SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
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Aetna Income Shares
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<PAGE>
PRELIMINARY COPY
[May 1, 1996]
Dear Fellow Shareholders and Contractholders,
You are cordially invited by the Trustees of Aetna Income Shares (the
"Fund") to attend a Special Meeting of Shareholders on June 17, 1996 at 9:00
a.m. to consider several recommendations which are important to you and your
Fund.
Each of the matters to be voted at this meeting is reviewed in detail in
the enclosed Notice and Proxy Statement, including (i) election of Trustees,
(ii) an amendment to the Declaration of Trust, (iii) a new advisory agreement
with a change in investment advisory fee paid by the Fund, and (iv) a new
sub-advisory arrangement. These latter two recommendations are of particular
importance to you.
Over the past several years, the Aetna organization has conducted a
thorough, strategic review of its investment operations with the objective of
significantly modernizing and enhancing its capabilities. This review included
an analysis of resources, pricing strategies and organizational structure in
comparison to competitive practice and customer/market requirements.
Significant enhancements have been made to date as a result of this study and
this Special Meeting is to authorize further significant steps in this regard.
The investment advisory fee currently paid by your Fund to Aetna Life
Insurance and Annuity Company ("Aetna") has remained unchanged since 1984 and,
according to data prepared by Lipper Analytical Services, Inc., is the second
lowest paid by any of the 19 Corporate A rated bond funds sold through
variable insurance contracts it analyzed. During this time period, the expense
required to attract and retain resources to achieve competitive investment
performance has increased substantially. Your Fund's portfolio managers must
monitor an ever-increasing, complex and sophisticated set of securities and
other financial instruments across a broad range of asset classes in both
domestic and international markets.
To respond to these dynamic market conditions, over the past two years,
Aetna has made significant investments in and enhancements to its investment
advisory capacity. A number of highly qualified and experienced investment
professionals with a breadth of different technical expertise have been hired
to manage your Fund under a new market-competitive compensation program. New
quantitative research and analytic tools have been designed and implemented
along with significant upgrades in data bases, information management and
reporting systems to improve the depth of analysis capabilities, reduce risk
and create quicker response time in volatile markets.
After a comprehensive review of the (i) resources required to effectively
manage your Fund, (ii) the enhanced services provided by Aetna to the Fund,
and (iii) an in-depth analysis of competitive advisory fees, the Trustees are
recommending an increase in the management fee paid by the Fund. The Trustees
believe the new advisory contract is fair to you, your Fund and Aetna and will
assure for the future that essential financial resources are available to
provide products responsive to market demands and competitive, high quality
advisory services in increasingly complex financial markets.
<PAGE>
To further enhance the depth and quality of its investment advisory
capabilities and better position itself competitively, the Aetna organization
has decided to establish a single stand-alone investment management subsidiary
to focus its advisory activities. As part of this strategic initiative, Aetna
will combine its investment management operations ($22 billion of assets under
management) with another Aetna affiliate, Aeltus Investment Management, Inc.
("Aeltus"), which currently manages approximately $11 billion of total assets
primarily for pension account clients. The combined entity will be called
Aeltus, and it is proposed that Aeltus be appointed as sub-advisor to your
Fund. This business structure is used by a number of investment providers in
today's marketplace.
Aeltus will bring to the combined entity more depth of personnel,
additional effective styles of investment management and enhanced research and
quantitative modeling capability. Further, through the combined larger entity,
your Fund will benefit from such things as an enhanced ability to execute
securities transactions.
The Trustees have carefully considered this combination of Aetna and
Aeltus investment management operations and unanimously recommend that you
approve the sub-advisory agreement with Aeltus. The Trustees believe that the
establishment of a focused, stand-alone investment management entity is in the
best long-term interest of your Fund.
Your participation in this process is very important. If your contract is
held in Aetna's Separate Account D, Aetna has no authority to vote shares
attributable to your contract. Therefore, if Aetna does not receive any
instructions from you, Aetna will abstain from voting these shares. If you
cannot attend the meeting, you can vote by filing out the enclosed
authorization card in the postage prepaid envelop provided. Please complete,
sign, and return the enclosed card so that your shares will be represented. If
you later decide to attend the meeting, you may revoke your proxy at that time
and vote your shares in person.
If you have any questions related to the Special Meeting and/or this
proxy, please call us at 1-800-___-____.
Sincerely,
Shaun P. Mathews
President
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<PAGE>
May 1, 1996 PRELIMINARY COPY
NOTICE OF SPECIAL MEETING
of the Shareholders of
AETNA INCOME SHARES
A Special Meeting of the Shareholders of Aetna Income Shares (the "Fund") will
be held on June 17, 1996, at 9:00 a.m., Eastern time, at 151 Farmington
Avenue, Hartford, Connecticut 06156-8962 for the following purposes:
1. to elect nine Trustees to serve until their successors are
elected and qualified;
2. to approve or disapprove a Subadvisory Agreement among the Fund,
Aetna Life Insurance and Annuity Company ("Aetna"), and its
affiliate, Aeltus Investment Management, Inc.;
3. to approve or disapprove a new Investment Advisory Agreement
between the Fund and Aetna, the Fund's current investment
adviser;
4. to approve or disapprove an amendment to the Fund's Declaration
of Trust to modify the Fund's liability and indemnification
provisions; and
5. to transact such other business as may properly come before the
meeting and any adjournments thereof.
Shareholders of record at the close of business on April 30, 1996
are entitled to notice of and to vote at the meeting.
Susan E. Bryant
Secretary
<PAGE>
May 1, 1996
PRELIMINARY
PROXY STATEMENT
April 11, 1996
This Proxy Statement is given to you to provide information you should
review before voting on the matters listed on the Notice of Special Meeting on
the previous page. Your vote is being solicited by the Board of Trustees (the
"Trustees") of Aetna Income Shares (the "Fund") for a special meeting of
shareholders to be held on June 17, 1996, and, if the meeting is adjourned, at
any adjournment of that meeting, for the purposes listed on the Notice.
This Statement describes the matters that will be voted on at the
meeting. The solicitation of votes is made by the mailing of this Statement
and the accompanying Proxy or authorization card on or about May 1, 1996.
Aetna Life Insurance and Annuity Company ("Aetna") and its affiliates may
contact contract holders and their representatives directly commencing in
March 1996 to discuss the proposals described in this Statement. The expenses
in connection with preparing this Statement and its enclosures and of all
solicitations will be paid by Aetna, the Fund's investment adviser.
A copy of the Fund's Annual Report for the fiscal year ended December 31,
1995, was mailed to shareholders on or about February xx, 1996. The Annual
Report is available upon request, without charge, to anyone entitled to vote.
If you did not receive an Annual Report, you may request one by writing to
___________________, 151 Farmington Avenue, Hartford, Connecticut, 06156-8962,
or by calling 1-800-xxx-xxxx.
Shareholders of record on April 30, 1996, the record date, are entitled
to be present and to vote at the meeting or any adjourned meeting. As of the
record date, Aetna and its subsidiary, Aetna Insurance Company of America
("Aetna Insurance") were the record shareholders of ____ shares (___% of the
outstanding shares) of the Fund. These shares were owned by Aetna and Aetna
Insurance as depositors for their respective variable annuity contracts or
variable life insurance policies (the "Contracts") issued to you or to a group
of which you are a part. Under the terms of the Contracts you have the right
to instruct Aetna how to vote the shares related to your interest through your
Contract. The remaining __________ shares (______%) of the Fund are held
directly by shareholders who are not affiliated with Aetna. This Statement is
used to solicit instructions for voting shares as well as for soliciting
proxies from individual shareholders in the Fund. All persons entitled to
direct the voting of shares, whether or not they are shareholders, will be
described as voting for purposes of this Statement.
The shares held by Aetna and Aetna Insurance are held on behalf of the
following Separate Accounts which hold assets for the Contracts:
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<PAGE>
Aetna Variable Annuity Account B - ___________________ shares (_____%)
Aetna Variable Annuity Account C - ___________________ shares (_____%)
Aetna Variable Annuity Account D - ___________________ shares (_____%)
Aetna Variable Life Account B - ___________________ shares (_____%)
Aetna Insurance Variable
Annuity Account I - ___________________ shares (_____%)
Aetna and Aetna Insurance will vote the shares in the Fund held in their
names as directed. The group Contract holder of some group Contracts has the
right to direct the vote for all shares under the Contract, for, against or
abstaining, in the same proportions as shares for which instructions have been
given under the same Contract. If Aetna does not receive voting instructions
for all of the shares held under Contracts, Aetna and Aetna Insurance will
vote all the shares in all the listed Accounts, except Account D, for, against
or abstaining, in the same proportions as the shares for which they have
received instructions. Aetna will only vote shares of the Fund held through
Aetna's Variable Annuity Account D for which it receives instructions and will
not vote shares for which no instructions are received.
All shares voted at the meeting will be counted as present at the meeting
whether they vote for, against or abstain on the Proposals. More than 50% of
the total outstanding shares of the Fund must be present at the meeting to
have a quorum to conduct business. Proposal 2 (Approval of a Subadvisory
Agreement) and Proposal 3 (Approval of Investment Advisory Agreement) require
the vote of a "majority of the outstanding voting securities" of the Fund to
be approved. The remaining proposals can be approved by the vote of a simple
majority of shares present at the meeting. A "majority of the outstanding
voting securities" of the Fund means 67% of the shares of the Fund present at
the meeting, assuming a majority of the shares are present; or, more than 50%
of all the outstanding voting securities of the Fund, if less. A vote to
abstain is effectively a negative vote since the proposals require an
affirmative vote to be approved.
In the event that a quorum of shareholders is not represented at the
meeting, the meeting may be adjourned until a quorum exists, or, even if a
quorum is represented, the meeting may be adjourned until sufficient votes to
approve any of the proposals are received. The persons named as proxies may
propose and vote for one or more adjournments of the meeting. Adjourned
meetings must be held within a reasonable time after the date originally set
for the meeting (but not more than 6 months after the date of this Statement).
Solicitation of votes may continue to be made without any obligation to
provide any additional notice of the adjournment. The persons named as proxies
will vote shares in favor of an adjournment at their discretion whether
instructions for those shares are to vote for, against or to abstain from
voting on any of the proposals to be considered at the meeting.
The number of shares that you may vote are shown on the authorization
card accompanying this Statement. The number of shares which you are entitled
to vote is calculated according to the formula described in your Contract.
Votes may be revoked by written notice to Aetna prior to the meeting or by
attending the meeting in person and indicating that you want to vote your
shares.
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<PAGE>
The duly appointed proxies or authorized persons may, at their
discretion, vote upon any other matters that are raised at the meeting or any
adjournments. Additional matters would only include matters that were not
expected at the date of this Statement.
MATTERS TO BE ACTED UPON
PROPOSAL 1
ELECTION OF TRUSTEES
The persons listed in the table below are nominated to serve as Trustees of
the Fund until their successors are elected and qualified. The Nominees
consent to being named in this proposal. The Nominees currently serve as
Trustees and will continue to serve if reelected by the shareholders. Once
elected, the Trustees continue to serve indefinitely.
<TABLE>
<CAPTION>
Principal Occupation, Shares of the
Employment or Public First Fund
Name, Age and Position Directorships Became a Beneficially
with the Fund during last five years Trustee Owned
<S> <C> <C>
Morton Ehrlich Chairman and Chief Executive 1988
61 years of age Officer, Integrated Management
Trustee Corp. and Universal Research
Technologies (since January
1992); President, LIFECO Travel
Services Corp. (from October
1988 to December 1991).
Maria T. Fighetti Attorney, New York City 1994
52 years of age Department of Mental Health
Trustee (since 1973).
David L. Grove Private Investor, Economic/ 1984
77 years of age Financial Consultant
Trustee (since December 1988).
Timothy A. Holt* Senior Vice President and Chief 1996
43 years of age Financial Officer, Aetna (since
Trustee February 1996); Vice President,
Portfolio Management Group, Aetna Life
Insurance Company (since ___); Vice
President, Portfolio Management Group, The
Aetna Casualty and Surety Company (since
______).
3
<PAGE>
Daniel P. Kearney* Director and President of Aetna 1994
56 years of age Executive Vice President of Aetna
Trustee Life and Casualty Company.
Sidney Koch Senior Adviser, Hambro America, 1994
60 years of age Inc. (since January 1993); Senior
Trustee Adviser, Daiwa Securities America,
Inc. (from 1991 to January 1993)
Executive Vice President, Daiwa
Securities America, Inc. (from 1986
to January 1991).
Shaun P. Mathews* Vice President and Director of 1991
40 years of age Aetna (since March 1991); Assistant
Trustee and Vice President, Pension Operations
President (from July 1989 to March 1991);
Assistant Vice President, Corporate
Planning, Aetna Life and Casualty
Company (from April 1988 to June
1989).
Corine T. Norgaard** Dean, School of Management, 1984
58 years of age State University at New York
Trustee (Binghamton) (since August 1993);
Professor, accounting, University of
Connecticut (from September 1969
to June 1993); Director, The Advest
Group, Inc. (holding company for
brokerage firm) (since August
1983).
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<PAGE>
Richard G. Scheide Private banking consultant (since 1992
66 years of age July 1992); Consultant, Fleet Bank
Trustee (from July 1991 to July 1992);
Executive Vice President and
Manager, Trust and Private
Banking, Bank of New England,
N.A. and Bank of New England
Company (from June 1976 to July
1991).
<FN>
* Interested persons as defined by the Investment Company Act of 1940 ("1940
Act") and the related rules of the Securities and Exchange Commission
("Commission").
** Dr. Norgaard is a director of a holding company that has as a subsidiary a
broker-dealer that sells contracts for Aetna. 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.
</FN>
</TABLE>
The business address of each Nominee is 151 Farmington Avenue, Hartford,
Connecticut 06156. The Fund held four meetings during 1995 all of which were
in person. Mr. Kearney was unable to attend any of the board meetings in 1995.
All other Trustees attended all meetings.
Each Nominee is currently a director or trustee of each of the following
management investment companies managed by Aetna: Aetna Series Fund, Inc.,
Aetna Variable Fund; Aetna Variable Encore Fund; Aetna Investment Advisers
Fund, Inc.; Aetna Generation Portfolios, Inc.; and Aetna GET Fund
(collectively with the Fund, the "Fund Complex").
As of April 30, 1996, Trustees and officers of the Fund beneficially
owned less than 1% of the Fund's outstanding shares.
Remuneration of Officers and Trustees
None of the Fund's officers nor any Aetna employee Trustees are entitled
to any compensation from the Fund. During 1995, the following Trustees earned
the following for their services as Trustees to the Fund and the Fund Complex:
5
<PAGE>
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation From Fund Complex
From Fund Paid to Trustees
<S> <C> <C>
Morton Ehrlich $3,169 $46,000
Maria T. Fighetti $3,169 $46,000
David L. Grove* $3,169 $46,500
Sidney Koch $3,169 $47,000
Corine T. Norgaard $3,505 $51,000
Richard G. Scheide $3,169 $46,500
------- ---------
Total $19,350 $283,000
<FN>
* Mr. Grove elected to defer all compensation.
</FN>
</TABLE>
Committees
The Trustees have standing Audit, Contract Review and Pricing Committees.
The Contract Review and Audit Committees include all Trustees who are not
employees of Aetna. Dr. Norgaard is the Chairperson of the Audit Committee and
Mr. Koch is the Chairperson of the Contract Review Committee. The Audit
Committee reviews the relationship between the Fund and its independent public
accountants. The Contract Review Committee reviews the Fund's investment
advisory, subadvisory and administrative services contracts at least annually
in connection with considering the continuation of those contracts. That
Committee also meets any time there is a proposal to amend any of those
agreements. The Fund's Pricing Committee consists of Mr. Mathews
(Chairperson), Mr. Koch, Dr. Norgaard, and Mr. Scheide. The Pricing Committee
is responsible for acting upon and approving the Fund's net asset value at
times of market disruption or in any situation where the range of possible
valuations of individual securities could cause the net asset value of the
Fund's shares to vary by one cent or more per share. In 1995, the Audit
Committee met two times, the Contract Review Committee met two times, and the
Pricing Committee met once. All members of these committees attended all the
committee meetings. The Board of Trustees does not have a standing nominating
committee for the Fund nor a standing compensation committee.
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<PAGE>
PROPOSAL 2
APPROVAL OF A SUBADVISORY AGREEMENT
The Trustees have unanimously approved, and recommend that the
shareholders of the Fund approve, a subadvisory agreement (the "Subadvisory
Agreement") among the Fund, Aetna, and Aetna's affiliate, Aeltus Investment
Management, Inc. ("Aeltus"). A copy of the Subadvisory Agreement is included
with this Statement as Exhibit A.
Why is Aetna proposing a Subadvisory arrangement?
As part of a strategic review of its investment operations, the Aetna
organization performed an in-depth analysis of various organizational
structures. It has concluded that it should combine its investment advisory
businesses into a single stand-alone investment management subsidiary. From an
operating perspective, this is intended primarily as a corporate
restructuring. To accomplish this goal, Aetna would combine its investment
management operations with those of Aetna's affiliate, Aeltus. The combined
entity would be a separate corporate entity managing over $33 billion in
assets and would operate under the name Aeltus. This type of business
structure is used by a number of investment providers in today's marketplace
and is consistent with maintaining a focused, well-qualified and fully
integrated investment capability. Complementing the significant investments
and enhancements Aetna has made to its advisory capabilities over the last two
years, Aeltus would add more depth of personnel, different styles of
investment management and additional research and quantitative modeling
capability. Your Fund would benefit from this larger investment advisory
entity by such things as more efficient execution of securities transactions.
What is being proposed?
To accomplish the combination, the investment personnel and staff of
Aetna would be transferred to Aeltus. Aetna and the Fund would enter into a
subadvisory agreement with Aeltus to provide the investment management
services to your Fund. Although Aeltus is already a part of the Aetna
organization, the 1940 Act requires that the shareholders of the Fund approve
the Subadvisory Agreement. Under the proposed Subadvisory Agreement, Aeltus
would be responsible for deciding which securities to buy, which to sell and
which to keep for the Fund. It would also be placing trades for those
securities with third party broker-dealers and, to the extent directed by
Aetna, would be handling the back office administrative functions related to
those activities. It is expected that those activities would include
determining the value of the Fund's net assets on a daily basis and preparing,
and providing to Aetna, such other reports, data and information as Aetna or
the Trustees request from time to time. In connection with the management of
the Fund's portfolio, Aeltus would be responsible for assuring that the assets
acquired for the Fund are in compliance with the Fund's objectives and
policies.
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<PAGE>
Aetna would bear the ultimate responsibility for overseeing the
investment advice provided to the Fund. It would monitor Aeltus' activities to
ensure that Aeltus is following regulatory and Board policies, restrictions
and guidelines in managing the Fund's assets. Aetna would be responsible for
reporting to the Trustees on a regular basis and assuring that Aeltus
maintains an adequate compliance program. The many years of experience Aetna
has in managing assets for mutual funds and for its own portfolio will enable
it to monitor Aeltus' activities to the advantage of the Fund's shareholders.
Who is Aeltus?
Aeltus is a Connecticut corporation organized in 1972 under the name
Aetna Capital Management, Inc. It currently has its principal offices at 242
Trumbull St., Hartford, Connecticut. Aeltus is a part of the Aetna
organization, and currently is a wholly-owned subsidiary of Aetna Retirement
Services, Inc., which is also the parent of Aetna. Aetna Retirement Services
is an indirect, wholly-owned subsidiary of Aetna Life and Casualty Company, a
financial services company with stock listed for trading on the New York Stock
Exchange. John Y. Kim currently serves as the President, Chief Executive
Officer and Chief Investment Officer of Aeltus. Aeltus is registered with the
Commission as an investment adviser.
What are the material terms of the proposed Subadvisory Agreement between
Aetna and Aeltus?
The Subadvisory Agreement gives Aeltus broad latitude in selecting
securities for the Fund subject to Aetna's oversight. The Agreement also
allows Aeltus to place trades through brokers of its choosing and to take into
consideration the quality of the brokers' services and execution, as well as
services such as research and providing equipment or paying Fund expenses, in
setting the amount of commissions paid to a broker. The use of research and
expense reimbursements in determining and paying commissions is referred to as
"soft dollar" practices. Aeltus will only use soft dollars for services and
expenses to the extent Aetna is authorized to do so under the Investment
Advisory Contract, but only as authorized by applicable law and the rules and
regulations of the Commission.
The Subadvisory Agreement requires Aeltus to reduce its fee if Aetna is
required to do so under the Investment Advisory Agreement. Aetna has agreed to
reduce its fee or reimburse the Fund if the expenses borne by the Fund would
exceed the expense limitations of any jurisdiction in which the Fund's shares
are qualified for sale. Aetna would not be obligated to reimburse the Fund for
any expenses which exceed the amount of its advisory fee for that year. The
Subadvisory Agreement obligates Aeltus to reduce its fee by 60% of the amount
of Aetna's fee reduction.
The Subadvisory Agreement provides that, if approved, it will be
effective August 1, 1996, or, if the meeting is adjourned, on the first day of
the next month following the date on which the shareholders approve the
Subadvisory Agreement, and will continue until December 31, 1997 and
thereafter from year to year if approved by the Trustees, including a majority
of the Independent Trustees. The Subadvisory Agreement will terminate
automatically if the Investment Advisory Agreement terminates or if there is a
change in control of Aeltus. It can be terminated by Aeltus, Aetna or the Fund
on 60 days' notice. If the Subadvisory Agreement terminates, the Fund's
investment adviser would automatically assume all management functions for the
Fund. The Subadviser can be held liable to the Adviser and the Fund for
negligence, bad faith, willful malfeasance or reckless disregard of its
obligations or duties under the Subadvisory Agreement.
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<PAGE>
What will the Subadvisory Agreement cost the Fund?
The Subadvisory Agreement provides that Aetna will pay Aeltus a fee at an
annual rate up to 0.25% of the average daily net assets of the Fund. Aetna
believes this compensation is fair and reasonable for the services being
provided by Aeltus. This fee is not charged back to, or paid by, the Fund; it
is paid by Aetna out of its own resources, including fees and charges it
receives from or in connection with the Fund.
What is the Board of Trustees recommendation?
The Board of Trustees unanimously recommends voting FOR approval of the
Subadvisory Agreement.
What factors did the Board of Trustees consider in reaching its
recommendation?
The Trustees considered the proposed Subadvisory Agreement at meetings
held on December 12, 1995, and February 28, 1996. Moreover, the Contract
Review Committee of the Board of Trustees, consisting solely of Trustees who
are not employees of Aetna, considered the Subadvisory Agreement at meetings
held on December 11, 1995, February 6, 1996, and February 27, 1996. At all
such meetings, the Trustees were advised throughout by Messrs. Goodwin,
Procter & Hoar, their own independent counsel.
The Trustees' recommendation was based on their conclusion that approval
of the Subadvisory Agreement would mean that the shareholders of the Fund
would receive the benefits of the talents of both Aetna and Aeltus working for
the Fund.
What happens if the Subadvisory Agreement is not approved?
If the Subadvisory Agreement is not approved, Aetna would continue as
investment adviser to the Fund and would retain access to all of its current
investment advisory capabilities.
9
<PAGE>
PROPOSAL 3
APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT
The Trustees have unanimously approved a new Investment Advisory
Agreement (the "Advisory Agreement") between the Fund and Aetna as its
investment adviser and recommend that you vote FOR this Proposal.
What is being proposed?
As part of its comprehensive, strategic review of its investment
management operations and products, during the past several years, Aetna has
been reviewing its various agreements and arrangements for providing services
to, and managing, the funds it advises. Based on this review, Aetna proposed
and the Trustees approved a new Administrative Services Agreement for the Fund
which, as discussed below, will be effective May 1, 1996, and it has proposed
a restructuring of its investment advisory operations as described in Proposal
2. Aetna is also proposing to enter into a new Investment Advisory Agreement
with the Fund providing an increase in the annual fee from 0.25% to 0.40% of
average daily net assets as more fully discussed below. The Trustees of the
Fund are unanimously recommending approval of the new Investment Advisory
Agreement for the reasons identified below.
What are the primary differences between the existing Investment Advisory
Agreement and the proposed Investment Advisory Agreement?
The proposed Advisory Agreement has been updated in several respects. The
language has been simplified where possible; the liability provisions make it
clear that Aetna is liable to the Fund for Aetna's negligence; it provides a
new fee schedule for Aetna; and it expands Aetna's ability to use brokerage
commissions to pay Fund expenses to the extent allowed by current law. A copy
of the proposed Advisory Agreement is included with this Statement as Exhibit
B and the existing agreement is included as Exhibit C.
Under both the existing and proposed investment advisory agreements,
Aetna is obligated to manage and oversee the Fund's day to day operations and
to manage its investment portfolio, whether directly or as discussed in
Proposal 2 under a Subadvisory Agreement with Aeltus.
What are the other significant provisions of the Advisory Agreement?
The Advisory Agreement gives Aetna broad latitude in selecting securities
for the Fund subject to the Trustees' oversight. Under the Agreement, Aetna
may delegate to a subadviser its functions in managing the Fund's investment
portfolio, subject to Aetna's oversight. See Proposal 2. The Advisory
Agreement allows Aetna to place trades through brokers of its choosing and to
take into consideration the quality of the brokers' services and execution, as
well as services such as research, providing equipment to the Fund, or paying
Fund expenses, in setting the amount of commissions paid to a broker. Aetna
will only use these commissions for services and expenses to the extent
authorized by applicable law and the rules and regulations of the Commission.
10
<PAGE>
Under the Advisory Agreement, Aetna has agreed to reduce its fee or
reimburse the Fund if the expenses borne by the Fund would exceed the expense
limitations of any jurisdiction in which the Fund's shares are qualified for
sale. Aetna would not be obligated to reimburse the Fund for any expenses
which exceed the amount of its advisory fee for that year. The Advisory
Agreement also provides that Aetna would be responsible for all of its own
costs including costs of Aetna personnel required to carry out its investment
advisory duties.
The Advisory Agreement provides that if approved it will be effective
August 1, 1996, or, if the meeting is adjourned, on the first day of the next
month following the date on which the shareholders approve the Advisory
Agreement, and will continue until December 31, 1997 and thereafter from year
to year if approved by the Trustees, including a majority of the Independent
Trustees. The Advisory Agreement will terminate automatically if there is a
change in control of Aetna. It can be terminated by the Trustees, the
shareholders or Aetna on 60 days' notice.
All of these provisions are the same as in the existing investment
advisory agreement which has been in effect since April 1994 when it was last
submitted to shareholders. The 1994 amendments involved clarifying Aetna's
responsibilities and its ability to appoint a subadviser, described Aetna's
arrangements with broker-dealers and clarified the allocation of expenses to
each party.
Who is Aetna?
Aetna is a Connecticut corporation, licensed as an insurance company in
all 50 states. Through its predecessors, Aetna has been offering variable
products and annuities to the public since the 1950's. It currently manages
approximately $22 billion in assets. Aetna is a wholly-owned subsidiary of
Aetna Retirement Services, Inc., which, in turn, is a wholly-owned indirect
subsidiary of Aetna Life and Casualty Company. Aetna is registered with the
Commission as an investment adviser and a broker-dealer. Aetna serves as the
underwriter for the Fund's shares. The principal offices of Aetna, Aetna
Retirement Services, Inc., and Aetna Life and Casualty Company are located at
151 Farmington Avenue, Hartford, Connecticut, 06156-8962.
Why has Aetna requested a change in its fees?
The advisory fee currently paid to Aetna under the existing investment
advisory agreement is determined at an annual rate of 0.25% of average daily
net assets. This fee was set in 1984 and has never been changed. During 1995,
Aetna received $1,534,803 for its services in managing the Fund, which had
assets as of December 31, 1995 of over $612 million. The fee established in
1984 matched the fee structure that Aetna had utilized since the 1970s for its
12
<PAGE>
mutual funds being sold primarily through group variable Contracts and, after
1982, exclusively through variable Contracts. Until recently, Aetna, like most
other providers of variable products, used its own mutual funds as the
investment options under the Contracts. As a result, Aetna took all its costs
and charges for the entire product into consideration in determining its
profits on its Contracts and did not evaluate the profitability of the Fund as
a separate product. Recently, variable products have exploded in popularity
and growth and many noninsurance companies have developed funds to be sold
through Contracts issued by unaffiliated insurance companies. To remain
competitive, during the past five years, Aetna expanded the funds it offered
under its Contracts from almost exclusively its own funds, to its own plus a
large number of funds offered by unaffiliated third parties.
These developments caused Aetna to evaluate separately the
profitability and viability of each Contract it offers and each fund it
advises. According to data prepared by Lipper Analytical Services, Inc.
("Lipper") as of December 31, 1994, the annual fee currently being paid to
Aetna by the Fund was the second lowest fee paid by any of the 19 Corporate A
rated bond funds sold through variable Contracts analyzed by Lipper. Data
provided by Lipper also showed that for the same period, the Fund's total
expenses (annual advisory fee plus other Fund expenses) were also the second
lowest of those 19 Corporate A rated bond funds.
The fees charged to advise the Fund were also very low when compared to
the fees Aetna charges for managing its mutual funds offered directly to the
public. The Aetna Bond Fund, a fund managed almost identically to the Fund,
with assets of approximately $7,340,000 as of October 31, 1995, paid Aetna a
fee, after fee waiver, at an annual rate of 0.19% of average daily net assets
for the year ended October 31, 1995. This fee waiver, howver, may be
eliminated at any time, and without it, the fee payable would be based on the
following schedule of annual rates of average daily net assets:
0.50% on the first $250 million
0.475% on the next $250 million
0.450% on next $250 million
0.425% on next $1.25 billion
0.400% over $2 billion
These fees are significantly greater than the annual rate of 0.25% Aetna
currently receives for managing the Fund.
As discussed above, Aetna has been charging the same fee for managing the
Fund since 1984 when the Fund first started operations. Since that time, but
more noticeably in the last few years, the financial markets have become
increasingly complex and the need for high quality personnel, research and
equipment has increased proportionately. With the recent growth in the mutual
fund industry, such resources have become more expensive and harder to retain.
12
<PAGE>
During the past two years, Aetna has: (i) hired a number of
highly-qualified and experienced investment professionals, attracting them in
part by replacing its existing compensation structure with a competitive
compensation program designed to attract and retain such personnel; (ii)
instituted the use of quantitative research and analytical tools and
techniques to augment its traditional securities selection processes for the
purpose of improving performance of the portfolios it manages, including that
of the Fund; and (iii) upgraded its information and reporting systems to
increase the volume of data gathered, the speed at which such data are
collected, and its ability to analyze and report on such data.
Aetna believes that these trends in the financial markets will continue;
therefore, the proposed advisory fees are critical to retaining the resources
it has added and are necessary for Aetna to continue providing high quality
management to the Fund in an increasingly competitive and dynamic environment
whether through Aetna directly or through Aeltus as discussed in Proposal 2.
Aetna believes enhancements are integral to its goal of improving performance
and reducing volatility for the investment portfolios that it manages,
including that of the Fund, and for the Fund to remain competitive in its
markets.
Aetna believes that the proposed advisory fee at an annual rate of 0.40%
of average daily net assets is competitive with fees charged by comparable
advisers for managing similar funds. If the new Advisory Agreement had been in
effect for 1995, the Fund would have paid an advisory fee of $2,448,598.
Although this represents a 60% increase over the amount it paid during 1995,
based on the data provided by Lipper, the proposed fee would still have been
lower than the average annual fee of 0.46% of average daily net assets charged
by the 19 Corporate A rated bond funds analyzed by Lipper.
What other fees or charges are paid by the Fund?
Aetna has been receiving reimbursement by the Fund for its administrative
costs incurred in managing the Fund under an Administrative Services Agreement
with the Fund effective through April 1996. The Administrative Services
Agreement provides for the reimbursement of a share of Aetna's overhead
related to managing the Fund. In addition, the Fund has been paying its
ordinary recurring expenses such as legal fees, Trustees' fees, custodial fees
and insurance premiums. Under these agreements, in 1995, the Fund paid a total
of $414,821 (an annual rate of 0.068% of average daily net assets) to Aetna
for reimbursements of its costs in performing administrative services and for
the Fund's other ordinary recurring expenses.
As mentioned above, the Trustees approved a change to the Administrative
Services Agreement that would fix these charges so they would no longer vary.
This arrangement was adopted so that the Fund would be able to fix the amount
of its costs and expenses. The new Administrative Services Agreement with the
Fund provides for a fixed fee at an annual rate of 0.08% of average daily net
assets. The 0.08% fee is intended to approximate actual costs incurred during
the past few years which averaged 0.079%, but also to take into consideration
the fact that Aetna assumes all risks that its costs and the Fund's expenses
may increase.
The following table and example summarize the effect of the proposed
advisory fee on Fund expenses.
13
<PAGE>
<TABLE>
COMPARATIVE FEE TABLE
<CAPTION>
Average
Annual Fees
Charged by
Annual Fund Operating Expenses (as a Fees as of Proposed Fee Other Funds
percentage of average daily net assets) 5/1/96** for 8/1/96 12/31/94*
<S> <C> <C> <C>
Management Fee 0.25% 0.40% 0.46%
Administrative Costs and other Expenses 0.08% 0.08% 0.10%
Total Fund Operating Expenses 0.33% 0.48% 0.56%
<FN>
* Per Lipper Analytical Services, Inc. and before waivers or expense
reimbursements. As shown in the above table, the total fees and expenses
proposed by Aetna of 0.48% of average daily net assets would be
significantly less than the average of 0.56% charged by the 19 funds
analyzed by Lipper.
** The administrative fee was changed by the Board of Trustees effective May
1, 1996.
</FN>
</TABLE>
Example:
The following chart shows the expenses that you would pay on a $1,000
investment under the existing and proposed fees and expenses described above,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
14
<PAGE>
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Fees and Expenses as of 5/1/96 $3 $11 $19 $42
Proposed Fees and Expenses $5 $15 $27 $60
</TABLE>
The purpose of the above table and example is to assist shareholders in
understanding the effects of the proposed fee on the fees and expenses charged
to the Fund. The Fund is only available through a variable annuity contract or
variable life policy. The above table and example do not reflect separate
account and other charges and expenses, including sales loads, for these
Contracts. The example above should not be considered a representation of past
or future expenses or returns of the Fund. Actual expenses and returns may
vary from year to year and may be higher or lower than those shown above.
What is the proposed change to the liability and indemnification provisions?
The existing advisory agreement provides that Aetna is liable to the
Fund, and the Fund is entitled to be indemnified by Aetna if the Fund suffers
a loss or incurs a liability as a result of Aetna's bad faith, gross
negligence or willful or reckless misconduct. The Trustees recommend that this
provision be revised so that the standard is changed from "gross negligence"
to simply "negligence." This change would mean that Aetna would be held
accountable for all its acts of negligence that hurt the Fund, not just its
acts of "gross" negligence. The overall effect of the liability and
indemnification provision of the Advisory Agreement would be to provide the
Fund with greater protection.
What is the change in the use of brokerage commissions for the Fund?
The existing agreement allows the investment adviser to take into
consideration research and related services provided by a broker to the
adviser in paying commissions to a broker for the Fund's portfolio
transactions. The Trustees recommend that the investment adviser also should
be allowed to take into consideration Fund expenses actually paid by the
broker on behalf of the Fund where it is allowed by current law. The
investment adviser of the Fund is required to place trades for the Fund's
securities with brokers who provide "best execution." This does not always
mean the lowest commission if the broker provides research or other related
services to the adviser. Recent developments have indicated that the
Commission will also allow an adviser to place trades with a broker, and to
take into consideration in the commissions, actual expenses paid by the broker
for the Fund. This can only be done in compliance with certain reporting rules
and only with respect to expenses that directly benefit the Fund paying the
commissions. The proposed Advisory Agreement would allow such transactions
subject to applicable laws.
15
<PAGE>
What is the Board of Trustees recommendation?
The Board of Trustees unanimously recommends voting FOR approval of the
Advisory Agreement.
What factors did the Board of Trustees consider in reaching its
recommendation?
The Trustees considered the proposed Advisory Agreement at meetings held
on December 12, 1995, and February 28, 1996. The Contract Review Committee of
the Board of Trustees, consisting solely of Trustees who are not employees of
Aetna, considered the Advisory Agreement at meetings held on December 11,
1995, February 6, 1996 and February 27, 1996. At all such meetings, the
Independent Trustees were advised throughout by Messrs. Goodwin, Procter &
Hoar, their own independent counsel.
The Trustees' approval of the new Advisory Agreement with an increased
fee was based on the following factors, all of which they considered material
and which are listed in the order of their importance, with the most important
factor listed first:
1. The new fee will provide Aetna with the essential financial
resources it needs to compete effectively in the increasingly
complex and competitive financial markets.
2. The Trustees believe that Aetna should receive a fair,
competitive fee in order to provide it with adequate resources
to produce and provide competitive, high quality services on
behalf of the Fund; yet, its existing fee has been in effect
since 1984 and is the second lowest fee among the Fund's 19
member competitive peer group analyzed by Lipper.
3. The new fee would compensate Aetna for costly enhancements it is
currently maintaining and which have been made over the past two
years with regard to investment, administrative, operational and
shareholder services. These enhancements include: (i) the hiring
of a number of highly qualified and experienced investment
professionals, (ii) replacing its former compensation system
with a more competitive system designed to attract and retain
such highly qualified personnel, (iii) instituting the use of
quantitative research and analytical tools and techniques, and
(iv) upgrading its information and reporting systems.
4. The new fee would reflect the benefits to be derived from the
combination of Aetna's and Aeltus' investment management
capabilities.
In the course of its deliberations, the Trustees asked for and received
extensive data concerning, among other things, (i) the nature, quality and
scope of services that Aeltus, after combining with Aetna, would provide, (ii)
Aetna's profitability, (iii) Aetna's financial condition, (iv) the expense
ratios of the Fund both before and after the proposed fee increase and as
compared with the Fund's competitive peer groups, and (v) the level of Aetna's
current fee in general and as compared to its competitive peer group.
16
<PAGE>
What would happen if the Advisory Agreement is not approved?
If the Advisory Agreement is not approved by the Fund's shareholders, the
existing agreement will continue in effect. Although Aetna expects that it
would proceed with the Subadvisory Agreement with Aeltus, (if it is approved)
it would have fewer resources available, to manage your Fund effectively in
the future.
PROPOSAL 4
APPROVAL OF AN AMENDMENT
TO THE DECLARATION OF TRUST
The Trustees have approved, and recommend that the shareholders of the
Fund approve, deleting and restating Articles 5.2 and 5.3 of the Fund's
Declaration of Trust.
What is the purpose of the proposed changes?
The provisions being amended relate to the liability of Trustees to the
Fund and the indemnification by the Fund of Trustees and officers for
liabilities incurred while acting as Trustees or officers of the Fund. The
primary purpose of the proposed amendment is to allow the Fund to advance
costs to a Trustee if that Trustee is named in an action for which the Fund
would ultimately be obligated to indemnify the Trustee without the Trustee
being required to post collateral. The advancement of costs would be made only
if: (i) the Trustee provides security for the costs advanced; or (ii) the Fund
is insured against losses arising from unlawful advances; or (iii) a majority
of a quorum of the Independent Trustees who are not parties determines, or a
written opinion of independent legal counsel provides, that based upon a
review of the readily available facts, there is reason to believe the Trustee
ultimately will be entitled to indemnification. This provision would allow a
Fund to provide a Trustee with the resources the Trustee would need to afford
an adequate defense if the Trustee is named in litigation related to the
Trustee's activities in connection with the Fund without posting collateral.
The amounts advanced would have to be repaid if there is a finding that the
Trustee was not entitled to indemnification.
The proposed changes also clarify that under most circumstances Trustees
will not be liable for the wrongdoing of officers, agents, employees and other
service providers to the Fund. The text of the proposed amended Articles 5.2
and 5.3 are attached as Exhibit D. The existing language is attached as
Exhibit E.
17
<PAGE>
Why is the Board of Trustees recommending approval of the amendment?
The Trustees believe that advancing the costs of Trustees who may be
subject to litigation without the need to post collateral is critical to the
Fund's ability to attract and retain the best qualified individuals to serve
the Fund as Trustees and officers. The proposed amendment complies with the
1940 Act's limitations on indemnification, in that indemnification is not
available in cases of willful misfeasance, gross negligence, bad faith or
reckless disregard of the duties of office. The proposed amendment is also
consistent with interpretive positions taken by the staff of the Commission.
The Trustees and officers of the Fund are not subject to any pending
litigation against any of them arising out of any alleged breach of duty to
the Fund or its shareholders and are not aware of any such threatened claims
or of circumstances that might give rise to a claim. The Trustees acknowledge
that current and future Trustees could benefit from the proposed amendment
and, therefore, the Trustees have a conflict of interest in this matter.
What is the Board of Trustees' recommendation?
The Board of Trustees unanimously recommends voting FOR the proposed
amendment.
If the proposal is approved, the amendment will take effect August 1,
1996, or, if the meeting is adjourned, on the first day of the next month
following the date on which the shareholders approve the amendment. If the
shareholders of the Fund do not approve the proposed amendment, the current
provisions of the Declaration of Trust concerning indemnification will
continue in effect.
What factors did the Board of Trustees consider in making its recommendation?
The Trustees believe that approval of the proposed amendment allowing
advancement of costs without posting collateral for liabilities of Trustees
and officers and clarifying the scope of indemnification is in the best
interests of the Fund because it will assist the Fund in attracting and
retaining the best qualified people to serve as Trustees and officers of the
Fund.
ADDITIONAL INFORMATION
Executive Officers of the Fund
The principal executive officers of the Fund and his or her principal
occupation are set forth below. The term of office of each executive officer
of the Fund is until the next annual meeting of the Fund or until his or her
successor shall have been duly elected and qualified.
18
<PAGE>
<TABLE>
<CAPTION>
Name and Position with the Fund
Business Address and other Principal Occupations
<S> <C>
Shaun P. Mathews President and Trustee of the Fund; See
151 Farmington Avenue description under "Election of
Hartford, Connecticut 06156 Trustees."
James C. Hamilton Vice President and Treasurer of the Fund;
151 Farmington Avenue Chief Financial Officer, Aetna Investment
Services,
Hartford, Connecticut 06156 Inc.; Vice President and Actuary, Aetna Life
Insurance Company.
Susan E. Bryant Secretary of the Fund; Counsel to Aetna
151 Farmington Avenue
Hartford, Connecticut 06156
</TABLE>
Directors and Principal Executive Officer of Aetna
The name, business address and principal occupation of Aetna's principal
executive officer and Directors are as follows:
<TABLE>
<CAPTION>
Name and
Business Address Principal Occupations
<S> <C>
Christopher J. Burns Director and Senior Vice President,
151 Farmington Avenue Sales and Service.
Hartford, Connecticut 06156
Laura R. Estes Director and Senior Vice President,
151 Farmington Avenue Manage/Design Products and Service.
Hartford, Connecticut 06156
Timothy A. Holt Director and Senior Vice President;
151 Farmington Avenue See description under "Election of
Hartford, Connecticut 06156 Directors."
Gail P. Johnson Director and Vice President,
151 Farmington Avenue Service and Retain Customers.
Hartford, Connecticut 06156
Daniel P. Kearney Director, President and Principal
151 Farmington Avenue Executive Officer; See description
Hartford, Connecticut 06156 under "Election of Directors."
19
<PAGE>
John Y. Kim Director and Senior Vice President,
151 Farmington Avenue Investment Management.
Hartford, Connecticut 06156
Shaun P. Mathews Director and Vice President,
151 Farmington Avenue Intergrator; See description under
Hartford, Connecticut 06156 "Election of Directors."
Glen Salow Director and Vice President,
151 Farmington Avenue Information Technology.
Hartford, Connecticut 06156
Creed R. Terry Director and Vice President,
151 Farmington Avenue Select and Manage Markets.
Hartford, Connecticut 06156
</TABLE>
OTHER BUSINESS
The management of the Fund knows of no other business to be presented at
the meeting other than the matters set forth in this Statement. If any other
business properly comes before the meeting, the proxies will exercise their
best judgment in deciding how to vote on such matters.
SHAREHOLDER PROPOSALS
The Declaration of Trust and the By-Laws of the Fund provide that the
Fund need not hold shareholder meetings, except as required by the 1940 Act
(or Massachusetts law). Therefore, it is probable that no annual meeting of
shareholders will be held in 1996 or in subsequent years until so required.
For those years in which annual shareholder meetings are held, proposals which
shareholders of the Fund intend to present for inclusion in the proxy
materials with respect to the annual meeting of shareholders must be received
by the Fund within a reasonable period of time before the solicitation is
made.
20
<PAGE>
Please complete the enclosed authorization card and return it promptly in
the enclosed self-addressed postage-paid envelope. You may revoke your proxy
at any time prior to the meeting by written notice to the Fund or by
submitting an authorization card bearing a later date.
Susan E. Bryant
Secretary
21
<PAGE>
APPENDIX
AETNA INCOME SHARES
THIS AUTHORIZATION CARD IS SOLICITED ON BEHALF OF THE
BOARD OF TRUSTEES OF THE FUND
Please refer to the Proxy Statement for a discussion of these matters. This
authorization card is solicited in connection with the special meeting of
shareholders of the Fund to be held at 9:00 a.m., Eastern Standard Time, on
June 17, 1996, and at any adjournment thereof. THIS AUTHORIZATION CARD, WHEN
PROPERLY EXECUTED, DIRECTS SHAUN P. MATHEWS AND SUSAN E. BRYANT TO VOTE THE
SHARES LISTED BELOW AS DIRECTED AND REVOKES ALL PRIOR AUTHORIZATION CARDS.
1. Election of directors [ ] FOR all nominees listed below
(except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY to vote
for all nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee strike
a line through the nominee's name in the list below.)
Morton Ehrlich Maria T. Fighetti David L. Grove Timothy A. Holt
Daniel P. Kearney Sidney Koch Shaun P. Mathews Corine T. Norgaard
Richard G. Scheide
2. Approve the Subadvisory Agreement. [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approve the New Investment Advisory
Agreement. [ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approve an amendment to the Declaration
of Trust. [ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business, including any adjournment of the meeting, as may properly come
before the meeting.
<PAGE>
AUTHORIZATION CARD
This authorization card, when properly executed and returned, will be voted in
the manner directed herein by the undersigned. If no direction is made, this
authorization card will be voted FOR the election of the nominees named in
this authorization card and FOR approval of the other proposals.
Please sign exactly as name appears on this card. When account is joint
tenants, all should sign. When signing as administrator, trustee or guardian,
please give title. If a corporation or partnership, sign in entity's name and
by authorized person.
X_____________________________
X_____________________________
Dated: ______________________
<PAGE>
EXHIBIT A
SUBADVISORY AGREEMENT
THIS AGREEMENT is made by and among Aetna Life Insurance and Annuity Company,
a Connecticut insurance corporation (the "Adviser"), Aetna Income Shares, a
Massachusetts Business Trust (the "Fund") and Aeltus Investment Management,
Inc., a Connecticut corporation (the "Subadviser") as of the date set forth
below.
W I T N E S S E T H
WHEREAS, the Fund is a Massachusetts Business Trust that 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, both the Adviser and the Subadviser are registered with the
Commission as investment advisers under the Investment Advisers Act of 1940,
as amended (the "Advisers Act") and both are in the business of acting as
investment advisers; and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement with
the Fund (the "Investment Advisory Agreement") which appoints the Adviser as
the investment adviser for the Fund; and
WHEREAS, Article IV of the Investment Advisory Agreement authorizes the
Adviser to delegate all or a portion of its obligations under the Investment
Advisory Agreement to a subadviser;
NOW THEREFORE, the parties agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
Subject to the terms and conditions set forth herein, the Adviser and the Fund
hereby appoint the Subadviser to manage the assets of the Fund as set forth
below in Section II, under the supervision of the Adviser and subject to the
approval and direction of the Fund's Board of Trustees (the "Board"). The
Subadviser hereby accepts such appointment and agrees that it shall, for all
purposes herein, undertake such obligations as an independent contractor and
not as an agent of the Adviser. The Subadviser agrees, that except as required
to carry out its duties under this Agreement or otherwise expressly
authorized, it has no authority to act for or represent the Fund in any way.
<PAGE>
II. DUTIES OF THE SUBADVISER AND THE ADVISER
A. Duties of the Subadviser
The Subadviser shall regularly provide investment advice with respect to
the assets held by the Fund and shall continuously supervise the
investment and reinvestment of cash, securities and instruments or other
property comprising the assets of the Fund. In carrying out these duties,
the Subadviser shall:
1. select 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 and regularly
report thereon to the Adviser and, at the request of the
Adviser, to the Board;
2. formulate and implement continuing programs for the purchase and
sale of securities and regularly report thereon to the Adviser
and, at the request of the Adviser or the Fund, to the Board;
3. obtain and evaluate 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;
4. provide economic research and securities analyses as requested
by the Adviser from time to time, or as the Adviser considers
necessary or advisable in connection with the Adviser's
performance of its duties hereunder; and
5. provide such financial support, administrative and other
services, such as preparation of financial data, determination
of the Fund's net asset value, preparation of financial and
performance reports, as the Adviser from time to time, deems
necessary and appropriate and which the Subadviser is willing
and able to provide.
B. Duties of the Adviser
The Adviser shall retain responsibility for oversight of all activities of
the Subadviser and for monitoring its activities on behalf of the Fund. In
carrying out its obligations under this Agreement and the Investment
Advisory Agreement, the Adviser shall:
1. monitor the investment program maintained by the Subadviser for
the Fund and the Subadviser's compliance program to ensure that
the Fund's assets are invested in compliance with the
Subadvisory Agreement and the Fund's investment objectives and
policies as adopted by the Board and described in the most
current effective amendment of the registration statement for
the Fund, as filed with the Commission under the Securities Act
of 1933, as amended, and the 1940 Act ("Registration
Statement");
2
<PAGE>
2. review all data and financial reports prepared by the Subadviser
to assure that they are in compliance with applicable
requirements and meet the provisions of applicable laws and
regulations;
3. file all periodic reports required to be filed by the Fund with
the applicable regulatory authorities;
4. review and deliver to the Board all financial, performance and
other reports prepared by the Subadviser under the provisions of
this Agreement or as requested by the Adviser;
5. establish and maintain regular communications with the
Subadviser to share information it obtains concerning the effect
of developments and data on the investment program maintained by
the Subadviser;
6. maintain contact with and enter into arrangements with the
custodian, transfer agent, auditors, outside counsel, and other
third parties providing services to the Fund;
7. oversee all matters relating to (i) the offer and sale of shares
of the Fund, including promotions, marketing materials,
preparation of prospectuses, filings with the Commission and
state securities regulators, and negotiations with
broker-dealers; (ii) shareholder services, including,
confirmations, correspondence and reporting to shareholders;
(iii) all corporate matters on behalf of the Fund, including
monitoring the corporate records of the Fund, maintaining
contact with the Board, preparing for, organizing and attending
meetings of the Board and the Fund's shareholders; (iv)
preparation of proxies when required; and (v) any other matters
not expressly delegated to the Subadviser by this Agreement.
III. REPRESENTATIONS AND WARRANTIES
A. Representations and Warranties of the Subadviser
The Subadviser hereby represents and warrants to the Adviser as follows:
1. Due Incorporation and Organization. The Subadviser is duly
organized and is in good standing under the laws of the State of
Connecticut and is fully authorized to enter into this Agreement
and carry out its duties and obligations hereunder. 2.
Registration. The Subadviser is registered as an investment
adviser with the Commission under the Advisers Act, and is
registered or licensed as an investment adviser under all of the
laws of all jurisdictions in which its activities require it to
be so registered or licensed. The Subadviser shall maintain such
registration or license in effect at all times during the term
of this Agreement.
3
<PAGE>
2. Registration. The Subadviser is registered as an investment
adviser with the Commission under the Advisers Act, and is
registered or licensed as an investment adviser under all of the
laws of all jurisdictions in which its activities require it to
be so registered or licensed. The Subadviser shall maintain such
registration or license in effect at all times during the term
of this Agreement.
3. Regulatory Orders. The Subadviser is not subject to any stop
orders, injunctions or other orders of any regulatory authority
affecting its ability to carry out the terms of this Agreement.
The Subadviser will notify the Adviser and the Fund immediately
if any such order is issued or if any proceeding is commenced
that could result in such an order.
4. Compliance. The Subadviser has in place compliance systems and
procedures designed to meet the requirements of the Advisers Act
and the 1940 Act and it shall at all times assure that its
activities in connection with managing the Fund follow these
procedures.
5. Authority. The Subadviser is authorized to enter into this
Agreement and carry out the terms hereunder.
6. Best Efforts. The Subadviser 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 Adviser
The Adviser hereby represents and warrants to the Subadviser as follows:
1. Due Incorporation and Organization. The Adviser is duly
organized and is in good standing under the laws of the State of
Connecticut and is fully authorized to enter into this Agreement
and carry out its duties and obligations hereunder.
4
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2. Registration. The Adviser is registered as an investment adviser
with the Commission under the Advisers Act, and is registered or
licensed as an investment adviser under all of the laws of all
jurisdictions in which its activities require it to be so
registered or licensed. The Adviser shall maintain such
registration or license in effect at all times during the term
of this Agreement.
3. Regulatory Orders. The Adviser is not subject to any stop
orders, injunctions or other orders of any regulatory authority
affecting its ability to carry out the terms of this Agreement.
The Adviser will notify the Subadviser and the Fund immediately
if any such order is issued or if any proceeding is commenced
that could result in such an order.
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4. Authority. The Adviser is authorized to enter into this
Agreement and carry out the terms hereunder.
5. Best Efforts. The Adviser at all times shall provide its best
judgment and effort to the Fund in carrying out its obligations
hereunder.
C. Representations and Warranties of the Fund
The Fund hereby represents and warrants to the Adviser as follows:
1. Due Incorporation and 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. BROKER-DEALER RELATIONSHIPS
A. Portfolio Trades
The Subadviser shall place all orders for the purchase and sale of portfolio
securities for the Fund with brokers or dealers selected by the Subadviser,
which may include brokers or dealers affiliated with the Subadviser. The
Subadviser shall use its best efforts to seek to execute portfolio
transactions at prices that are advantageous to the Fund giving consideration
to the services and research provided and at commission rates that are
reasonable in relation to the benefits received ("best execution").
B. Selection of Broker-Dealers
In selecting broker-dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to the Fund and/or the other accounts over which the
Subadviser or its affiliates exercise investment discretion. The Subadviser
may also select brokers or dealers to effect transactions for the Fund who
provide payment for expenses of the Fund. The Subadviser is authorized to pay
a broker or dealer who provides such brokerage and research services or
expenses, a commission for executing a portfolio transaction for the Fund that
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Subadviser determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage, research and other services provided by such broker or dealer
and is paid in compliance with Section 28(e) or other rules and regulations of
the Commission. This determination may be viewed in terms of either that
particular transaction or the overall responsibilities that the Subadviser and
its affiliates have with respect to accounts over which they exercise
investment discretion. The Board shall periodically review the commissions
paid by the Fund to determine if the commissions paid over representative
periods of time were reasonable in relation to the benefits received.
5
<PAGE>
V. CONTROL BY THE BOARD OF TRUSTEES
Any investment program undertaken by the Subadviser pursuant to this
Agreement, as well as any other activities undertaken by the Subadviser at the
direction of the Adviser with respect to the Fund, shall at all times be
subject to any directives of the Board.
VI. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Adviser shall at all
times conform to:
A. all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder;
B. all policies and procedures of the Fund as adopted by the Board and
as described in the Registration Statement;
C. the provisions of the Declaration of Trust of the Fund, as amended
from time to time;
D. the provisions of the bylaws of the Fund, as amended from time to
time; and
E. any other applicable provisions of state or federal law.
VII. COMPENSATION
A. Payment Schedule
The Adviser shall pay the Subadviser, as compensation for services
rendered hereunder, from its own assets, an annual fee of up to .25% of
the average daily net assets in the Fund, payable monthly. Except as
hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily at the rate of 1/365 of the annual
Subadvisory fee of up to .25% applied to the daily net assets of the Fund.
If this Agreement becomes effective subsequent to the first day of a month
or shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a
manner consistent with the calculation of the fees set forth above.
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B. Reduction
Payment of the Subadviser's compensation for the preceding month shall be
made as promptly as possible, except as provided below. The Subadviser
acknowledges that, pursuant to the Investment Advisory Agreement, the
Adviser has agreed to reduce its fee or reimburse the Fund if the expenses
borne by the Fund exceed the expense limitations applicable to the Fund
imposed by the securities laws or regulations of any jurisdiction in which
the Fund shares are qualified for sale. Accordingly, the Subadviser agrees
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, extraordinary
expenses and certain other excludable expenses, would exceed the most
restrictive expense limits imposed by any statute or regulatory authority
of any jurisdiction in which shares of the Fund are offered for sale
(unless a waiver is obtained), the Subadviser shall reduce its advisory
fee to the extent necessary to meet such expense limit, but will not be
required to reimburse the Fund for any ordinary business expenses which
exceed the amount of its advisory fee for the fiscal year. The Subadviser
shall contribute to the amount of such reduction by reimbursing the
Adviser in proportion to the amounts which the Adviser and Subadviser
would have been entitled to receive for such year. For the purposes of
this paragraph, the term "fiscal year" shall exclude the portion of the
current fiscal year which elapsed prior to the effective date of this
Agreement, but shall include the portion of the then current fiscal year
has elapsed at the date of termination of this Agreement.
VIII. ALLOCATION OF EXPENSES
The Subadviser shall pay the salaries, employment benefits and other related
costs of those of its personnel engaged in providing investment advice to the
Fund hereunder, including, but not limited to, office space, office equipment,
telephone and postage costs. In the event the Subadviser incurs any expense
that is the obligation of the Adviser as set out in this Agreement, the
Adviser shall reimburse the Subadviser for such expense on presentation of a
statement indicating the expenses incurred and the amount paid by the
Subadviser.
IX. NONEXCLUSIVITY
The services of the Subadviser with respect to the Fund are not to be deemed
to be exclusive, and the Subadviser shall be free to render investment
advisory and administrative or other services to others (including other
investment companies) and to engage in other activities. It is understood and
agreed that officers or directors of the Subadviser may serve as officers or
directors of the Adviser or officers or Trustees of the Fund; that officers or
directors of the Adviser or officers or Trustees of the Fund may serve as
officers or directors of the Subadviser to the extent permitted by law; and
that the officers and directors of the Subadviser are not prohibited from
engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm or trust, including other investment advisory companies.
7
<PAGE>
X. TERM
This Agreement shall become effective at the close of business on _________,
1996, and shall remain in force and effect through December 31, 1997, unless
earlier terminated under the provisions of Article XI. Following the
expiration of its initial term, the Agreement shall continue in force and
effect for one year periods, provided such continuance is specifically
approved at least annually:
A. (1) by the Fund's Trustees or (2) by the vote of a majority of the
Fund's outstanding voting securities (as defined in Section 2(a)(42)
of the 1940 Act), and
B. by the affirmative vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a Trustee of the Fund), by votes cast in
person at a meeting specifically called for such purpose.
XI. TERMINATION
This Agreement may be terminated:
A. at any time, without the payment of any penalty, by vote of the
Fund's Trustees or by vote of a majority of the outstanding voting
securities of the Fund; or
B. by the Adviser, the Fund or the Subadviser on sixty (60) days'
written notice to the other party, unless written notice is waived by
the party required to be notified; or
C. automatically in the event there is an "assignment" of this
Agreement, as defined in Section 2 (a) (4) of the 1940 Act.
XII. LIABILITY
A. Liability of the Subadviser
The Subadviser shall be liable to the Fund and the Adviser and shall
indemnify the Fund and the Adviser for any losses incurred by the Fund, or
the Adviser 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 Subadviser or its officers, directors or employees,
that is found to involve willful misfeasance, bad faith or negligence, or
reckless disregard by the Subadviser of its duties under this Agreement,
in connection with the services rendered by the Subadviser hereunder.
8
<PAGE>
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.
XIII. 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 ADVISER:
151 Farmington Avenue, RE4C Hartford, Connecticut 06156 Fax number:
860/273-8340 Attn: Secretary
IF TO THE SUBADVISER:
242 Trumbull Street Hartford, Connecticut 06103-1205 Fax number:
860/275-4440 Attention: President
XIV. 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 the 1940 Act. In addition,
where the effect of a requirement of the 1940 Act reflected in any provision
of the Agreement is revised by rule, regulation or order of the Commission,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
XV. SERVICE MARK
The service mark of the Fund or Adviser, 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 to
withdraw this permission in the event the Subadviser or another subsidiary or
affiliated corporation of Aetna Life and Casualty should not be the investment
adviser of the Fund.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the ______ day of
______________, 19__.
Aetna Life Insurance and Annuity Company
By:_____________________________
Attest:____________________ Name:___________________________
Title:__________________________
Aeltus Investment Management, Inc.
By:_____________________________
Attest:____________________ Name:___________________________
Title:__________________________
Aetna Income Shares
By:_____________________________
Attest:____________________ Name:___________________________
Title:__________________________
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<PAGE>
EXHIBIT B
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made by and between AETNA LIFE INSURANCE AND ANNUITY
COMPANY, a Connecticut corporation (the "Adviser") 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 Adviser is registered with the Commission as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and is in the business of acting as an investment adviser; and
WHEREAS, the Fund and the Adviser desire to enter into an agreement to provide
for investment advisory and management services for the Fund on the terms and
conditions hereinafter set forth;
NOW THEREFORE, the parties agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
Subject to the terms and conditions of this Agreement and the policies and
control of the Fund's Board of Trustees (the "Board"), the Fund hereby
appoints the Adviser to serve as the investment adviser to the Fund, to
provide the investment advisory services set forth below in Section II. The
Adviser agrees that, except as required to carry out its duties under this
Agreement or otherwise expressly authorized, it is acting as an independent
contractor and not as an agent of the Fund and has no authority to act for or
represent the Fund in any way.
II. DUTIES OF THE ADVISER
In carrying out the terms of this Agreement, the Adviser shall do the
following:
A. supervise all aspects of the operations of the Fund;
B. select 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 and regularly report thereon to the
Board;
<PAGE>
C. formulate and implement continuing programs for the purchase and sale
of securities and regularly report thereon to the Board;
D. obtain and evaluate 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;
E. provide economic research and securities analyses as the Adviser
considers necessary or advisable in connection with the Adviser's
performance of its duties hereunder;
F. obtain the services of, contract with, and provide 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;
G. prepare financial and performance reports, calculate and report daily
net asset values, and prepare any other financial data or reports, as
the Adviser from time to time, deems necessary or as are requested by
the Board; and
H. take any other actions which appear to the Adviser and the Board
necessary to carry into effect the purposes of this Agreement.
III. REPRESENTATIONS AND WARRANTIES
A. Representations and Warranties of the Adviser
Adviser hereby represents and warrants to the Fund as follows:
1. Due Incorporation and Organization. The Adviser is duly
organized and is in good standing under the laws of the State of
Connecticut and is fully authorized to enter into this Agreement
and carry out its duties and obligations hereunder.
2. Registration. The Adviser is registered as an investment adviser
with the Commission under the Advisers Act, and is registered or
licensed as an investment adviser under the laws of all
jurisdictions in which its activities require it to be so
registered or licensed. The Adviser shall maintain such
registration or license in effect at all times during the term
of this Agreement.
3. Best Efforts. The Adviser at all times shall provide its best
judgment and effort to the Fund in carrying out its obligations
hereunder.
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<PAGE>
B. Representations and Warranties of the Fund
The Fund hereby represents and warrants to the Adviser as follows:
1. Due Incorporation and 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. DELEGATION OF RESPONSIBILITIES
A. Appointment of Subadviser
Subject to the approval of the Board and the shareholders of the Fund, the
Adviser may enter into a Subadvisory Agreement to engage a subadviser (the
"Subadviser") to the Adviser with respect to the Fund.
B. Duties of Subadviser
Under a Subadvisory Agreement, the Subadviser may be delegated some or all
of the following duties of the Adviser:
1. determine which securities from which issuers shall be
purchased, sold or exchanged by the Fund or otherwise
represented in the Fund's investment portfolio, place trades for
all such securities and regularly report thereon to the Board;
2. formulate and implement continuing programs for the purchase and
sale of the securities of such issuers and regularly report
thereon to the Board;
3. obtain and evaluate 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;
4. provide economic research and securities analyses as the Adviser
considers necessary or advisable in connection with the
Adviser's performance of its duties hereunder;
3
<PAGE>
5. give instructions to the custodian and/or sub-custodian of the
Fund appointed by the Board, as to deliveries of securities,
transfers of currencies and payments of cash for the Fund as
required to carry out the investment activities of the Fund, in
relation to the matters contemplated by this Agreement; and
6. provide such financial support, administrative services and
other duties as the Adviser deems necessary and appropriate.
C. Duties of the Adviser
In the event the Adviser delegates certain responsibilities hereunder to a
Subadviser, the Adviser shall, among other things:
1. monitor the investment program maintained by the Subadviser for
the Fund and the Subadviser's compliance program to ensure that
the Fund's assets are invested in compliance with the
Subadvisory Agreement and the Fund's investment objectives and
policies as adopted by the Board and described in the most
current effective amendment of the registration statement for
the Fund, as filed with the Commission under the Securities Act
of 1933, as amended, and the 1940 Act ("Registration
Statement");
2. review all data and financial reports prepared by the Subadviser
to assure that they are in compliance with applicable
requirements and meet the provisions of applicable laws and
regulations;
3. establish and maintain regular communications with the
Subadviser to share information it obtains with the Subadviser
concerning the effect of developments and data on the investment
program maintained by the Subadviser; and
4. oversee all matters relating to the offer and sale of the Fund's
shares, the Fund's corporate governance, reports to the Board,
contracts with all third parties on behalf of the Fund for
services to the Fund, reports to regulatory authorities and
compliance with all applicable rules and regulations affecting
the Fund's operations.
V. BROKER-DEALER RELATIONSHIPS
A. Portfolio Trades
The Adviser, at its own expense, shall place all orders for the purchase
and sale of portfolio securities for the Fund with brokers or dealers
selected by the Adviser, which may include brokers or dealers affiliated
with the Adviser. The Adviser shall use its best efforts to seek to
execute portfolio transactions at prices that are advantageous to the Fund
and at commission rates that are reasonable in relation to the benefits
received.
4
<PAGE>
B. Selection of Broker-Dealers
In selecting broker-dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to the Fund and/or the other accounts over which the
Adviser or its affiliates exercise investment discretion. The Adviser may
also select brokers or dealers to effect transactions for the Fund who
provide payment for expenses of the Fund. The Adviser is authorized to pay
a broker or dealer who provides such brokerage and research services or
expenses, a commission for executing a portfolio transaction for the Fund
that is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by
such broker or dealer and is paid in compliance with Section 28(e) or
other rules and regulations of the Commission. This determination may be
viewed in terms of either that particular transaction or the overall
responsibilities that the Adviser and its affiliates have with respect to
accounts over which they exercise investment discretion. The Board shall
periodically review the commissions paid by the Fund to determine if the
commissions paid over representative periods of time were reasonable in
relation to the benefits received.
VI. CONTROL BY THE BOARD OF TRUSTEES
Any investment program undertaken by the Adviser pursuant to this Agreement,
as well as any other activities undertaken by the Adviser on behalf of the
Fund pursuant thereto, shall at all times be subject to any directives of the
Board.
VII. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Adviser shall at all
times conform to:
A. all applicable provisions of the 1940 Act;
B. the provisions of the registration statement of the Fund, as the same
may be amended from time to time, under the 1933 Act and the 1940
Act;
C. the provisions of the Fund's Declaration of Trust, as amended;
D. the provisions of the Bylaws of the Fund, as amended; and
E. any other applicable provisions of state and federal law.
5
<PAGE>
VIII. COMPENSATION
For the services to be rendered, the facilities furnished and the expenses
assumed by the Adviser, the Fund shall pay to the Adviser an annual fee,
payable monthly, equal to .40% of the average daily net assets of the Fund.
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily at the rate of 1/365 of .40% 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 set forth
above. Subject to the provisions of Section X hereof, payment of the Adviser's
compensation for the preceding month shall be made as promptly as possible.
For so long as a Subadvisory Agreement is in effect, the Fund acknowledges
that the Adviser will pay to the Subadviser, as compensation for acting as
Subadviser to the Fund, the fees specified in the Subadvisory Agreement.
IX. EXPENSES
The expenses in connection with the management of the Fund shall be allocated
between the Fund and the Adviser as follows:
A. Expenses of the Adviser
The Adviser shall pay:
1. the salaries, employment benefits and other related costs and
expenses of those of its personnel engaged in providing
investment advice to the Fund, including without limitation,
office space, office equipment, telephone and postage costs;
2. all fees and expenses of all Trustees, officers and employees,
if any, of the Fund who are employees of the Adviser or an
affiliated entity, including any salaries and employment
benefits payable to those persons;
B. Expenses of the Fund
The Fund shall pay:
1. investment advisory fees pursuant to this Agreement;
2. brokers' commissions, issue and transfer taxes or other
transaction fees payable in connection with any transactions in
the securities in the Fund's investment portfolio or other
investment transactions incurred in managing the Fund's assets,
including portions of commissions that may be paid to reflect
brokerage research services provided to the Adviser;
6
<PAGE>
3. fees and expenses of the Fund's independent accountants and
legal counsel and the independent Trustees' legal counsel;
4. fees and expenses of any administrator, transfer agent,
custodian, dividend, accounting, pricing or disbursing agent of
the Fund;
5. interest and taxes;
6. fees and expenses of any membership in the Investment Company
Institute or any similar organization in which the Board deems
it advisable for the Fund to maintain membership;
7. insurance premiums on property or personnel (including officers
and Trustees) of the Fund which benefit the Fund;
8. 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;
9. expenses of preparing, printing and distributing proxies, proxy
statements, prospectuses and reports to shareholders of the
Fund, except for those expenses paid by third parties in
connection with the distribution of Fund shares and all costs
and expenses of shareholders' meetings;
10. all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares of the
Fund or in cash;
11. 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;
12. 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 of the District of Columbia;
13. all costs attributable to investor services, administering
shareholder accounts and handling shareholder relations,
(including, without limitation, telephone and personnel
expenses), which costs may also be charged to third parties by
the Adviser; and
14. any other ordinary, routine expenses incurred in the management
of the Fund's assets, and any nonrecurring or extraordinary
expenses, including organizational expenses, litigation
affecting the Fund and any indemnification by the Fund of its
officers, Trustees or agents.
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<PAGE>
X. EXPENSE LIMITATION
If, for any fiscal year, the total of all ordinary business expenses payable
by the Fund, including all investment advisory fees but excluding brokerage
commissions, distribution fees, taxes, interest and extraordinary expenses and
certain other excludable expenses, would exceed the most restrictive expense
limits imposed by any statute or regulatory authority of any jurisdiction in
which shares of the Fund are offered for sale (unless a waiver is obtained),
the Adviser shall reduce its advisory fee to the extent necessary to meet such
expense limit, but the Adviser will not be required to reimburse the Fund for
any ordinary business expenses which exceed the amount of its advisory fee for
such fiscal year. The amount of any such reduction is to be borne by the
Adviser and shall be deducted from the monthly advisory fee otherwise payable
to the Adviser during such fiscal year. For the purposes of this paragraph,
the term "fiscal year" shall exclude the portion of the current fiscal year
which shall have elapsed prior to the date hereof and shall include the
portion of the then current fiscal year which shall have elapsed at the date
of termination of this Agreement.
XI. ADDITIONAL SERVICES
Upon the request of the Board of Trustees, the Adviser may perform certain
accounting, shareholder servicing or other administrative services on behalf
of the Fund that are not required by this Agreement. Such services will be
performed on behalf of the Fund and the Adviser may receive from the Fund such
reimbursement for costs or reasonable compensation for such services as may be
agreed upon between the Adviser and the Board on a finding by the Board that
the provision of such services by the Adviser is in the best interests of the
Fund and its shareholders. Payment or assumption by the Adviser of any Fund
expense that the Adviser is not otherwise required to pay or assume under this
Agreement shall not relieve the Adviser of any of its obligations to the Fund
nor obligate the Adviser to pay or assume any similar Fund expense on any
subsequent occasions. Such services may include, but are not limited to, (a)
the services of a principal financial officer of the Fund (including
applicable office space, facilities and equipment) whose normal duties consist
of maintaining the financial accounts and books and records of the Fund and
the services (including applicable office space, facilities and equipment) of
any of the personnel operating under the direction of such principal financial
officer; (b) the services of staff to respond to shareholder inquiries
concerning the status of their accounts, providing assistance to shareholders
in exchanges among the investment companies managed or advised by the Adviser,
changing account designations or changing addresses, assisting in the purchase
or redemption of shares; or otherwise providing services to shareholders of
the Fund; and (c) such other administrative services as may be furnished from
time to time by the Adviser to the Fund at the request of the Board.
XII. NONEXCLUSIVITY
The services of the Adviser to the Fund are not to be deemed to be exclusive,
and the Adviser shall be free to render investment advisory or other services
to others (including other investment companies) and to engage in other
activities, so long as its services under this Agreement are not impaired
thereby. It is understood and agreed that officers and Directors of the
Adviser may serve as officers or Trustees of the Fund, and that officers or
8
<PAGE>
Trustees of the Fund may serve as officers or Directors of the Adviser to the
extent permitted by law; and that the officers and directors of the Adviser
are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, officers,
directors or trustees of any other firm or trust, including other investment
companies.
XIII. TERM
This Agreement shall become effective at the close of business on the date
hereof and shall remain in force and effect, subject to Paragraphs XIV and XV
hereof and approval by the Fund's shareholders, for a period of two years from
the date hereof.
XIV. RENEWAL
Following the expiration of its initial two-year term, the Agreement shall
continue in force and effect from year to year, provided that such continuance
is specifically approved at least annually:
A. 1. by the Fund's Trustees, or
2. by the vote of a majority of the Fund's outstanding voting
securities (as defined in Section 2(a)(42) of the 1940 Act), and
B. by the affirmative vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a Trustees of the Fund), by votes cast in
person at a meeting specifically called for such purpose.
XV. TERMINATION
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Fund's Trustees or by vote of a majority of the Fund's
outstanding voting securities (as defined in Section 2(a)(42) of the 1940
Act), or by the Adviser, on sixty (60) days' written notice to the other
party. The notice provided for herein may be waived by the party required to
be notified. This Agreement shall automatically terminate in the event of its
"assignment", as that term is defined in Section 2(a)(4) of the 1940 Act.
XVI. LIABILITY
A. Liability of the Adviser
The Adviser shall be liable to the Fund and shall indemnify the Fund for
any losses incurred by the Fund, whether in the purchase, holding or sale
of any security or otherwise, to the extent that such losses resulted from
an act or omission on the part of the Adviser or its officers, Trustees or
employees, that is found to involve willful misfeasance, bad faith or
negligence, or reckless disregard by the Adviser of its duties under this
Agreement, in connection with the services rendered by the Adviser
hereunder.
9
<PAGE>
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 Trustees 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.
XVII. NOTICES
Any notices under this Agreement shall be in writing, addressed and delivered,
mailed postage paid, or sent by other delivery service, or by facsimile
transmission to each party at such address as each party may designate for the
receipt of notice. Until further notice, such addresses shall be:
if to the Fund or the Adviser:
151 Farmington Avenue, RE4C
Hartford, Connecticut 06156
Fax number: 860/273-8340
XVIII. QUESTIONS OF INTERPRETATION
This Agreement shall be governed by the laws of the State of Connecticut. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and
to interpretations thereof, if any, by the United States Courts or, in the
absence of any controlling decision of any such court, by rules, regulations
or orders of the Commission issued pursuant to the 1940 Act. In addition,
where the effect of a requirement of the 1940 Act reflected in the provisions
of this Agreement is revised by rule, regulation or order of the Commission,
such provisions shall be deemed to incorporate the effect of such rule,
regulation or order.
XIX. 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 Adviser or another subsidiary or
affiliated corporation of Aetna Life and Casualty Company should not be the
investment adviser of the Fund.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the ___ day of
_______________, 199__.
AETNA LIFE INSURANCE AND ANNUITY COMPANY
By:_____________________________
Attest:____________________ Name:___________________________
Title:__________________________
AETNA INCOME SHARES
By:_____________________________
Attest:____________________ Name:___________________________
Title:__________________________
11
<PAGE>
EXHIBIT C
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made by and between AETNA INCOME SHARES, a Massachusetts
business trust (the "Fund") and AETNA LIFE INSURANCE AND ANNUITY COMPANY, a
Connecticut insurance corporation (the "Adviser"), as of the Date set forth
below.
R E C I T A L
WHEREAS, the Fund is registered as an open-end diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act") and the rules and regulations promulgated thereunder;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and engages
in the business of acting as an investment adviser;
WHEREAS, the Fund and the Adviser desire to enter into an agreement to
provide for investment advisory and management services for the Fund on the
terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
The Adviser is hereby appointed to serve as the investment adviser to the
Fund, to provide investment advisory services set forth below in Section II,
subject to the terms of this Agreement and the policies and control of the
Fund's Board of Trustees (the "Board"). The Adviser shall, for all purposes
herein, be deemed an independent contractor and shall have, unless otherwise
expressly provided or authorized, no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund.
II. DUTIES OF THE ADVISER
In carrying out the terms of this Agreement, the Adviser shall provide the
following services:
A. supervise all aspects of the operations of the Fund;
B. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the
Fund's portfolio and whether concerning the individual issuers of the
securities included in the Fund's portfolio or the activities in
which the issuers engage, or with respect to securities that the
Adviser considers desirable for inclusion in the Fund's portfolio;
<PAGE>
C. determine which issuers and securities shall be represented in the
Fund's portfolio and regularly report thereon to the Board;
D. formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon
to the Board;
E. give instructions to the custodian and/or sub-custodian of the Fund
appointed by the Board as to deliveries of securities, transfers of
currencies and payments of cash for the account of the Fund, in
relation to the matters contemplated by this Agreement; and
F. take, on behalf of the Fund, all actions which appear to the Fund
necessary to carry into effect the purchase and sale of securities
for the Fund and the supervisory functions listed above, including
the placing of orders for the purchase and sale of securities for the
Fund.
III. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES OF THE ADVISER
Adviser hereby represents and warrants to the Fund as follows:
1. Due Incorporation and Organization. The Adviser is duly
organized and is in good standing under the laws of the State of
Connecticut and is fully authorized to enter into this Agreement
and carry out its duties and obligations hereunder.
2. Registration. The Adviser is registered as an investment adviser
with the Securities and Exchange Commission (the "SEC") under
the Advisers Act, and is registered or licensed as an investment
adviser under the laws of all jurisdictions in which its
activities require it to be so registered or licensed. The
Adviser shall maintain such registration or license in effect at
all times during the term of this Agreement.
3. Best Efforts. The Adviser at all times shall provide its best
judgment and effort to the Fund in carrying out its obligations
hereunder.
2
<PAGE>
B. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund hereby represents and warrants to the Adviser as follows:
1. Due Organization. The Fund has been duly organized as a
"business trust" under the laws of the Commonwealth of
Massachusetts and is authorized to enter into this Agreement and
carry out its terms.
2. Registration. The Fund is registered as an investment company
with the SEC under the 1940 Act and shares of the Fund are
registered for offer and sale to the public under the Securities
Act of 1933, as amended (the "1933 Act") and all applicable
state securities laws. Such registrations will be kept in effect
during the term of this Agreement.
IV. DELEGATION OF RESPONSIBILITIES
A. APPOINTMENT OF SUBADVISER
Subject to the approval of the Board and the shareholders of the
Fund, the Adviser may enter into a Subadvisory Agreement to engage a
subadviser (the "Subadviser") to the Adviser with respect to the Fund.
B. DUTIES OF SUBADVISER
Under a Subadvisory Agreement, the Subadviser shall:
1. provide the Adviser with such economic research and securities
analysis as the Adviser may from time to time consider necessary
or advisable in connection with the Adviser's performance of its
duties hereunder;
2. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy
generally or the Fund, and whether concerning the individual
issuers whose securities are included in the Fund or the
activities in which such issuers engage, or with respect to
securities that the Subadviser considers desirable for inclusion
in the Fund's investment portfolio;
3. determine which issuers and securities shall be purchased, sold
or exchanged by the Fund or otherwise represented in the Fund's
investment portfolio and regularly report thereon to the Adviser
and, at the request of the Adviser, to the Board; and
4. formulate and implement continuing programs for the purchase and
sale of the securities of such issuers and regularly report
thereon to the Adviser and, at the request of the Adviser, to
the Board.
3
<PAGE>
C. DUTIES OF THE ADVISER
In the event the Adviser delegates certain responsibilities hereunder
to a Subadviser, the Adviser shall, among other things:
1. monitor the investment program maintained by the Subadviser for
the Fund to ensure that the Fund's assets are invested in
compliance with the Subadvisory Agreement and the Fund's
Registration Statement;
2. consult with and assist the Subadviser in maintaining
appropriate policies, procedures and records so that the
Subadviser operates its business and any investment program
hereunder in compliance with applicable laws;
3. establish and maintain periodic communications with the
Subadviser to share information it obtains with the Subadviser
concerning the effect of developments and data on the investment
program maintained by the Subadviser; and
4. oversee matters relating to Fund promotion, marketing materials
and the Subadviser's reports to the Board.
V. BROKER-DEALER RELATIONSHIPS
A. PORTFOLIO TRADES
The Adviser, at its own expense, shall place all orders for the purchase
and sale of portfolio securities for the Fund with brokers or dealers selected
by the Adviser, which may include brokers or dealers affiliated with the
Adviser. The Adviser shall use its best efforts to seek to execute portfolio
transactions at prices that are advantageous to the Fund and at commission
rates that are reasonable in relation to the benefits received.
B. SELECTION OF BROKER-DEALERS
In selecting broker-dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934, as amended) to the Fund and/or the other accounts over
which the Adviser or its affiliates exercise investment discretion. The
Adviser is authorized to pay a broker or dealer who provides such brokerage
and research services a commission for executing a portfolio transaction for
the Fund that is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either that
particular transaction or the overall responsibilities that the Adviser and
its affiliates have with respect to accounts over which they exercise
investment discretion. The Board shall periodically review the commissions
paid by the Fund to determine if the commissions paid over representative
periods of time were reasonable in relation to the benefits received.
4
<PAGE>
VI. CONTROL BY THE BOARD OF TRUSTEES
Any investment program undertaken by the Adviser pursuant to this
Agreement, as well as any other activities undertaken by the Adviser on behalf
of the Fund pursuant thereto, shall at all times be subject to any directives
of the Board.
VII. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Adviser shall at
all times conform to:
A. all applicable provisions of the 1940 Act;
B. the provisions of the registration statement of the Fund, as the same
may be amended from time to time, under the 1933 Act and the 1940
Act;
C. the provisions of the Fund's Declaration of Trust, as amended;
D. the provisions of the By-Laws of the Fund, as amended; and
E. any other applicable provisions of state and federal law.
VIII. COMPENSATION
For the services to be rendered, the facilities furnished and the expenses
assumed by the Adviser, the Fund shall pay to the Adviser an annual fee,
payable monthly, equal to 0.25% of the average daily net assets of the Fund.
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily at the rate of 1/365 of the annual advisory fee
applied to the daily net assets of the Fund. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before the
last day of a month, compensation for that part of the month this Agreement is
in effect shall be prorated in a manner consistent with the calculation of the
fees as set forth above. Subject to the provisions of Paragraph X hereof,
payment of the Adviser's compensation for the preceding month shall be made as
promptly as possible. For so long as a Subadvisory Agreement is in effect, the
Fund acknowledges that the Adviser will pay to the Subadviser, as compensation
for acting as Subadviser to the Fund, the fees specified in the Subadvisory
Agreement.
5
IX. EXPENSES
The expenses in connection with the management of the Fund shall be
allocable between the Fund and the Adviser as follows:
A. EXPENSES OF THE ADVISER
The Adviser shall pay:
1. The salaries, employment benefits and other related costs of
those of its personnel engaged in providing investment advice to
the Fund, including, without limitation, office space, office
equipment, telephone and postage costs; and
2. Any fees and expenses of all Trustees of the Fund who are
employees of the Adviser or an affiliated entity and any
salaries and employment benefits of officers of the Fund who are
affiliated persons of the Adviser for acting as officers of the
Fund.
B. EXPENSES OF THE FUND
The Fund shall pay:
1. Investment advisory fees pursuant to this Agreement;
2. Brokers' commissions, issue and transfer taxes or other
transaction fees chargeable in connection with securities or
other investment transactions, including portions of commissions
that may be paid to reflect brokerage research services provided
to the Adviser;
3. Fees and expenses of the Fund's independent public accountants
and outside legal counsel;
4. Expenses of printing and distributing proxies, proxy statements,
prospectuses and reports to shareholders of the Fund, except as
such expenses may be borne by any distributor of the Fund;
5. Interest and taxes;
6. The fees and expenses of those of the Fund's Trustees who are
not "interested persons" (as defined in the 1940 Act) of the
Fund or the Adviser;
7. Shareholders' meeting expenses;
8. Administrator, transfer agent, custodian and dividend disbursing
agent fees and expenses;
6
<PAGE>
9. Fees of dividend, accounting or pricing agents appointed by the
Fund;
10. Fees payable by the Fund to the SEC or in connection with the
registration of shares of the Fund under the laws of any state
or territory of the United States or of the District of
Columbia;
11. Fees and assessments of the Investment Company Institute or any
successor organization or other association memberships approved
by the Board;
12. Such nonrecurring or extraordinary expenses as may arise,
including organizational expenses, litigation affecting the Fund
and any indemnification by the Fund of its officers, Trustees or
agents with respect thereto;
13. All other ordinary business expenses incurred in the operations
of the Fund unless specifically provided otherwise in this
paragraph IX;
14. All costs attributable to investor services, administering
shareholder accounts and handling shareholder relations
(including, without limitation, telephone and personnel
expenses);
15. All expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares of the
Fund or in cash; and
16. Insurance premiums on property or personnel (including officers
and Trustees) of the Fund which inure to its benefit.
X. EXPENSE LIMITATION
If, for any fiscal year, the total of all ordinary business expenses of
the Fund, including all investment advisory fees but excluding brokerage
commissions, distribution fees, taxes, interest and extraordinary expenses and
certain other excludable expenses, would exceed the most restrictive expense
limits imposed by any statute or regulatory authority of any jurisdiction in
which shares of the Fund are offered for sale (unless a waiver is obtained),
the Adviser shall reduce its advisory fee in order to reduce such excess
expenses, but will not be required to reimburse the Fund for any ordinary
business expenses which exceed the amount of its advisory fee for such fiscal
year. The amount of any such reduction is to be borne by the Adviser and shall
be deducted from the monthly management fee otherwise payable to the Adviser
during such fiscal year. For the purposes of this paragraph, the term "fiscal
year" shall exclude the portion of the current fiscal year which shall have
elapsed prior to the date hereof and shall include the portion of the then
current fiscal year which shall have elapsed at the date of termination of
this Agreement.
7
<PAGE>
XI. ADDITIONAL SERVICES
Upon the request of the Board, the Adviser may perform certain accounting,
shareholder servicing or other administrative services on behalf of the Fund
that are not required by this Agreement. Such services will be performed on
behalf of the Fund and the Adviser may receive from the Fund such
reimbursement for costs or reasonable compensation for such services as may be
agreed upon between the Adviser and the Board on a finding by the Board that
the provision of such services by the Adviser is in the best interests of the
Fund and its shareholders. Payment or assumption by the Adviser of any Fund
expense that the Adviser is not otherwise required to pay or assume under this
Agreement shall not relieve the Adviser of any of its obligations to the Fund
nor obligate the Adviser to pay or assume any similar Fund expense on any
subsequent occasions. Such services may include, but are not limited to, (a)
the services of a principal financial officer of the Fund (including
applicable office space, facilities and equipment) whose normal duties consist
of maintaining the financial accounts and books and records of the Fund, and
the services (including applicable office space, facilities and equipment) of
any of the personnel operating under the direction of such principal financial
officer; (b) the services of staff to respond to shareholder inquiries
concerning the status of their accounts; providing assistance to shareholders
in exchanges among the investment companies managed or advised by the Adviser;
changing account designations or changing addresses; assisting in the purchase
or redemption of shares; or otherwise providing services to shareholders of
the Fund; and (c) such other administrative services as may be furnished from
time to time by the Adviser to the Fund at the request of the Board.
XII. NON-EXCLUSIVITY
The services of the Adviser to the Fund are not to be deemed to be
exclusive, and the Adviser shall be free to render investment advisory or
other services to others (including other investment companies) and to engage
in other activities, so long as its services under this Agreement are not
impaired thereby. It is understood and agreed that officers and directors of
the Adviser may serve as officers or Trustees of the Fund, and that officers
or Trustees of the Fund may serve as officers or directors of the Adviser to
the extent permitted by law; and that the officers and directors of the
Adviser are not prohibited from engaging in any other business activity or
from rendering services to any other person, or from serving as partners,
officers, directors or trustees of any other firm or trust, including other
investment companies.
XIII. TERM
This Agreement shall become effective at the close of business on the date
hereof and shall remain in force and effect, subject to Paragraphs XIV and XV
hereof and approval by the Fund's shareholders, for a period of two years from
the date hereof.
8
<PAGE>
XIV. RENEWAL
Following the expiration of its initial two-year term, the Agreement shall
continue in force and effect from year to year, provided that such continuance
is specifically approved at least annually:
A. (1) by the Fund's Trustees or (2) by the vote of a majority of the
Fund's outstanding voting securities (as defined in Section 2(a)(42)
of the 1940 Act), and
B. by the affirmative vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a Trustee of the Fund), by votes cast in
person at a meeting specifically called for such purpose.
XV. TERMINATION
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Fund's Trustees or by vote of a majority of the Fund's
outstanding voting securities (as defined in Section 2(a)(42) of the 1940
Act), or by the Adviser, on sixty (60) days' written notice to the other
party. The notice provided for herein may be waived by the party required to
be notified. This Agreement shall automatically terminate in the event of its
"assignment", as that term is defined in Section 2(a)(4) of the 1940 Act.
XVI. LIABILITY OF ADVISER AND INDEMNIFICATION
A. LIABILITY
In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Adviser or its officers, directors or employees, or
reckless disregard by the Adviser of its duties under this Agreement, the
Adviser shall not be liable to the Fund or to any shareholder of the Fund
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security.
B. INDEMNIFICATION
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of the
Adviser or any officer, director or employee of the Adviser, to the extent
permitted by applicable law, the Fund hereby agrees to indemnify and hold
the Adviser harmless from and against all claims, actions, suits and
proceedings at law or in equity, whether brought or asserted by a private
party or a governmental agency, instrumentality or entity of any kind,
relating to the sale, purchase, pledge of, advertisement of, or
solicitation of sales or purchases of any security (whether of the Fund or
otherwise) by the Fund, its officers, Trustees, employees or agents in
alleged violation of applicable federal, state or foreign laws, rules or
regulations.
9
<PAGE>
XVII. NOTICES
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice
to the other party, it is agreed that the address of the Adviser and that of
the Fund for this purpose shall be 151 Farmington Avenue, Hartford,
Connecticut 06156.
XVIII. QUESTIONS OF INTERPRETATION
This Agreement shall be governed by the laws of the State of Connecticut.
Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
1940 Act shall be resolved by reference to such term or provision of the 1940
Act and to interpretations thereof, if any, by the United States Courts or, in
the absence of any controlling decision of any such court, by rules,
regulations or orders of the SEC issued pursuant to the 1940 Act. In addition,
where the effect of a requirement of the 1940 Act reflected in the provisions
of this Agreement is revised by rule, regulation or order of the SEC, such
provisions shall be deemed to incorporate the effect of such rule, regulation
or order.
XIX. SERVICE MARK
The service mark of the 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 Adviser or another subsidiary or
affiliated corporation of Aetna Life and Casualty Corporation should not be
the investment adviser of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers on the 13th day of
April, 1994.
Attest: AETNA INCOME SHARES
By: /s/Shaun P. Mathews
/s/Susan E. Bryant ---------------------------
- --------------------- Name: Shaun P. Mathews
Title: President
Attest: AETNA LIFE INSURANCE AND
ANNUITY COMPANY
By: /s/James C. Hamilton
/s/Lucille M. Nickerson -------------------------
- ----------------------- Name: James C. Hamilton
Title: Vice President and
Treasurer
10
<PAGE>
EXHIBIT D
Article 5.2, Nonliability of Trustees, and Others, of the Fund's
Declaration of Trust, shall be amended and restated to read as follows:
5.2 Nonliability of Trustees, and Others:
The exercise by the Trustees of their powers and discretion hereunder
shall be binding upon everyone interested. A Trustee shall be liable to the
Trust and the Shareholders for such Trustee's own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee, and for nothing else, and shall not be
liable for errors of judgment or mistakes of fact and law. Subject to the
foregoing, the Trustees shall not be responsible or liable in any event for
any neglect or wrongdoing of any officer, agent, employee, consultant,
adviser, administrator, distributor or principal underwriter, custodian or
transfer, dividend disbursing, shareholder servicing or accounting agent of
the Trust, nor shall any Trustee be responsible for the act or omission of any
other Trustee. Furthermore, no 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.
Article 5.3, Indemnification, of the Fund's Declaration of Trust, shall be
amended and restated to read as follows:
5.3 Indemnification. The Trust shall indemnify its Trustees, officers,
employees and agents and any person who serves at the request of the Trust as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise as follows:
(a) Every person who is or has been a Trustee or officer of the Trust and
persons who serve at the Trust's request as director or officer of another
corporation, partnership, joint venture, trust or other enterprise shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid in connection
with any debt, claim, action, demand, suit, proceeding, judgment, decree,
liability or obligation of any kind in which he or she becomes involved as a
party or otherwise by virtue of being or having been a Trustee or officer of
the Trust or of another corporation, partnership, joint venture, trust or
other enterprise at the request of the Trust and against amounts paid or
incurred in the settlement thereof.
(b) The words "claim," "action," "suit" or "proceeding" shall apply to all
claims, actions, suits or proceedings (civil, criminal, administrative,
legislative, investigative or other, including appeals), actual or threatened,
and the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
<PAGE>
(c) No indemnification shall be provided hereunder to a Trustee, officer,
employee or agent against any liability to the Trust or its shareholders by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of office.
(d) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee, officer, employee or agent may now or
hereafter be entitled, shall continue as to a person who has ceased to be such
Trustee, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(e) In the absence of a final decision on the merits by a court or other
body before which such proceeding was brought, an indemnification payment will
not be made, except as provided in paragraph (f) of this Article, unless in
the absence of such a decision, a reasonable determination based upon a
factual review has been made (1) by a majority vote of a quorum of non-party
Trustees who are not interested persons of the Trust, or (2) by independent
legal counsel in a written opinion that the indemnitee was not liable for an
act of willful misfeasance, bad faith, gross negligence, or reckless disregard
of duties.
(f) The Trust further undertakes that advancement of expenses incurred in
the defense of a proceeding (upon undertaking for repayment unless it is
ultimately determined that indemnification is appropriate) against a Trustee
or officer of the Trust will not be made absent the fulfillment of at least
one of the following conditions: (i) the indemnitee provides security for his
undertaking, (ii) the Trust is insured against losses arising by reason of any
lawful advances or (iii) a majority of a quorum of disinterested non-party
Trustees or independent legal counsel in a written opinion shall have
determined, based on a review of readily available facts (as opposed to a full
trial-type inquiry) that there is reason to believe the indemnitee ultimately
will be entitled to indemnification.
(g) No amendment of this Declaration or repeal of any of its provisions
shall limit or eliminate the rights of indemnification provided hereunder with
respect to acts or omission occurring prior to such amendment or repeal.
<PAGE>
EXHIBIT E
Article 5.2, Non-Liability of Trustees, and Others, currently reads as
follows:
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.
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 as 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 purpose 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.
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(c) Notwithstanding the foregoing, the following additional limitations
shall apply with respect to any actin 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, officer 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 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.
