(b) For purposes of the preceding subsection: (1) "liability and
reasonable expenses" shall include, but not be limited to, reasonable counsel
fees and disbursements, amounts of any judgment, fine or penalty, and reasonable
amounts paid in settlement; (2) "claim, action, suit or proceeding" shall
include every such claim, action, suit or proceeding, whether civil or criminal,
derivative or otherwise, administrative, judicial or investigative, any appeal
relating thereto, and shall include any reasonable apprehension or threat of
such a claim, action, suit or proceeding; (3) a settlement, plea of nolo
contendere, consent judgment, adverse civil judgment, or conviction shall not of
itself create a presumption that the conduct of the person seeking
indemnification did not meet the standard of conduct set forth in subsection (2)
hereof.

(c) Notwithstanding the foregoing, the following additional
limitations shall apply with respect to any action by or in the right of the
Trust: (1) no indemnification shall be made in respect of any claim, issue or
matter as to which the person seeking indemnification shall have been adjudged
to be liable for negligence or misconduct in the performance of his duty to the
Trust unless the court which made such a finding, or any other court of equity
in the county where the Trust has its principal office determines that despite
the adjudication of liability, such person is fairly and reasonably entitled to
indemnity for some or all of such expenses; and (2) indemnification shall extend
only to reasonable expenses, including reasonable counsel's fees and
disbursements, and shall not include judgments, fines and amounts paid in
settlement.

(d) The right of indemnification shall extend to any person
otherwise entitled to it under this Article whether or not that person continues
to be a Trustee, office or employee of this Trust or a director, officer or
employee of such corporation at the time such liability or expense shall be
incurred. The right of indemnification shall extend to the legal representative
and heirs of any person otherwise entitled to indemnification. If a person meets
the requirements of this Article with respect to some matters in a claim,
action, suit or proceeding, but not with respect to others, he shall be entitled
to indemnification as to the former. Expenses incurred in

<PAGE>

defending an action, suit or proceeding may be paid by the Trust in advance of
the final disposition of such action, suit or proceeding as authorized by the
Board in the specific case: 1) upon receipt of an undertaking for which security
has been provided by or on behalf of the Trustee, director, officer, employee or
agent to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the Trust as authorized in this Article, or 2) if
the Trust is at the time of such advance insured against losses arising by
reason of the advance.

(e) This Article shall not exclude any other rights of
indemnification or other rights to which any Trustee, officer, or employee may
be entitled to by contract, vote of the Shareholders or as a matter of law. If
any clause, provision or application of this Section 5.3 shall be determined to
be invalid, the other clauses, provisions or applications of this section shall
not be affected, but shall remain in full force and effect.

(f) The trust shall have the power to purchase and maintain
insurance on behalf of any person who is or was a Trustee, officer, employee or
agent of the Trust, or is or was serving at the request of the Trust as a
director, officer, employee or agent of a corporation, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Trust would have the power to indemnify
him against such liability under the provisions of this Article.

5.4. No Bond Required of Trustees.

No Trustee shall be obligated to give any bond or other security for
the performance of any of his duties.

5.5. No Duty of Investigation; Notice in Trust Instruments.

No purchaser, lender, transfer agent or other person dealing with
the Trustees or with any officer, employee or agent of the Trust shall be bound
to make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by said officer, employee or agent regarding the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, undertaking, instrument, certificate, Share, security of the Trust,
and every other act in connection with the Trust shall be conclusively taken to
have been executed or done only by persons acting in their capacity as Trustees
under this Declaration or in their capacity as officers, employees or agents of
the Trust. Every written obligation, contract, undertaking, instrument, or
security of the Trust made or issued by the Trustees or by any officers,
employees or agents of the Trust, in their capacity as such, shall contain an
appropriate recital to the effect that the Shareholders, Trustees, officers,
employees and agents of the Trust shall not personally be bound by or liable
thereunder, but the omission of such recital shall not operate to impose
personal liability on any of the Trustees, Shareholders, officers, employees or
agents of the Trust. The Trustees may maintain insurance for the protection of
the Trust Property, its Shareholders, Trustees, officers, employees and agents
in such amount the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable.

<PAGE>

5.6. Reliance on Experts.

Each Trustee and officer or employee of the Trust shall, in the
performance of his duties, be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust, upon an opinion of
counsel, or upon reports made to the Trust by any of its officers or employees
or by any adviser, administrator, manager, distributor, selected dealer,
accountant, appraiser or other expect or consultant selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.

ARTICLE VI

Shares of Beneficial Interest

6.1. Beneficial Interest.

The beneficial interest in the Trust shall at all times be divided
into transferable Shares, with par value of $1.00 per share, each of which shall
represent an equal proportionate interest in the Trust with each other Share
outstanding, none having priority or preference over another. The number of
Shares which may be issued is unlimited. The Trustee may from time to time
divide or combine the outstanding Shares into a greater or lesser number without
thereby changing the proportionate beneficial interest in the Trust.
Contributions to the Trust may be accepted for, and Shares shall be redeemed as,
whole Shares plus any fraction of a Share. All Shares issued hereunder
including, without limitation, Shares issued in connection with a dividend in
Shares or a split of Shares, shall be fully paid and nonassessable.

6.2. Rights of Shareholders.

The ownership of the Trust Property and the right to conduct any
business described in this declaration are vested exclusively in the Trustees,
and the Shareholders shall have no interest therein other than the beneficial
interest conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the Trust
nor can they be called upon to share or assume any losses of the Trust or suffer
an assessment of any kind by virtue of their ownership of Shares. The Shares
shall not entitle the holder to preference, preemptive, appraisal or conversion
rights (except for rights of appraisal specified in Section 11.4).

6.3. Trust Only.

It is the intention of the Trustees to create only the relationship
of Trustee and beneficiary between the Trustees and each Shareholder. It is not
the intention of the Trustees to create a general partnership, limited
partnership, joint stock association, corporation, bailment or any form of legal
relationship other than a trust.

<PAGE>

6.4. Issuance of Shares.

The Trustees, in their discretion, may from time to time without
vote of the Shareholders issue Shares in addition to the then issued and
outstanding Shares and Shares held in the treasury, to such party or parties and
for such amount not less than par value and type of consideration, including
cash or property, at such time or times and on such terms as the Trustees may
deem best, and may in such manner acquire other assets (including the
acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. In connection with any issuance of Shares, the
Trustees may issue fractional Shares. Contributions to the Trust may be accepted
for, and Shares shall be redeemed as, whole Shares and/or 1/1,000ths of a Share
or multiples thereof.

6.5. Register of Shares.

A register shall be kept at the principal office of the Trust or of
any transfer agent duly appointed by the Trustees under the direction of the
Trustees which shall contain the names and addresses of the Shareholders, the
number of Shares held by them and a record of all transfers thereof. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to such Shareholder as herein provided,
until such Shareholder has given his address to a transfer agent or such other
officer or agent of the Trustees as shall keep the register for entry thereon.
Certificates will not be issued for the Shares.

6.6. Transfer Agent.

The Trustees may enter into transfer agency and shareholder services
contracts whereby the other party shall undertake to furnish the Trustees
transfer agency and shareholder services. Such services may be provided by one
or more entities.

6.7. Transfer of Shares.

Shares shall be transferable on the records of the Trust only by the
record holder thereof or by the record holder's agent thereto duly authorized in
writing, upon delivery to the Trustees or a transfer agent of the Trust of a
duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as the
Trustees or transfer agent may reasonably require. Upon such delivery the
transfer shall be recorded on the applicable register of the Trust. Until such
record is made, the Shareholder of record shall be deemed to be the holder of
such Shares for all purposes hereof and neither the Trustees nor any transfer
agent or registrar nor any officer, employee or agent of the Trust shall be
affected by any notice of the proposed transfer.

Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the applicable register of Shares as the holder of
such Shares upon production of the proper evidence to the Trustees or a transfer
agent of the Trust, but until such record is made, the Shareholder of

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<PAGE>

record shall be deemed to be the holder of such Shares for all purposes and
neither the Trustees nor any transfer agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.

ARTICLE VII

Custodians

7.1. Appointment and Duties.

The Trustees shall at all times employ a custodian or custodians who
shall meet the qualifications for custodians for portfolio securities of
investment companies contained in the 1940 Act. Any custodian shall have
authority as agent of the Trust, but subject to such restrictions, limitations
and other requirements, if any, as may be contained in the By-Laws of the Trust
and the 1940 Act:

(1) to hold the securities owned by the Trust and deliver the
same upon written order;

(2) to receive any moneys due to the Trust and deposit the same
in its own banking department (if a bank) or elsewhere as the Trustees may
direct;

(3) to disburse such funds upon orders or vouchers;

(4) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and accounting services; and

(5) if authorized to do so by the Trustees, to compute the net
income of the Trust;

all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.

The Trustees may also authorize each custodian to employ one or more
sub-custodians to perform such of the acts and services of the custodian, and
upon such terms and conditions, as may be agreed upon between the custodian and
such sub-custodian and approved by the Trustees, provided that in every case
such sub-custodian shall meet the qualifications for custodians contained in the
1940 Act.

7.2. Central Certificate System.

Subject to such rules, regulations and orders as the Commission may
adopt, the Trustees may direct the custodian to deposit all or any part of the
securities owned by the Trust in a system for the central handling of securities
established by a national securities exchange or a

<PAGE>

national securities association registered with the Commission under the
Securities Exchange Act of 1934, or such other person as may be permitted by the
Commission, or otherwise in accordance with the 1940 Act, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
custodian at the direction of the Trustees.

ARTICLE VIII

Redemption

8.1. Redemption.

All outstanding Shares of the Trust may be redeemed at the option of
the Shareholders thereof, upon and subject to the terms and conditions provided
in this Article VIII. The Trust shall, upon application of any Shareholder,
redeem or repurchase from such Shareholder outstanding Shares for an amount per
share determined by the application of a formula adopted for such purpose by the
Trustees (which formula shall be consistent with the 1940 Act); provided that
(a) such amount per share shall not exceed the cash equivalent of the
proportionate interest of each share in the assets of the Trust at the time of
the purchase or redemption and (b) if so authorized by the Trustees, the Trust,
to the extent permitted under the 1940 Act, may charge fees for effecting such
redemption, at such rates as the Trustees may establish, to the extent permitted
under the 1940 Act, and, from time to time, pursuant to such Act, suspend such
right of redemption.

8.2. Involuntary Redemption of Shares; Disclosure of Holding.

If the Trustees shall in good faith be of the opinion that direct or
indirect ownership of Shares or other securities of the Trust has or may become
concentrated in any person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption a number, or principal amount, of Shares or other securities of
the Trust sufficient, in the opinion of the Trustees, to maintain or bring the
direct or indirect ownership of Shares or other securities of of the Trust into
conformity with the requirements for such qualification and (ii) to refuse to
transfer or issue Shares or other securities of the Trust to any Person whose
acquisition of the Shares or other securities of the Trust in question would, in
the opinion of the Trustees, result in such disqualification. The redemption
shall be effected at a redemption price determined in accordance with Section
8.1.

The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code or
with the requirements of any other taxing authority.

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<PAGE>

8.3. Redemptions of Small Accounts; Service Charges on Small Accounts.

Due to the relatively high cost of maintaining small investment
accounts, the Trustees shall have the power to require the redemption of Shares
of any Shareholder having a small value in the aggregate at a redemption price
determined in accordance with Section 8.1 or to impose monthly service charges
on such accounts.

ARTICLE IX

Determination of Net Asset Value, Net Income and Distributions

9.1. Net Asset Value.

The net asset value of each outstanding Share of the Trust shall be
determined at such time as the Trustees may determine, in accordance with the
1940 Act. The method of determination of net asset value shall be determined by
the Trustees. The power and duty to make the daily calculations may be delegated
by the Trustees to the adviser, administrator, manager, custodian, transfer
agent or such other persons as the Trustees may determine. The Trustees may
suspend the daily determination of net asset value to the extent permitted by
the 1940 Act.

9.2. Distributions to Shareholders.

The Trustees shall from time to time distribute ratably among the
Shareholders such proportion of the net profits, surplus (including paid-in
surplus), capital, or assets held by the Trustees as they may deem proper. Such
distribution may be made in cash or property (including without limitation any
type of obligations of the Trust or any assets thereof), and the Trustees may
distribute ratably among the Shareholders additional Shares in such manner, at
such times, and on such terms as the Trustees may deem proper. Such
distributions may be among the Shareholders of record at the time of declaring a
distribution or among the Shareholders of record at such later date as the
Trustees shall determine. The Trustees may always retain from the net profits
such amount as they may deem necessary to pay the debts or expenses of the Trust
or to meet obligations of the Trust, or as they may deem desirable to use in the
conduct of its affairs or to retain for future requirements or extensions of the
business. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate.

Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof under generally accepted
accounting principles, the above provisions shall be interpreted to give the
Trustees the power to distribute for any fiscal year as ordinary dividends and
as capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.

<PAGE>

9.3. Power to Modify Foregoing Procedures.

Notwithstanding any of the foregoing provisions of this Article IX,
the Trustees may prescribe such other bases and times for determining the per
share net asset value of the Shares or net income, or the declaration and
payment of dividends and distributions as they may deem necessary to enable the
Trust to comply with any provision of the 1940 Act, or the requirements of any
securities association registered under the Securities Exchange Act of 1934, or
any order of exemption issued by the Commission, all as in effect now or
hereafter amended or modified.

ARTICLE X

Shareholders

10.1. Meetings of Shareholders.

(a) Meetings. Meetings of the Shareholders shall be held, at such
place within or without the Commonwealth of Massachusetts on such day and at
such time as the Trustees shall designate. Such meetings of the Shareholders may
be called by the Trustees or the President and shall be called by the Trustees
upon written request of Shareholders owning at least one-tenth of the
outstanding Shares entitled to vote. The Secretary shall give at least ten and
not more than ninety days written notice of any meeting.

(b) Quorum. At any Shareholder meeting, unless otherwise provided by
law, this Declaration, or the By-Laws, the presence in person or by proxy of a
majority of the votes entitled to be cast constitutes a quorum, and a majority
of the votes so present is sufficient to approve any matter properly before the
meeting.

10.2. Voting Powers.

The Shareholders shall have power to vote (i) for the election of
Trustees as provided in Section 2.2; (ii) for the removal of Trustees as
provided in Section 2.3(d); (iii) with respect to any investment adviser or
sub-investment adviser as provided in Section 4.1; (iv) with respect to any
termination or reorganization of the Trust as provided in Sections 11.2, 11.3,
and 11.4; (v) with respect to the amendment of this Declaration of Trust as
provided in Section 11.3; (vi) to the same extent as the shareholders of a
Massachusetts business corporation as to whether or not a court action,
proceeding or claim should be brought or maintained derivatively or as a class
action on behalf of the Trust or the Shareholders; and (vii) with respect to
such additional matters relating to the Trust as may be required by law, by this
Declaration of Trust, or the By-Laws of the Trust or any registration of the
Trust or its Shares with the Securities and Exchange Commission or any State, or
as the Trustees may consider desirable. Each whole Share shall be

16
<PAGE>

entitled to one vote as to any matter on which it is entitled to vote, and each
fractional Share shall be entitled to a proportionate fractional vote. There
shall be no cumulative voting in the election of Trustees. Shares may be voted
in person or by proxy. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action required or permitted by law,
this Declaration of Trust or the By-Laws of the Trust to be taken by
Shareholders.

10.3. Notice of Meetings.

Notice of each meeting of the Shareholders, stating the time, place
and purposes of the meeting, shall be given by the Trustees by mail to each
Shareholder at his registered address, mailed at least 10 days and not more than
60 days before the meeting. Only the business stated in the notice of the
meeting shall be considered at such meeting. Any adjourned meeting may be held
as adjourned without further notice.

10.4. Record Date for Meeting.

For the purpose of determining the Shareholders who are entitled to
notice of and to vote at any meeting, or to participate in any distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding 30 days, as the Trustees may
determine; or without closing the transfer books the Trustees may fix a date not
more than 60 days prior to the date of any meeting of Shareholders or daily
dividends or other action as a record date for the determination of the persons
to be treated as Shareholders of record for such purposes, except for dividend
payments, which shall be governed by Section 9.2.

10.5. Proxies.

At any meeting of Shareholders, any holder of Shares entitled to
vote may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Secretary, or with such other
officer or agent of the Trust as the Secretary may direct, for verification
prior to the time at which such vote shall be taken. Pursuant to a resolution of
a majority of the Trustees, proxies may be solicited in the name of one or more
Trustees or one or more of the officers of the Trust. Only Shareholders of
record shall be entitled to vote. Each full Share shall be entitled to one vote
and fractional Shares shall be entitled to a vote of such fraction. When any
Share is held jointly by several persons, any one of them may vote at any
meeting in person or by proxy in respect of such Share, but if more than one of
them shall be present at such meeting in person or by proxy, and such joint
owners or their proxies so present disagree as to any vote to be cast, such vote
shall not be received in respect of such Share. A proxy purporting to be
executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise, and the burden of proving invalidity
shall rest on the challenger. If the holder of any such Share is a minor or a
person of unsound mind, and subject to guardianship or to the legal control of
any other person as regards the charge or management of such Share, he may vote
by his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy. Unless a proxy provides otherwise, it
is not valid more than 11 months after its date.

<PAGE>

10.6. Reports.

The Trustees shall cause to be prepared at least annually a report
of operations containing a balance sheet and statement of income and
undistributed income of the Trust prepared in conformity with generally accepted
accounting principles and an opinion of an independent public accountant on such
financial statements. Copies of such reports shall be mailed to all Shareholders
of record within the time required by the 1940 Act. The Trustees shall, in
addition, furnish to the Shareholders at least semiannually interim reports
containing an unaudited balance sheet as of the end of such period and an
unaudited statement of income and surplus for the period from the beginning of
the current fiscal year to the end of such period.

10.7. Inspection of Records.

The records of the Trust shall be open to inspection by Shareholders
to the same extent as is permitted shareholders of a Massachusetts business
corporation.

10.8. Shareholder Action by Written Consent.

Any action which may be taken by Shareholders may be taken without a
meeting if a majority of Shareholders entitled to vote on the matter (or such
larger proportion thereof as shall be required by any express provision of this
Declaration) consent to the action in writing and the written consents are filed
with the records of the meetings of Shareholders. Such consent shall be treated
for all purposes as a vote taken at a meeting of Shareholders.

ARTICLE XI

Duration; Termination of Trust; Amendment; Mergers, Etc.

11.1. Duration.

Subject to possible termination in accordance with the provisions of
Section 11.2 hereof, the Trust created hereby shall continue until the
expiration of 20 years after the death of the last survivor of the initial
Trustees named herein and the following named persons:

Name Address Date of Birth

Tyler V. Hill 85 Ledyard Road 2/25/75
West Hartford, CT 06117

Rebecca D. Ellis 130 Country View Drive 5/19/77
South Windsor, CT 06074

<PAGE>

11.2. Termination.

(a) The Trust may be terminated by the affirmative vote of the
holders of not less than two-thirds of the Shares of the Trust at any meeting of
Shareholders or by an instrument in writing, without a meeting, signed by a
majority of the Trustees and consented to by the holders of not less than
two-thirds of such Shares. Upon the termination of the Trust,

(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.

(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration shall
continue until the affairs of the Trust shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust, collect its assets,
sell, convey, assign, exchange, transfer or otherwise dispose of all or any part
of the remaining Trust Property to one or more persons at public or private sale
for consideration which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay its liabilities, and do all other
acts appropriate to liquidate its business; provided that any sale, conveyance,
assignment, exchange, transfer or other disposition of all or substantially all
the Trust Property shall require approval of the principal terms of the
transaction and the nature and amount of the consideration by vote or consent of
the holders of a majority of the Shares entitled to vote.

(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly in each,
among the Shareholders according to their respective rights.

(b) After termination of the Trust and distribution to the
Shareholders, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination. Upon termination of the Trust, the Trustees shall be discharged
from all further liabilities and duties hereunder, and the rights and interests
of all Shareholders shall cease.

11.3. Amendment Procedure.

(a) This Declaration may be amended by the affirmative vote of the
holders of not less than a majority of the Shares at any meeting of Shareholders
or by an instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of not less than a majority of such
Shares. The Trustees may also amend this Declaration without the vote or consent
of Shareholders if they deem it necessary to conform this Declaration to the
requirements of applicable federal laws or regulations, or the requirements of
the regulated investment company provisions of the Internal Revenue Code, but
the Trustees shall not be liable for failing so to do.

<PAGE>

(b) No amendment may be made, under Section 11.3 (a) above, which
would change any rights with respect to any Shares of the Trust by reducing the
amount payable thereon upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of the holders of two-thirds of the Shares. Nothing contained in this
Declaration shall permit the amendment of this Declaration to impair the
exemption from personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust, or to permit assessments upon Shareholders.

(c) A certification in recordable form signed by a majority of the
Trustees setting forth an amendment and reciting that it was duly adopted by the
Shareholders or by the Trustees as aforesaid, or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when lodged among the records of the
Trust.

Notwithstanding any other provision hereof, until the 1984 meeting of the
shareholder or shareholders of the Trust, this Declaration may be terminated or
amended in any respect by the affirmative vote of a majority of the Trustees or
by an instrument signed by a majority of the Trustees.

11.4. Merger, Consolidation and Sale of Assets.

The Trust may merge or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange all or
substantially all of the Trust Property, including its good will, upon such
terms and conditions and for such consideration when and as authorized at any
meeting of Shareholders called for that purpose, by the affirmative vote of the
holders of not less than two-thirds of the Shares, or by an instrument or
instruments in writing without a meeting, consented to by the holders of not
less than two-thirds of such Shares, and any such merger, consolidation, sale,
lease or exchange shall be deemed for all purposes to have been accomplished
under and pursuant to the statutes of the Commonwealth of Massachusetts. In
respect of any such merger, consolidation, sale or exchange of assets, any
Shareholder shall be entitled to rights of appraisal of his Shares to the same
extent as a shareholder of a Massachusetts business corporation in respect of a
merger, consolidation, sale or exchange of assets of a Massachusetts business
corporation, and such rights shall be his exclusive remedy in respect of his
dissent from any such action.

ARTICLE XII

Miscellaneous

12.1. Notices.

Whenever under applicable law, this Declaration or the By-Laws,
notice is required to be given to any Trustee, committee member, officer or
Shareholder, such notice may be given, in the case of Shareholders, by mail by
depositing the same in a United States post office or letter box, in a postpaid,
sealed wrapper, addressed to such Shareholder, at such address as

<PAGE>

appears on the books of the Trust, and, in the case of Trustees, committee
members and officers, by telephone, or by mail or by telegram to the last
business or home address known to the Secretary. Such notice shall be deemed
given when mailed, telegraphed or telephoned.

12.2. Filing.

This Declaration and any amendment hereto shall be filed in the
office of the Secretary of the Commonwealth of Massachusetts and in such other
places as may be required under the laws of Massachusetts and may also be filed
or recorded in such other places as the Trustees deem appropriate. Each
amendment so filed shall be accompanied by a certificate signed and acknowledged
by a Trustee stating that such action was duly taken in a manner provided
herein, and unless such amendment or such certificate sets forth some later time
for the effectiveness of such amendment, such amendment shall be effective upon
its filing. A restated Declaration, containing the original Declaration and all
amendments made, may be executed by a majority of the Trustees and shall, upon
filing with the State Secretary of the Commonwealth of Massachusetts, be
conclusive evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Declaration and the various amendments
thereto.

12.3. Resident Agent.

The Trust shall maintain a resident agent in the Commonwealth of
Massachusetts, which agent shall initially be CT Corporation System, 2 Oliver
Street, Boston, MA 02109. The Trustees may designate a successor resident agent,
provided, however, that such appointment shall not become effective until
written notice thereof is delivered to the office of the Secretary of the
Commonwealth.

12.4. Governing Law.

This Declaration is executed by the Trustees and delivered in the
Commonwealth of Massachusetts. The rights of all parties and the validity and
construction of every provision shall be subject to and construed according to
the laws of said State, and reference shall be specifically made to the business
corporation law of the Commonwealth of Massachusetts as to the construction of
matters not specifically covered herein or as to which an ambiguity exists.

12.5. Reliance by Third Parties.

Any certificate executed by an individual who, according to the
records of the Trust, or of any recording office in which this Declaration may
be recorded, appears to be a Trustee hereunder, certifying to: (a) the number or
identity of Trustees or Shareholders, (b) the name of the Trust, (c) the due
authorization of the execution of any instrument or writing, (d) the form of any
vote passed at a meeting of Trustees or Shareholders, (e) the fact that the
number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the
21

<PAGE>

requirements of this Declaration, (f) the form of any By-Laws adopted by or the
identity of any officers elected by the Trustees, or (g) the existence of any
fact or facts which in any manner relate to the affairs of the Trust, shall be
conclusive evidence as to the matters so certified in favor of any person
dealing with the Trustees and their successors.

12.6. Provisions in Conflict With Law or Regulations.

(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Declaration; provided, however, that such determination shall not
affect any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.

(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction, and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.

12.7. Trust Name.

The Trust is adopting its name by permission of Aetna Life and
Casualty Company, and the Trust's right to use the name "Aetna" is subject to
the right of Aetna Life and Casualty Company or its assigns to elect that the
Trust stop using the name "Aetna" in any literature or reference whatsoever, in
the event that the securities portfolio of the Trust shall cease to be managed
by Aetna Life and Casualty Company or some other corporation controlled by, or
affiliated with it. The use by this Trust of the name "Aetna" shall in no way
prevent Aetna Life and Casualty Company, or any corporation or other entity
controlled by or affiliated with said company or its respective successors or
assigns, from using or permitting the use of the name "Aetna" for, by or in
connection with any other entity or business, whether or not the same directly
or indirectly competes or conflicts with this Trust or its business in any
manner.

/s/ Donald G. Conrad /s/ James E. Mulvihill
- -------------------- ----------------------
Donald G. Conrad James E. Mulvihill

/s/ David L. Grove /s/ Corine T. Norgaard
- -------------------- -----------------------
David L. Grove Corine T. Norgaard

/s/ Dean E. Wolcott
--------------------
Dean E. Wolcott

22
<PAGE>

TRUSTEES

NAME ADDRESS
Donald G. Conrad 151 Farmington Avenue
Hartford, Connecticut 06156

David L. Grove U.S. Council for International
Business
21st Floor
1212 Avenue of the Americas
New York, New York 10036

James E. Mulvihill Vice President for Health Affairs
University of Conn. Health Center
Farmington, Connecticut 06032

Corine T. Norgaard School of Business Administration
University of Connecticut
Storrs, Connecticut 06268

Dean E. Wolcott 151 Farmington Avenue
Hartford, Connecticut 06156

AETNA INCOME SHARES
AMENDED AND RESTATED BY-LAWS

ARTICLE I

NAME, OFFICES

Section 1. Name of Trust. The name of the Trust shall be Aetna Income
Shares (the "Trust").

Section 2. Principal Office. Until changed by the Trustees, the principal
office of the trust in the Commonwealth of Massachusetts shall be in Boston or
such other place as the officers of the Trust may determine from time to time.
The principal office outside the Commonwealth of Massachusetts shall be in
Hartford, Connecticut.

Section 3. Other Offices. The Trust may have offices in such other
places without as well as within the Commonwealth of Massachusetts as the
Trustees may from time to time determine.

ARTICLE II

BOARD OF TRUSTEES

Section 1. Powers. The business and affairs of the Trust shall be
managed by the Trustees, and they shall have all powers necessary and
desirable to carry out that responsibility.

Section 2. Meetings. The Trustees may in their discretion provide for
annual or regular meetings of the Board of Trustees (the "Board"). Special
meetings of the Board shall be held whenever called by the President or any
Trustee. The Board may hold its meetings at such place or places as it may from
time to time determine.

Section 3. Notice. The Secretary or Assistant Secretary shall give, at
least two days before the meeting, notice of each meeting of the Board, whether
annual, regular or special, to each member of the Board by mail, telegram or
telephone to his last known address. It should not be necessary to state the
purpose or business to be transacted in the notice of any annual or regular
meeting. The notice of a Special Meeting shall state the purpose or purposes for
which it is called. Personal attendance at any meeting by a Trustee other than
to protest the validity of said meeting shall constitute a waiver of the
foregoing requirement of notice.

Section 4. Quorum. A majority of the Trustees at the time in office shall
constitute a quorum, except as the Investment Company Act of 1940 shall require
a larger quorum for specific purposes. A majority of the Trustees present and
constituting a quorum shall

<PAGE>

decide matters before the Board, unless a greater vote is required by law, these
By-Laws, or the Declaration of Trust.

Section 5. Informal Action by Trustees. Any action required or permitted to
be taken at any annual, regular or special meeting of the Board may be taken at
a telephonic meeting or without a meeting, if a written consent to such action
is signed by all members of the Board and such written consent is filed with the
minutes of proceedings of the Board.

Section 6. Compensation of Trustees. The Trustees may receive a stated
salary for their services as Trustees, and by Resolution of the Board a fixed
fee and expenses of attendance may be allowed for attendance at each Meeting.
Nothing herein contained shall be construed to preclude any Trustee from serving
the Trust in any other capacity, as an officer, agent or otherwise, and
receiving compensation therefor.

ARTICLE III

EXECUTIVE AND OTHER COMMITTEES

Section 1. Executive Committee. The Board may elect from its members an
Executive Committee of not less than three which may, when the Board is not in
session, exercise all the powers of the Board except the power to declare
dividends, to issue stock or to recommend to shareholders any action requiring
shareholder approval. The Executive Committee may make rules for the holding and
conduct of its meetings and keeping the records thereof, and shall report its
action to the Board.

Section 2. Audit Committee. The Board may elect from its members an Audit
Committee of not less than three non-officer Trustees. The Committee shall be
responsible for reviewing the audit procedures of the Trust, the qualifications
of independent certified public accountants performing the audit functions, the
annual reports of such accountants and shall perform such other functions as are
consistent with the general purposes of an audit committee.

Section 3. Other Committees. The Board may elect from its members such
other committees from time to time as it may desire. The number composing such
committees and the powers conferred upon them shall be determined by the Board
at its own discretion.

Section 4. Consents. Any action required or permitted to be taken at any
meeting of the Executive Committee or any other duly appointed Committee may be
taken without a meeting if written consent to such action is signed by all
members.

<PAGE>

ARTICLE IV

OFFICERS

Section 1. Selection. The Trust shall have a President (who shall also be a
Trustee), one or more Vice Presidents, a Secretary, a Treasurer, and such other
officers as the Board of Trustees may elect. All officers shall be elected
annually by the Board, and unless the Board otherwise provides, shall serve
until the next annual meeting of the Board following their election. The Board
may elect or appoint additional officers or agents at any regular or special
meeting of the Board. The Trustees may delegate to any officer or committee the
power to appoint any subordinate officers or agents. The Secretary and Treasurer
may be the same person. A Vice President and the Treasurer or a Vice President
and the Secretary may be the same person, but the offices of Vice President,
Secretary and Treasurer shall not be held by the same person. The President
shall hold no other office. Except as above provided, the same person may hold
more than one office.

Section 2. Removal. Any officer elected by the Board may be removed with or
without cause at any time upon a vote of the majority of the entire Board. Any
other employee of the Trust may be removed or dismissed at any time with or
without cause by the President. Any vacancy in any of the offices may be filled
for the unexpired portion of the term by the Board at any regular or special
meeting of the Board.

Section 3. The President. The President shall be the chief executive
officer of the Trust; shall have general and active management of the business,
affairs and property of the Trust; shall see that all orders and resolutions of
the Board are carried into effect; and shall preside at meetings of shareholders
and of the Board.

Section 4. The Vice President. The Vice President (or if more than one, the
Senior Vice President) shall have such powers and perform such duties as may be
assigned to him by the Board, the Executive Committee or the President. In the
absence or disability of the President, the Vice President shall perform all
duties and may exercise any of the powers of the President, subject to the
control of the Board.

Section 5. The Secretary. The Secretary shall keep or cause to be kept
accurate minutes of all meetings of the shareholders and the Board; shall see
that all Notices are duly given in accordance with these By-Laws and as required
by law; and shall perform all duties commonly incident to the office and such
other duties and have such other powers as the Board, the Executive Committee or
the President shall from time to time designate.

Section 6. The Treasurer. The Treasurer shall be the chief financial and
accounting officer of the Trust. Subject to the order of the Board and in
accordance with any arrangements approved by the Board, the Treasurer shall have
the custody of the funds and securities of the Trust and shall have and exercise
all powers and duties commonly incident to the office and as provided by law and
such other duties as may be from time to

<PAGE>

time assigned to him by the Board, the Executive Committee or the President. The
Treasurer, whenever required by the Board, shall make and render a statement of
the accounts of the Trust and such other statements as may be required.

Section 7. Assistant Vice President. The Assistant Vice President or Vice
Presidents of the Trust shall have such authority and perform such duties as may
be assigned to them by the Board, the Executive Committee or the President.

Section 8. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretary or Secretaries and the Assistant Treasurer or Treasurers shall perform
the duties of the Secretary and of the Treasurer respectively, in the absence of
those officers, and shall have such further powers and perform such other duties
as may be assigned to them, respectively, by the Board, the Executive Committee
or the President.

Section 9. Salaries. The salaries of the officers shall be fixed from
time to time by the Board. No officer shall be prevented from receiving such
salary by reason of the fact that he is also a Trustee.

ARTICLE V

CUSTODIAN

Section 1. Appointment. All securities and cash owned by the Trust or any
series thereof shall, as hereinafter provided, be held by or deposited with a
bank or trust company having (according to its last published report) not less
than five million dollars ($5,000,000) aggregate capital, surplus and undivided
profits (which bank or trust company is hereby designated as "Custodian"),
provided such a Custodian can be found ready and willing to act.

Section 2. Subcustodian. The Trustees may authorize the Custodian to employ
one or more Subcustodians from time to time to perform such of the acts and
services of the Custodian and upon such terms and conditions as may be agreed
upon between the Custodian and such sub-Custodian and approved by the Trustees,
provided that in every case such sub-Custodian shall be a bank or trust company
organized under the laws of the United States or one of the states thereof and
having capital, surplus and undivided profits of at least $5,000,000.

Section 3. Contract; Successor Custodian. The Trust shall enter into a
written contract with the Custodian regarding the powers, duties and
compensation of the Custodian with respect to the cash and securities of the
Trust held by the Custodian. Said contract and all amendments thereto shall be
approved by the Board of Trustees of the Trust. The following provisions shall
apply to the employment of a Custodian pursuant to this Article V and to any
contract entered into with the Custodian so employed:

<PAGE>

(a) The Trustees shall cause to be delivered to the Custodian all securities
owned by the Trust or to which it may become entitled, and shall order
the same to be delivered by the Custodian only upon completion of a
sale, exchange, transfer, pledge, or other disposition thereof, and upon
receipt by the Custodian of the consideration therefor or a certificate
of deposit or a receipt of an issuer or of its Transfer Agent, all as
the Trustees may generally or from time to time require or approve, or
to a successor Custodian; and the Trustees shall cause all funds owned
by the Trust or to which it may become entitled to be paid to the
Custodian, and shall order the same disbursed only for investment
against delivery of the securities acquired, or in payment of expenses,
including management compensation, and liabilities of the Trust,
including distributions to shareholders, or to a successor Custodian;
provided, however, that nothing herein shall prevent delivery of
securities for examination to the broker purchasing the same in accord
with the "street delivery" custom whereby such securities are delivered
to such broker in exchange for a delivery receipt exchanged on the same
day for an uncertified check of such broker to be presented on the same
day for certification.

(b) In case of the resignation, removal or inability to serve of any such
Custodian, the Trust shall promptly appoint another bank or trust
company meeting the requirements of this Article V as successor
Custodian. The agreement with the Custodian shall provide that the
retiring Custodian shall, upon receipt of notice of such appointment,
deliver all Trust Property in its possession to such successor, and that
pending appointment of a successor Custodian, or a vote of the
Shareholders to function without a Custodian, the Custodian shall not
deliver any Trust property to the Trust, but may deliver all or any part
of the Trust property to a bank or trust company of its own selection,
having an aggregate capital, surplus and undivided profits (as shown in
its last published report) of at least $5,000,000; provided that
arrangements are made for the Trust property to be held under terms
similar to those on which they were held by the retiring Custodian.

ARTICLE VI

GENERAL PROVISIONS

Section 1. Waivers of Notice. Whenever any notice whatever is required to
be given under the provisions of any statute of the Commonwealth of
Massachusetts, or under the provisions of the Declaration of Trust or these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. A person's presence shall waive notice.

Section 2. Execution of Documents. Except as otherwise provided in these
By-Laws, all documents may be executed on behalf of the Trust by the President
or any Vice

<PAGE>

President or by any other officer or agent authorized to act in such
matters, whether by law, the Declaration of Trust, these By-Laws or any
authorization of the Board.

Section 3. Limitation Concerning Participating by Interested Persons in
Investment Decisions. In any case where an officer or Trustee of the Trust, or a
member of an advisory committee or portfolio committee of the Trust, is also an
officer or a director or Trustee of another corporation, and the purchase or
sale of shares issued by that other corporation is under consideration, such
individual or committee member will abstain from participating in any decision
made on behalf of the Trust to purchase or sell any securities issued by such
other corporation.

ARTICLE VII

AMENDMENTS

Section 1. The Board shall have the power, at any annual, regular or
special meeting, if notice thereof be included in the notice of such meeting, to
alter, amend or repeal any By-Laws of the Trust and to make new By-Laws.

Section 2. The shareholders shall have the power, at any annual meeting or
at any special meeting if notice thereof be included in the notice of such
meeting, to alter, amend or repeal any By-Laws of the Trust or to make new
By-Laws.

- -------------------------------------------------------
Custodian Agreement
between
Mellon Bank, N.A.
and
Aetna Income Shares
- -------------------------------------------------------

<PAGE>

INDEX

Paragraph Page
1. Appointment.......................................................... 1
2. Delivery of Documents................................................ 1
3. Definitions.......................................................... 2
4. Delivery and Registration of the Property............................ 3
5. Receipt and Disbursement of Money.................................... 4
6. Receipt of Securities................................................ 4
7. Use of Book-Entry System............................................. 5
8. Instructions Consistent with Declaration, Etc........................ 6
9. Transactions Not Requiring Instructions.............................. 7
10. Transactions Requiring Instructions.................................. 8
11. Segregated Accounts; Securities Lending.............................. 9
12. Dividends and Distributions.......................................... 11
13. Purchases of Securities.............................................. 12
14. Sales of Securities.................................................. 12
15. Records.............................................................. 12
16. Reports.............................................................. 13
17. Cooperation with Accountants......................................... 13
18. Confidentiality...................................................... 14
19. Right to Receive Advice.............................................. 14
20. Compensation......................................................... 15
21. Indemnification...................................................... 15
22. Responsibility of the Bank........................................... 15
23. Collections.......................................................... 16
24. Duration and Termination............................................. 17
25. Notices.............................................................. 19
26. Further Actions...................................................... 19
27. Amendments........................................................... 19
28. Counterparts......................................................... 20
29. Miscellaneous........................................................ 20

i
<PAGE>

CUSTODIAN AGREEMENT

THIS AGREEMENT is made by and between AETNA INCOME SHARES., a Massachusetts
business trust (the "Fund"), and MELLON BANK, N.A., a national banking
association (the "Bank").

W I T N E S S E T H :

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

WHEREAS, the Fund, for which Aetna Life and Annuity Company ("Adviser")
serves as investment adviser, desires to retain the Bank to serve as the Fund's
custodian on the terms set forth herein, and the Bank is willing to serve as
such;

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:

1. Appointment. The Fund hereby appoints the Bank to act as custodian of the
portfolio securities, cash and other property belonging to the Fund for the
period and on the terms set forth in this Agreement. The Bank accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Paragraph 20 of this Agreement. The Bank agrees
to comply with all relevant provisions of the 1940 Act and applicable rules and
regulations thereunder.

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

(a) Resolutions of the Fund's Board of Trustees authorizing the
appointment of the Bank as custodian of the portfolio securities, cash and other
property belonging to the Fund and approving this Agreement;

<PAGE>

(b) Appendix A identifying and containing the signatures of the Fund's
officers and/or officers of the Fund's Adviser authorized to issue Oral
Instructions and to sign Written Instructions, as hereinafter defined, on behalf
of the Fund;

(c) The Fund's Declaration of Trust as filed with Secretary of the
Commonwealth of Massachusetts and all amendments thereto (such Declaration of
Trust, as presently in effect and as it shall from time to time be amended, is
herein called the "Declaration");

(d) The Fund's By-Laws and all amendments thereto (such By-Laws, as
presently in effect and as they shall from time to time be amended, are herein
called the "By-Laws");

(e) The Investment Advisory Agreement currently in effect (the
"Advisory Agreement") between the Fund and the Adviser; and

(f) The Fund's most recent prospectus and statement of additional
information relating to shares of the Fund's units of beneficial interest
("Shares") (such prospectus and statement of additional information as presently
in effect and all amendments and supplements thereto are herein called the
"Prospectus");

The Fund will furnish the Bank from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.

3. Definitions.

(a) "Authorized Person". As used in this Agreement, the term "Authorized
Person" means any of the officers of the Fund or the Adviser (whether or not any
such person is an officer or employee of the Fund): (i) who is duly authorized
by the Board of Trustees of the Fund or under the terms of the Advisory
Agreement, the Declaration or the By-Laws, as each may from time to time be
amended, to act on behalf of the Fund; and (ii) whose name is listed on the
Certificate annexed hereto as Appendix A or any amendment thereto as may be
received by the Bank from time to time.

(b) "Book-Entry System". As used in this Agreement, the term "Book-Entry
System" means the Federal Reserve Treasury book-entry system for United States
and federal agency securities, its successor or successors and its nominee or
nominees and any book-entry system

<PAGE>

maintained by a clearing agency registered with the Securities and Exchange
Commission (the "SEC") under Section 17A of the Securities Exchange Act of 1934
(the "1934 Act").

(c) "Oral Instructions". As used in this Agreement, the term "Oral
Instructions" means oral instructions actually received by the Bank from an
Authorized Person or from a person reasonably believed by the Bank to be an
Authorized Person. The Fund agrees to deliver to the Bank, at the time and in
the manner specified in Paragraph 8(b) of this Agreement, Written Instructions
confirming Oral Instructions.

(d) "Property". The term "Property", as used in this Agreement,
means:

(i)any and all securities and other property which the Fund may from
time to time deposit, or cause to be deposited, with the Bank or which the
Bank may from time to time hold for the Fund;

(ii) all income in respect of any of such securities or other
property;

(iii) all proceeds of the sale of any of such securities or other
property; and

(iv) all proceeds of the sale of securities issued by the Fund,
which are received by the Bank from time to time from or on behalf of the
Fund.

(e) "Written Instructions". As used in this Agreement, the term "Written
Instructions" means written instructions delivered by hand (including Federal
Express or other express courier), certified or registered mail, return receipt
requested, tested telegram, cable, telex or facsimile sending device, received
by the Bank and signed by an Authorized Person and shall also include computer
transmission with coded access as agreed upon by the Bank and the Fund.

4. Delivery and Registration of the Property. The Fund will deliver or cause
to be delivered to the Bank all securities and all moneys owned by it, including
cash received for the issuance of Shares, at any time during the period of this
Agreement. The Bank will not be responsible for such securities and such moneys
until actually received by it. All securities delivered to the Bank (other than
in bearer form) shall be registered in the name of the Fund or in the name of a
nominee of the Fund or in the name of any nominee of the Bank (with or without
indication of fiduciary status), or in the name of any sub-custodian or any
nominee of any such

<PAGE>

sub-custodian appointed pursuant to Paragraph 6 hereof or shall be properly
endorsed and in form for transfer satisfactory to the Bank.

5. Receipt and Disbursement of Money.

(a) Not less frequently than once on the afternoon of each business day,
all cash held in the custody account, other than cash required to settle
securities transactions on such business day, shall be transferred to the
trustee under a Trust Agreement of even date herewith between the Bank and the
Fund and attached hereto as Exhibit A.

The Bank shall make payments of cash to, or for the account of, the Fund
from such cash only (i) for the purchase of securities for the Fund's portfolio
as provided in Paragraph 13 hereof; (ii) upon receipt of Written Instructions,
for the payment of interest, dividends, taxes, fees or expenses of the Fund;
(iii) upon receipt of Written Instructions, for payments in connection with the
conversion, exchange or surrender of securities owned or subscribed to by the
Fund and held by or to be delivered to the Bank; (iv) to a sub-custodian
pursuant to Paragraph 6 hereof; (v) for the redemption of Shares; (vi) for
payment of the amount of dividends received in respect of securities sold short
against the box; or (vii) upon receipt of Written Instructions, for other proper
Fund purposes. No payment pursuant to (i) above shall be made unless the Bank
has received a copy of the broker's or dealer's confirmation or the payee's
invoice, as appropriate.

(b) The Bank is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received as custodian for the
account of the Fund.

6. Receipt of Securities.

(a) Except as provided by Paragraph 7 hereof, the Bank shall hold and
physically segregate in a separate account, identifiable at all times from those
of any other persons, firms, or corporations, all securities and non-cash
property received by it for the account of the Fund. All such securities and
non-cash property are to be held or disposed of by the Bank for the Fund
pursuant to the terms of this Agreement. In the absence of Written Instructions
accompanied by a certified resolution of the Fund's Board of Trustees
authorizing the transaction, the Bank shall have no power or authority to
withdraw, deliver, assign, hypothecate, pledge or otherwise

<PAGE>

dispose of any such securities and investments except in accordance with the
express terms provided for in this Agreement. In no case may any director,
officer, employee or agent of the Fund withdraw any securities.

In connection with its duties under this Paragraph 6, the Bank may, at its
own expense, enter into sub-custodian agreements with other banks or trust
companies for the receipt of certain securities and cash to be held by the Bank
for the account of the Fund pursuant to this Agreement, provided that each such
bank or trust company has an aggregate capital, surplus and undivided profits,
as shown by its last published report, of not less than ten million dollars
($10,000,000) and that such bank or trust company agrees with the Bank to comply
with all relevant provisions of the 1940 Act and applicable rules and
regulations thereunder. The Bank shall remain responsible for the performance of
all of its duties under this Agreement and shall hold the Fund harmless from the
acts and omissions, under the standards of care applicable to the Bank under
Paragraph 22 hereof, of any bank or trust company that it might choose pursuant
to this Paragraph 6 or of the Book-Entry System.

(b) Where securities are transferred to an account of the Fund
established pursuant to Paragraph 7 hereof, the Bank shall also by book-entry or
otherwise identify as belonging to the Fund the quantity of securities in a
fungible bulk of securities registered in the name of the Bank (or its nominee)
or shown in the Bank's account on the books of the Book-Entry System. The Bank
shall furnish the Fund with reports relating to Property held for the Fund under
this Agreement in accordance with Paragraph 16 hereof.

7. Use of Book-Entry System. The Fund shall deliver to the Bank certified
resolutions of the Board of Trustees of the Fund approving, authorizing and
instructing the Bank on a continuous and on-going basis until instructed to the
contrary by Oral or Written Instructions actually received by the Bank (a) to
deposit in the Book-Entry System all securities belonging to the Fund eligible
for deposit therein and (b) to use the Book-Entry System to the extent possible
in connection with settlements of purchases and sales of securities by the Fund,
and deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in

<PAGE>

connection with borrowings. Without limiting the generality of such use, it is
agreed that the following provisions shall apply thereto:

(a) Securities and any cash of the Fund deposited in the Book-Entry
System will at all times be segregated from any assets and cash controlled by
the Bank in other than a fiduciary or custodian capacity but may be commingled
with other assets held in such capacities.

(b) All books and records maintained by the Bank which relate to the
Fund's participation in the Book-Entry System will at all times during the
Bank's regular business hours be open to the inspection of the Fund's duly
authorized employees or agents, and the Fund will be furnished with all
information in respect of the services rendered to it as it may require.

(c) The Bank will provide the Fund with copies of any report obtained by
the Bank on the system of internal accounting control of the Book-Entry System
promptly after receipt of such a report by the Bank. The Bank will also provide
the Fund with such reports on its own system of internal control as the Fund may
reasonably request from time to time.

8. Instructions Consistent with Declaration, Etc.

(a) Unless otherwise provided in this Agreement, the Bank shall act only
upon Oral and Written Instructions. Although the Bank may know of the provisions
of the Declaration and By-Laws of the Fund, the Bank may assume that any Oral or
Written Instructions received hereunder are not in any way inconsistent with any
provisions of such Declaration or By-Laws or any vote, resolution or proceeding
or the Fund's shareholders, or of its board of trustees, or of any committee
thereof.

(b) The Bank shall be entitled to rely upon any Oral Instructions and
any Written Instructions actually received by the Bank pursuant to this
Agreement. The Fund agrees to forward to the Bank Written Instructions
confirming Oral Instructions in such manner that the Written Instructions are
received by the Bank by the close of business of the same day that such Oral
Instructions are given to the Bank. The Fund agrees that the fact that such
confirming Written Instructions are not received by the Bank shall in no way
affect the validity of the transactions or enforceability of the transactions
authorized by the Fund by giving Oral

<PAGE>

Instructions. The Fund agrees that the Bank shall incur no liability to the Fund
in acting upon Oral Instructions given to the Bank hereunder concerning such
transactions, provided such instructions reasonably appear to the Bank to have
been received from an Authorized Person.

9. Transactions Not Requiring Instructions. In the absence of contrary
Written Instructions, the Bank is authorized to take the following actions:

(a) Collection of Income and Other Payments. The Bank shall:

(i)collect and receive for the account of the Fund, all income
and other payments and distributions, including (without limitation) stock
dividends, rights, bond coupons, option premiums and similar items, included
or to be included in the Property, and promptly advise the Fund of such
receipt and shall credit such income, as collected, to the Fund's custodian
account;

(ii) endorse and deposit for collection, in the name of the Fund,
checks, drafts, or other orders for the payment of money on the same day as
received;

(iii) receive and hold for the account of the Fund all securities
received as a distribution on the Fund's portfolio securities as a result of
a stock dividend, share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of rights or similar
securities issued with respect to any portfolio securities belonging to the
Fund held by the Bank hereunder;

(iv) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed, or retired, or otherwise
become payable on the date such securities become payable; and

(v) ake any action which may be necessary and proper in connection
with the collection and receipt of such income and other payments and the
endorsement for collection of checks, drafts, and other negotiable
instruments as described in paragraph 23 of this Agreement.

<PAGE>

(b) Miscellaneous Transactions. The Bank is authorized to deliver or
cause to be delivered Property against payment of other consideration or
written receipt therefor in the following cases:

(i)for examination by a broker selling for the account of the
Fund in accordance with street delivery custom;

(ii) for the exchange of interim receipts or temporary
securities for definitive securities; and

(iii) for transfer of securities into the name of the Fund or the
Bank or nominee of either, or for exchange of securities for a different
number of bonds, certificates, or other evidence, representing the same
aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions, if any; provided that, in any such
case, the new securities are to be delivered to the Bank.

10. Transactions Requiring Instructions. Upon receipt of Oral or Written
Instructions and not otherwise, the Bank, directly or through the use of the
Book-Entry System, shall:

(a) execute and deliver to such persons as may be designated in such
Oral or Written Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;

(b) deliver any securities held for the Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise of any conversion
privilege;

(c) deliver any securities held for the Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;

<PAGE>

(d) make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said Oral or Written Instructions to be
for the purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Fund;

(e) release securities belonging to the Fund to any bank or trust
company for the purpose of pledge or hypothecation to secure any loan incurred
by the Fund; provided, however, that securities shall be released only upon
payment to the Bank of the monies to be received by the Bank in accordance with
such Oral or Written Instructions, except that in cases where additional
collateral is required to secure a borrowing already made, in which case and
subject to receipt by the Bank of "Oral or Written Instructions", further
securities may be released for that purpose; and repay such loan upon redelivery
to it of the securities pledged or hypothecated therefor and upon surrender of
the note or notes evidencing the loan;

(f) release and deliver securities owned by the Fund in connection with
any repurchase agreement entered into on behalf of the Fund, but only on receipt
of payment therefor; and pay out moneys of the Fund in connection with such
repurchase agreements, but only upon the delivery of the securities; and

(g) otherwise transfer, exchange or deliver securities in accordance
with Oral or Written Instructions.

11. Segregated Accounts; Securities Lending.

(a) The Bank shall upon receipt of Written or Oral Instructions
establish and maintain a segregated account or accounts on its records for and
on behalf of the Fund, into which account or accounts may be transferred cash
and/or securities, including securities in the Book-Entry System (i) for the
purposes of compliance by the Fund with the procedures required by a securities
or option exchange, provided such procedures comply with the 1940 Act and
Investment Company Act Release No. 10666 (April 18, 1979) or any subsequent
release or releases of the SEC relating to the maintenance of segregated
accounts by registered investment

<PAGE>

companies, and (ii) for other proper corporate purposes, but only, in the case
of clause (ii), upon receipt of Written Instructions.

(b) The Bank hereby acknowledges that the Fund may require it to enter
into one or more third-party custodial agreements regarding the Fund's purchases
and sales of futures contracts and options thereon, and that any such
third-party agreement with a futures commission merchant may contain any
provisions which the Fund and the futures commission merchant reasonably deem
necessary and which do not subject the Bank to higher standards of care (except
as may be required by law) than does this Agreement.

(c) The Fund may, from time to time, furnish the Bank with copies of
securities loan agreements (singly "Securities Loan Agreement" and collectively
"Securities Loan Agreements"), pursuant to which the Fund may lend securities of
any series of the Fund to the respective brokerage firms named therein (singly
the "Brokerage Firm" and collectively the "Brokerage Firms").

In each such case, and until the Fund shall have given the Bank Written
Instructions that such Securities Loan Agreement has terminated, the Fund
authorizes the Bank, as its agent in connection with the lending of securities
from time to time upon receipt by the Bank of Oral or Written Instructions: (a)
to deliver to the Brokerage Firm named in the Securities Loan Agreement specific
securities held for the Fund's account, it being understood that in each case
the Bank will give prompt notice thereof to the Fund; (b) to receive from the
Brokerage Firm a certified or bank cashier's check, in immediately available
funds, or obligations of the U. S. Government in an amount equal to the then
market value of the securities, as specified in such Instructions.

The Fund will evaluate on a daily basis its rights and obligations under
each Securities Loan Agreement, such as marking to market, and will demand that
additional collateral be delivered to the Bank by the Brokerage Firm under
proper advice to the Bank, or shall give Oral or Written Instructions to the
Bank to release excess collateral to the Brokerage Firm.

<PAGE>

The Bank may, through its commercial, trust or other departments, be a
creditor for its own account, or represent in a fiduciary capacity other
creditors and/or customers, or any Brokerage Firm, even though any of such
interests may potentially be in conflict with those of the Fund.

The Fund represents that it has the power and authority to lend the
securities in accordance with a Securities Loan Agreement and that such lending
as provided in such Securities Loan Agreement and as provided herein, has been
duly authorized by all necessary action, has received any required regulatory
approval and will not violate any law, regulation, Declaration, By-law or other
instrument, restriction or provision applicable to the Fund.

With respect to acting as agent for the Fund in connection with the lending
of securities to Brokerage Firms pursuant to Securities Loan Agreements, the
Bank shall have no duties or responsibilities except those expressly set forth
herein and the Fund will indemnify the Bank against any liability which it may
incur in connection with such lending in accordance with Paragraph 21 hereof;
the Bank shall have no responsibility in connection with the present or future
financial condition of any such Brokerage Firm or any failure on the part of any
such Brokerage Firm to return any such securities for any reason whatsoever or
to comply with any provision of any Securities Loan Agreement or any failure on
the part of any such Brokerage Firm to comply with any law or regulation, all
such risks being assumed by the Fund.

12. Dividends and Distributions.

The Fund shall furnish the Bank with appropriate evidence of action by the
Fund's Board of Trustees declaring and authorizing the payment of any dividends
and distributions. Upon receipt by the Bank of Written Instructions with respect
to dividends and distributions declared by the Fund's Board of Trustees and
payable to shareholders of the Fund who have elected in the proper manner to
receive their distributions or dividends in cash, and in conformance with
procedures mutually agreed upon by the Bank, the Fund, and the Fund's transfer
agent, the Bank shall pay to the Fund's transfer agent, as agent for the Fund's
shareholders, an amount equal to the amount indicated in said Written
Instructions as payable by the Fund to such shareholders for distribution in
cash by the transfer agent to such shareholders.

<PAGE>

13. Purchases of Securities. Promptly after each decision to purchase
securities by the Advisor, the Fund, through the Advisor, shall deliver to the
Bank Written or Oral Instructions specifying with respect to each such purchase:
(a) the name of the issuer and the title of the securities, (b) the number of
shares or the principal amount purchased and accrued interest, if any, (c) the
date of purchase and settlement, (d) the purchase price per unit, (e) the total
amount payable upon such purchase and (f) the name of the person from whom or
the broker through whom the purchase was made. Oral Instructions shall be
confirmed by Written Instructions. The Bank shall upon receipt of securities
purchased by or for the Fund pay out of the moneys held for the account of the
Fund the total amount payable to the person from whom or the broker through whom
the purchase was made, provided that the same conforms to the total amount
payable as set forth in such Oral Instructions in accordance with current
industry practices.

14. Sales of Securities. Promptly after each decision to sell securities by
the Advisor or exercise of an option written by the Fund, the Fund, through the
Advisor, shall deliver to the Bank Oral or Written Instructions, specifying with
respect to each such sale: (a) the name of the issuer and the title of the
security, (b) the number of shares or principal amount sold, and accrued
interest, if any, (c) the date of sale and settlement, (d) the sale price per
unit, (e) the total amount payable to the Fund upon such sale, and (f) the name
of the broker through whom or the person to whom the sale was made. The Bank
shall deliver the securities upon receipt of the total amount payable to the
Fund upon such sale, provided that the same conforms to the total amount payable
as set forth in such Oral Instructions in accordance with current industry
practice. Subject to the foregoing, the Bank may accept payment in such form as
shall be satisfactory to it, and may deliver securities and arrange for payment
in accordance with the customs prevailing among dealers in securities.

15. Records. The books and records pertaining to the Fund which are in the
possession of the Bank shall be the property of the Fund. Such books and records
shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws and regulations. The Fund, or the Fund's authorized
representatives, shall have access to such books and records at all

<PAGE>

times during the Bank's normal business hours. Upon the reasonable request of
the Fund, copies of any such books and records shall be provided by the Bank to
the Fund or the Fund's authorized representative at the Fund's expense.

16. Reports.

(a) The Bank shall furnish the Fund the following reports:

(1) such periodic and special reports as the Fund may reasonably
request;

(2) a daily report detailing all transactions (cash and securities)
that have been posted to the Fund's account; such report, which shall be in
such form as may be agreed upon by the Bank and the Fund from time to time,
shall be received not later than the morning of the business day next
following the day to which the report relates;

(3) statements, at such intervals as the Fund may reasonably request
but not less frequently than monthly, summarizing all transactions and
entries for the account of the Fund, listing the portfolio securities
belonging to the Fund with the adjusted average cost of each issue and the
market value at the end of such month, and stating the cash account of the
Fund including disbursements;

(4) the reports to be furnished to the Fund pursuant to Rule 17f-4
under the 1940 Act; and

(5) such other information as may be agreed upon from time to time
between the Fund and the Bank.

(b) The Bank shall transmit promptly to the Fund any proxy statement,
proxy materials, notice of a call or conversion or similar communications
received by it as Custodian of the Property.

17. Cooperation with Accountants. The Bank shall cooperate with the Fund's
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to assure that the necessary
information is made available to such accountants for the expression of their
opinion, as such may be required from time to time by the Fund.

<PAGE>

18. Confidentiality. The Bank agrees on behalf of itself and its employees
to treat confidentially all records and other information relative to the Fund
and its prior, present, or potential shareholders, except, after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where the Bank may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Fund.

19. Right to Receive Advise.

(a) Advice of Fund. If the Bank shall be in doubt as to any action to be
taken or omitted by it, it may request, and shall receive, from the Fund
directions or advice, including Oral or Written Instructions where appropriate.

(b) Advice of Counsel. If the Bank shall be in doubt as to any question
of law involved in any action to be taken or omitted by the Bank, it may request
advice at its own cost from counsel of its own choosing (who may be counsel for
the Advisor, the Fund or the Bank, at the option of the Bank).

(c) Conflicting Advice. In case of conflict between directions, advice
or Oral or Written Instructions received by the Bank pursuant to subparagraph
(a) of this paragraph and advice received by the Bank pursuant to subparagraph
(b) of this paragraph, the Bank shall be entitled to rely on and follow the
advice received pursuant to the latter provision alone.

(d) Protection of the Bank. The Bank shall be protected in any action or
inaction which it takes in reliance on any directions, advice or Oral or Written
Instructions received pursuant to subparagraphs (a) or (b) of this paragraph
which the Bank, after receipt of any such directions, advice or Oral or Written
Instructions, in good faith believes to be consistent with such directions,
advice or Oral or Written Instructions, as the case may be. However, nothing in
this paragraph shall be construed as imposing upon the Bank any obligation (i)
to seek such directions, advice or Oral or Written Instructions, or (ii) to act
in accordance with such directions, advice or Oral or Written Instructions when
received, unless, under the terms of another provision of this Agreement, the
same is a condition to the Bank's properly taking or

<PAGE>

omitting to take such action. Nothing in this subsection shall excuse the Bank
when an action or omission on the part of the Bank constitutes willful
misfeasance, bad faith, negligence or reckless disregard by the Bank of any
duties or obligations under this Agreement.

20. Compensation. As compensation for the services rendered by the Bank
during the term of this Agreement, the Fund will pay to the Bank fees in
accordance with the fee schedule agreed upon from time to time in writing by
the Bank and the Fund.

21. Indemnification. The Fund, as sole owner of the Property, agrees to
indemnify and hold harmless the Bank and its nominees from all taxes, charges,
expenses, assessments, claims and liabilities and expenses, including attorneys'
fees and disbursements, arising directly or indirectly from any action or thing
which the Bank takes or does or omits to take or do upon receipt of Oral or
Written Instructions or under this Agreement, provided, that neither the Bank
nor any of its nominees shall be indemnified against any liability to the Fund
or to its shareholders (or any expenses incident to such liability) arising out
of the Bank's or such nominee's own willful misfeasance, bad faith, negligence
or reckless disregard of its duties or responsibilities under this Agreement.

22. Responsibility of the Bank.

(a) In the performance of its duties hereunder, the Bank shall be
obligated to exercise care and diligence and to act in good faith and to use its
best efforts to assure the accuracy and completeness of all services performed
under this Agreement. Except as provided in (b) below, the Bank shall be
responsible for all direct losses occasioned by the Bank's negligent failure to
perform its duties under this Agreement, including but not limited to losses
related to inaccuracies in the daily reports (upon which the Fund and its agents
rely in calculating the Fund's net asset value and in determining whether the
Fund is in compliance with the 1940 Act and the requirements of Subchapter M of
the Internal Revenue Code of 1986 (as amended) to be provided under Paragraph 16
hereof or otherwise. However, the Bank shall not be liable for any incidental,
consequential or punitive damages.

<PAGE>

(b) The Bank shall assume entire responsibility for loss occasioned by
robbery, burglary, fire, theft or mysterious disappearance irrespective of
whether such losses occur while such Property is in possession of the Bank or
the possession of one of Bank's agents, nominees, depositories, correspondents
or sub-custodians appointed pursuant to Paragraph 6 hereof or any Book-Entry
System. In the event of any such loss the Bank's liability shall be limited to
the replacement value thereof as of the date of the discovery of such loss and
the Bank, at the Fund's option, shall make prompt replacement of Property with
like kind and quality or shall make prompt restitution to the Fund for such
loss. In addition, in the event of any loss of the Property due to any other
cause, unless the Bank can prove that it and its agents, nominees, depositories
and correspondents were not negligent and did not act with willful misconduct,
the Bank will be liable for such loss. Notwithstanding the foregoing, the Bank
shall not be liable for losses occurring by reason of acts of civil or military
authority, national emergencies, floods, acts of God, insurrections, wars, riots
or similar catastrophes.

(c) The Bank shall not have any duty or obligation to inquire (i) into
the validity or invalidity or authority or lack thereof of any Oral or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, if any, and which the Bank reasonably believes
to be genuine; (ii) the validity or invalidity of the issuance of any securities
included or to be included in the Property, the legality or illegality of the
purchase of such securities, or the propriety or impropriety of the amount paid
therefor; (iii) the legality or illegality of the sale (or exchange) of any
Property or the propriety or impropriety of the amount for which such Property
is sold (or exchanged); or (iv) whether any Property at any time delivered to or
held by the Bank may properly be held by or for the Fund.

23. Collections. All collections of monies or other property in respect, or
which are to become part, of the Property (but not the safekeeping thereof upon
receipt by the Bank) shall be at the sole risk of the Fund, provided that the
Bank agrees to the following procedures:

(i) upon maturity of any security held by the Fund, proceeds will
be credited and available for investment by the Fund on the
maturity date;
16

<PAGE>

(ii) with respect to sales of securities held by the Fund and
provided the Bank receives timely and accurate notification of
any such sale, sale proceeds will be credited and available for
investment by the Fund on the settlement date for transactions
settled in Federal funds, and on settlement date plus one for
transactions settled in Clearinghouse funds;
(iii) with respect to income and principal from securities held by
the Fund, where the precise amount to be received is known prior
to payable date, such moneys will be credited to the Fund on the
payable date and will be made available to the Fund for
investment on such date in cases where such moneys are to be
received in Federal funds or, in cases where such moneys are to
be received in Clearinghouse funds, on the day following the
payable date;
(iv) with respect to any income and principal payment on securities
held by the Fund the amount of which is unknown either by the
Bank or the Adviser, such payments will be credited to the Fund
upon receipt by the Bank, it being understood that the Bank will
make every effort to collect such payments as quickly as
possible.

With respect to items referred to in (i), (ii) and (iii) above, in any case in
which the Bank does not receive any payment due the Fund within a reasonable
time after the Bank has made proper demands for the same, it shall so notify the
Fund in writing, including copies of all demand letters, any written responses
thereto, and memoranda of all oral responses thereto and to telephonic demands,
and shall thereafter have the right to reverse the credit previously posted to
the Fund with respect to such item. The Bank shall not be obliged to take legal
action for collection of any unpaid item unless and until reasonably indemnified
to its satisfaction.

24. Duration and Termination. This Agreement shall continue until
termination by the Fund on 60 days written notice or by the Bank on 120 days'
written notice. In the event of such notice of termination, the Fund's Board of
Trustees shall, by resolution duly adopted, promptly

<PAGE>

appoint a Successor Custodian to serve upon the terms set forth in this
Agreement. Upon termination hereof the Fund shall pay to the Bank such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Bank for its reasonable costs, expenses and disbursements incurred
prior to such termination. The Bank shall have no lien, right of set-off, or
claim of any kind whatsoever against any Property of the Fund (including records
relating to the Fund maintained by the Bank) in the possession of the Bank.

If a Successor Custodian is appointed by the Trustees, the Bank shall, upon
termination, deliver to such Successor Custodian the records of the Bank with
respect to the Fund, and duly endorsed and in form for transfer, all securities
then held hereunder and all funds or other properties of the Fund deposited with
or held by the Bank under this Agreement.

In the event that no such Successor Custodian is appointed within 90 days
after the date of any such notice of termination by Bank, Fund will promptly
submit to its shareholders the question whether they wish to terminate the Fund
or to function without a bank custodian, and the Bank shall deliver the funds
and property of the Fund to the Fund only pursuant to a certified copy of a
resolution of the Fund's Board of Trustees, signed by a majority of the Board of
Trustees of the Fund in the exercise of such power conferred upon the Fund by
its shareholders, such delivery to be made in accordance with such Resolution.

In the event that the Bank is not notified of the appointment of a Successor
Custodian on or before the date of the termination of this Agreement, the Bank
shall have the right to deliver to a bank or trust company of its own selection
(a) with significant experience in serving as a custodian for registered
investment companies; and (b) having an aggregate capital, surplus, and
undivided profits, as shown by its last published report, of not less than
$10,000,000, all securities, records, and other properties then held by the Bank
to be held by such bank or trust company provided that such bank or trust
company agrees to serve as custodian for such securities, records and other
properties substantially in accordance with the term hereof and in accordance
with its customary fee schedule for such services.

<PAGE>

In the event that securities, funds, and other properties remain in the
possession of the Bank after the date of termination hereof owing to failure of
the Board of Trustees to appoint a Successor Custodian, the Bank shall be
entitled to fair compensation for its services during such period and the
provisions of this Agreement relating to the duties and obligations of the Bank
shall remain in full force and effect. If any Property remains in the custody of
the Bank pursuant to the preceding sentence for more than six months, the Bank
shall be entitled to receive a premium of one and one-half percent over the fee
to which it would otherwise be entitled for its services for each succeeding
month during which the Bank remains in possession of such property.

25. Notices. All notices and other communications (collectively referred to
as "Notice" or "Notices" in this paragraph) under this Agreement (other than
Written or Oral Instructions as defined in this Agreement and as referred to in
Paragraph 8 (b)) must be in writing and will be deemed to have been duly given
or delivered when delivered by hand (including by Federal Express or similar
express courier) or three days after being mailed by prepaid registered or
certified mail, return receipt requested: (a) if to the Bank at the Bank's
address, 1735 Market Street, Philadelphia, Pennsylvania 19101-7899, marked for
the attention of Donna Owens, Trust Officer (or her successor); (b) if to the
Fund, at the address of the Fund, 151 Farmington Avenue, Hartford, CT
06156-8962, marked for the attention of the Fund's Treasurer; or (c) to such
other address as shall have been last designated by Notice in accordance with
this Paragraph 25. All postage, cable, telegram, telex and facsimile sending
device charges arising from the sending of a Notice hereunder shall be paid by
the sender.

26. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.

27. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.

<PAGE>

28. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

29. Miscellaneous.

(a) Bank acknowledges that the Fund is a Massachusetts business trust,
and that it is required by the Trust Agreement to limit its liability in all
agreements to the assets of the Fund. Consequently, Bank agrees that any claims
by it against the Fund may be satisfied only from the assets of the Fund, and no
shareholders, trustees or officers of the Fund may be held personally liable or
responsible for any obligations arising out of this Agreement.

(b) This Agreement embodies the entire agreement and understanding
between the parties hereto, and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
hereto may embody in one or more separate documents their agreement, if any,
with respect to delegated and/or Oral Instructions. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in Pennsylvania and
governed by Pennsylvania law. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby. This Agreement shall be binding
and shall inure to the benefit of the parties hereto and their respective
successors.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the 1st day of Sept., 1992.

[SEAL] MELLON BANK, N. A.

Attest:/s/ Sandy McKenna By: /s/ Donna Owens

[SEAL] AETNA INCOME SHARES

Attest: George N. Gingold By: /s/ James C. Hamilton

21
<PAGE>

EXHIBIT A

TRUST AGREEMENT

THIS TRUST AGREEMENT is made between AETNA INCOME SHARES, a Massachusetts
business trust (the "Fund") as Settlor, and MELLON BANK, N. A., a national
banking association (the "Bank") as Trustee.

I. Background: The background of this Agreement is as follows:

A. The Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as
amended;

B. The Fund has retained the Bank to serve as the Fund's custodian
under a Custodian Agreement of even date herewith ("Custodian
Agreement"), and the Bank is willing to serve as such; and

C. The Fund also desires the Bank to hold as trustee under this
Agreement all the income and principal cash balances which are
transferred to it in accordance with Paragraph 5(a) of the
Custodian Agreement (the Bank in such capacity is hereinafter
referred to as the "Trustee"), and hereby directs the Trustee to
hold such cash balances in accordance with the following terms.

II. Dispositive Terms: The Trustee shall invest and manage the income
and principal cash balances of the Fund in accordance with the provisions of
Article III hereof for the purpose of safekeeping pending distribution of
investment.. Distributions to or from the trust shall be as directed from
time to time by the Fund.

III. Management Provisions: The Trustee shall invest as it deems
appropriate in any one or more money market demand accounts of the Bank or of
any other bank, provided the accounts are fully insured by the FDIC and any
excess above the insurance limit is collateralized by securities in accordance
with Regulation 9.10(b) of the Comptroller of the Currency, 12 CFR 9.10 (b).

IV. Accounting: The Trustee will send the Fund statements at least
monthly showing the transactions in the trust. The Fund must report any
errors to the Trustee, including the non-receipt of a statement, within 90
days after the Fund normally receives a statement. Otherwise, the Fund, at
the Trustee's discretion, may be deemed to have accepted the transactions as
stated.

V. Provisions Regarding the Trustee:

A. The "Authorized Person" to act for the Fund and the methods of
properly acting for the Fund under this Agreement shall be the
same as specified in the Custodian Agreement, as that may be
amended from time to time;

<PAGE>

B. The fact that the Bank is Trustee and in such capacity deposits
trust assets of the Fund in banking accounts of the Bank shall
not be deemed a conflict of interest. The Bank may receive its
usual charges or profits for that service; and

C. The Trustee may resign upon 120 days' notice to the Fund; Settlor
may terminate this Agreement at any time. Immediately upon
termination the Trustee shall pay all trust assets held hereunder
to the Successor Custodian or the Fund in accordance with
Paragraph 24 of the Custodian Agreement.

VI. Situs and Governing Law: The situs of this Trust shall be in
Pennsylvania, and all questions as to the construction, the validity, effect
or administration of this trust shall be governed by Pennsylvania law.

VII. Rights Reserved: The Fund reserves the right to revoke this
trust by writing delivered to the Trustee and to amend this trust with the
Trustee's approval.

Signed: Sept 1, 1992
ATTEST: AETNA INCOME SHARES

/s/ George N. Gingold By: /s/ James C. Hamilton

The foregoing trust was delivered, and is hereby accepted in Pennsylvania on
Sept. 21, 1992.

ATTEST: MELLON BANK, N.A.
Sandy McKenna By: /s/ Donna Owens

<PAGE>

Institutional Trust Services Group Mellon Bank
- ------------------------------------------------------------------------------

MELLON BANK DOMESTIC FEE SCHEDULE

Account Fee:

$500 per account, per year.

Asset Fee:

Domestic Assets - 1/6 Basis Point (0.0000166) on all assets Euroclear
Assets - 1.4 Basis Points (0.00014) on all assets

Transaction Fees:

$7 per book entry transaction (purchase - sale - maturity) $15 per
physical transaction (purchase - sale - maturity) $25 per Euroclear
transaction (purchase - sale - maturity) $50 per option and future
transaction (open - close)

The foregoing fee schedule shall remain in effect for not less than three
years from the effective date of the Custodian Agreement between the Fund
and Mellon Bank, N. A.

/s/ Donna Owens
-----------------
Mellon Bank, N.A.

/s/ James C. Hamilton
---------------------
Aetna Income Shares

ADMINISTRATIVE SERVICES AGREEMENT

THIS AGREEMENT is made by and between AETNA LIFE INSURANCE AND ANNUITY COMPANY,
a Connecticut corporation (the "Administrator") and AETNA INCOME SHARES., a
Massachusetts business trust (the "Fund") as of the date set forth below the
parties' signatures.

W I T N E S S E T H

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

WHEREAS, the Administrator is registered with the Commission as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act") and has entered into an agreement with the Fund to serve as investment
adviser to the Fund; and

WHEREAS, the Fund desires that the Administrator provide certain administrative
services for the Fund in connection with the operation and management of the
Fund;

NOW THEREFORE, the parties agree as follows:

I. APPOINTMENT OF THE ADMINISTRATOR

Subject to the terms and conditions of this Agreement and the policies and
control of the Fund's Board of Trustees (the "Board"), the Fund hereby appoints
the Administrator to provide the administrative services and assume the
obligations described below, for the compensation set forth in Section VI. The
Administrator agrees that, except as required to carry out its duties under this
Agreement or otherwise expressly authorized, it is acting as an independent
contractor and not as an agent of the Fund and has no authority to act for or
represent the Fund in any way.

II. DUTIES OF THE ADMINISTRATOR

A. Services

The Administrator agrees to use its best judgment, efforts and facilities
in providing services to the Fund and in connection therewith, it agrees
that those administrative services will consist of:

1. providing office space, equipment and facilities (which may be
the Administrator's or its affiliates') for maintaining the
Fund's business organization and for performing administrative
services hereunder;

<PAGE>

2. supervising and managing all aspects of the Fund's operations (other
than investment advisory activities) including administering
relations with, and monitoring the performance of, custodians,
depositories, transfer and pricing agents, accountants, attorneys,
underwriters, brokers and dealers, insurers and other persons in any
capacity deemed to be necessary and desirable by the Board;

3. calculating and arranging for the publication of the net asset
value of the Fund;

4. providing noninvestment related statistical and research data and
such other reports, evaluations and information as the Fund or
the Board may request from time to time;

5. providing internal clerical, accounting and legal services, and
stationery and office supplies;

6. preparing, to the extent requested by the Fund, the Fund's
prospectus, statement of additional information, and annual and
semi-annual reports to shareholders;

7. arranging for the printing and mailing (at the Fund's expense) of
proxy statements and other reports or other materials provided to
the Fund's shareholders;

8. preparing for execution and filing all the Fund's federal and
state tax returns and required tax filings other than those
required to be made by the Fund's custodian and transfer agent;

9. preparing periodic reports to and filings with the Securities and
Exchange Commission and state Blue Sky authorities with the
advice of the Fund's counsel;

10. maintaining the Fund's existence, and its corporate records and
during such times as the shares of the Fund are publicly offered,
maintaining the registration and qualification of the Fund's
shares under federal and state law;

11. keeping and maintaining the financial accounts and records of the
Fund;

12. developing and implementing, if appropriate, management and
shareholder services designed to enhance the value or convenience
of the Fund as an investment vehicle; and

13. providing the Board on a regular basis with reports and analyses
of the Fund's operations and the operations of comparable
investment companies.

<PAGE>

B. Expenses

During the term of this Agreement, the Administrator shall be responsible
for all of its costs and expenses incurred in carrying out the services
described in Paragraph A of this Section. In addition, it agrees that it
shall be responsible for, and pay or reimburse the Fund for, all of the
following expenses that would otherwise by payable by the Fund:

1. fees and expenses of the Fund's independent accountants and legal
counsel;

2. fees and expenses of any transfer agent, custodian, dividend,
accounting, pricing or disbursing agent of the Fund;

3. insurance premiums on property or personnel (including officers
and trustees) of the Fund which benefit the Fund or its trustees;

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

5. expenses of preparing, printing and distributing prospectuses and
reports to shareholders of the Fund, except for those expenses
paid by third parties in connection with the distribution of Fund
shares;

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

7. costs and expenses of promoting the sale of shares in the Fund,
including preparing prospectuses and reports to shareholders of the
Fund, provided, nothing in this Agreement shall prevent the charging
of such costs to third parties involved in the distribution and sale
of Fund shares;

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

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

10. all dues and fees payable to the ICI or successor organization;
and

11. any other ordinary, recurring expenses incurred in the management
of the Fund's assets or administering its affairs.

<PAGE>

III. REPRESENTATIONS AND WARRANTIES

A. Representations and Warranties of the Administrator

The Administrator hereby represents and warrants to the Fund as follows:

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

2. Best Efforts. The Administrator at all times shall provide its
best judgment and effort to the Fund in carrying out its
obligations hereunder.

B. Representations and Warranties of the Fund

The Fund hereby represents and warrants to the Administrator as follows:

1. Due Organization. The Fund has been duly formed as a business
trust under the laws of the Commonwealth of Massachusetts and it
is authorized to enter into this Agreement and carry out its
obligations hereunder.

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

IV. COMPLIANCE WITH APPLICABLE REQUIREMENTS

In carrying out its obligations under this Agreement, the Administrator shall
comply with the following:

A. all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder;

B. all terms and provisions described in the most current effective
amendment of the registration statement for the Fund, as filed
with the Commission under the 1933 Act and the 1940 Act
("Registration Statement") and all policies adopted by the Board;

C. the provisions of the Fund's Declaration of Trust, as amended;

D. the Bylaws of the Fund, as amended; and

E. any other applicable provisions of state or federal law, or any
rules or regulations issued by such regulatory authorities.

4
<PAGE>

V. DELEGATION OF RESPONSIBILITIES

All services to be provided by the Administrator under this Agreement may be
furnished by any directors, officers or employees of the Administrator, by any
affiliates of the Administrator under the Administrator's supervision, or by any
party to which such services may lawfully be delegated.

VI. COMPENSATION

For the services to be rendered, the facilities furnished, and the expenses
paid, by the Administrator, the Fund shall pay to the Administrator an annual
fee, at a rate of 0.08% of the average daily net assets of the Fund payable
monthly in arrears. Except as hereinafter set forth, compensation under this
Agreement shall be calculated and accrued daily at the rate of 1/365 of 0.08% of
the daily net assets of the Fund. If this Agreement becomes effective subsequent
to the first day of a month or terminates before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above.

VII. NONEXCLUSIVITY

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

VIII. TERM

This Agreement shall become effective at the close of business on the date
hereof and shall continue through December 31, 1996. Thereafter it shall
continue for successive annual periods, provided such continuance is
specifically approved at least annually by the Fund's trustees who are not
parties to this Agreement or "interested persons" as defined in the 1940 Act
("disinterested trustees"), or by the vote of the holders of a "majority" as
defined in Section 2(a)(42) of the 1940 Act ("majority") of the outstanding
voting securities of the Fund and by a majority of the disinterested trustees.

IX. TERMINATION

This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Fund's trustees or by vote of a majority of the
Fund's outstanding voting securities or by the Administrator, on sixty (60)
days' written notice to the other party.

5
<PAGE>

X. LIABILITY OF ADMINISTRATOR

A. Liability of the Administrator

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

B. Liability of the Fund, the Shareholders and the Trustees

A copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the trustees of the Fund as
trustees and not individually and that the obligations of this instrument
are not binding upon any of the trustees or shareholders individually but
are binding only upon the assets and property of the Fund. No provision of
this Agreement shall be construed to protect any trustee or officer of the
Fund or director or officer of the Adviser, from liability in violation of
Section 17(h) and (i) of the 1940 Act.

XI. NOTICES

Any notices under this Agreement shall be in writing, addressed and delivered,
mailed postage paid, or sent by other delivery service, or by facsimile
transmission to the following addresses:

if to the Fund or the Administrator:

151 Farmington Avenue, RE4C
Hartford, Connecticut 06156
Fax number: 860/273-8340
Attention: Secretary

XII. QUESTIONS OF INTERPRETATION

This Agreement shall be governed by the laws of the State of Connecticut. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Commission issued pursuant to said Act. In addition, where the effect of
a requirement of the 1940 Act reflected in the provisions of this Agreement is
revised by rule, regulation or order of the Commission, such provisions shall be
deemed to incorporate the effect of such rule, regulation or order.

6
<PAGE>

XIII. SERVICE MARK

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

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the 1st day of May 1996.

AETNA LIFE INSURANCE AND ANNUITY COMPANY

By /s/ Susan E. Schechter
Name Susan E. Schechter
Attest: Title Corporate Secretary

/s/ Patricia C. Trovato
AETNA INCOME SHARES

By /s/ Shaun P. Mathews
Name Shaun P. Mathews
Attest: Title President

/s/ Katherine Cheng

151 Farmington Avenue Susan E. Bryant
Hartford, CT 06156 Counsel
Law and Regulatory
Affairs, RE4C
(860) 273-7834
Fax: (860) 273-8340

April 24, 1996

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

Attention: Filing Desk

Re: Aetna Income Shares - File No. 2-47232

Gentlemen:

As Counsel of Aetna Life and Annuity Company (the "Company"), I hereby consent
to the use of my opinion dated February 29, 1996 (incorporated herein by
reference to the 24f-2 Notice for the fiscal year ended December 31, 1995 filed
on behalf of Aetna Income Shares) as an exhibit to this Post-Effective Amendment
No. 44 to the Registration Statement on Form N-1A (File No. 2-47232).

Very truly yours,

/s/ Susan E. Bryant
Susan E. Bryant
Counsel
Aetna Life Insurance and Annuity Company

Consent of Independent Auditors

The Board of Trustees
Aetna Income Shares:

We consent to the use of our report dated February 16, 1996, included herein and
to the references to our Firm under the headings "Financial Highlights" in the
Prospectus and "Independent Auditors" in the Statement of Additional
Information.

/s/ KPMG Peat Marwick LLP

April 25, 1996

<ARTICLE> 6
<CIK> 0000002646
<NAME> AETNA INCOME SHARES
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 625,080,734
<INVESTMENTS-AT-VALUE> 656,011,724
<RECEIVABLES> 11,238,598
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 667,250,322
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 289,833
<TOTAL-LIABILITIES> 289,833
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 649,822,576
<SHARES-COMMON-STOCK> 51,297,679
<SHARES-COMMON-PRIOR> 47,931,037
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 116,781
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<OVERDISTRIBUTION-GAINS> 13,676,296
<ACCUM-APPREC-OR-DEPREC> 30,930,990
<NET-ASSETS> 666,960,489
<DIVIDEND-INCOME> 499,880
<INTEREST-INCOME> 44,108,048
<OTHER-INCOME> 0
<EXPENSES-NET> 1,949,084
<NET-INVESTMENT-INCOME> 42,658,844
<REALIZED-GAINS-CURRENT> 5,548,431
<APPREC-INCREASE-CURRENT> 53,970,465
<NET-CHANGE-FROM-OPS> 102,177,740
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 40,862,116
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,565,388
<NUMBER-OF-SHARES-REDEEMED> 5,364,352
<SHARES-REINVESTED> 3,165,606
<NET-CHANGE-IN-ASSETS> 105,256,656
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 2,092,866
<OVERDIST-NET-GAINS-PRIOR> 19,045,370
<GROSS-ADVISORY-FEES> 1,534,803
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,949,084
<AVERAGE-NET-ASSETS> 612,149,415
<PER-SHARE-NAV-BEGIN> 11.72
<PER-SHARE-NII> .89
<PER-SHARE-GAIN-APPREC> 1.24
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .84
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<PER-SHARE-NAV-END> 13.00
<EXPENSE-RATIO> .32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>