[Aetna Letterhead]
[Aetna Logo] 151 Farmington Avenue
Hartford, CT 06156
Julie E. Rockmore
Counsel
Law Division, RE4A
August 14, 1997 Investments & Financial Services
(860) 273-4686
Fax: (860) 273-8340
Securities and Exchange Commission
450 Fifth Street
Washington, DC 20549
Attention: Filing Desk
Re: Aetna Life Insurance and Annuity Company and its
Variable Annuity Account B
Post-Effective Amendment No. 8 to Registration Statement on Form N-4
Prospectus Title: Aextra Assets - Individual Variable Annuity
Contracts Made Available to Individuals Who Wish to Supplement their
Retirement Income
File Nos. 33-76002 and 811-2512
Dear Sir or Madam:
On behalf of Aetna Life Insurance and Annuity Company (the "Depositor") and
under the Securities Act of 1933 (the "1933 Act"), we are submitting for filing
under Rule 485(b) of the 1933 Act, Post-Effective Amendment No. 8 to the
Registration Statement on Form N-4 with respect to the Aextra Assets -
Individual Variable Annuity Contracts Made Available to Individuals Who Wish to
Supplement their Retirement Income (the "Contracts"). The Contracts are funded
through the Depositor's Variable Annuity Account B. This filing is being
submitted electronically.
We have been authorized to file this Post-Effective Amendment under Rule
485(b)(1)(ix) pursuant to a written request by us to Ms. Susan Nash dated July
17, 1997 (the "485(b) Request") that was orally granted by Ms. Megan Dunphy.
The purpose of this filing is (i) to disclose the substitution of certain fund
options and the closing of a fund option as described in the 485(b) Request;
(ii) to bring the Prospectus and Statement of Additional Information up to date
to reflect year-end 1996 financial information and other non-material changes
that would normally have been provided in an annual update; and (iii) to include
certain exhibits that were previously filed in paper format.
Please note that the Contracts are no longer offered for sale and the Depositor
has relied on the SEC no-action letter issued to the Great West Life & Annuity
Insurance Company; Pinnacle Series Account (pub. avail. Oct. 23, 1990), as the
basis for its determination not to file an annual update effective May 1, 1997.
As counsel to the Registrant, I have reviewed the enclosed Post-Effective
Amendment No. 8 which is being filed under Rule 485(b) of the 1933 Act. Pursuant
to Rule 485(b)(4), I hereby represent that, other than any items referenced in
the 485(b) Request, the enclosed Post-Effective Amendment No. 8 does not contain
any disclosure which would render it ineligible to become effective under Rule
485(b)(1).
If you have any questions, please call the undersigned at 860-273-4686 or Kate
Johnson at 860-273-0261.
Sincerely,
/s/ Julie E. Rockmore
Julie E. Rockmore
<PAGE>
As filed with the Securities and Exchange Registration No. 33-76002
Commission on August 14, 1997 Registration No. 811-2512
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
- --------------------------------------------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 8 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment to
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
- --------------------------------------------------------------------------------
Variable Annuity Account B of Aetna Life Insurance and Annuity Company
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
Depositor's Telephone Number, including Area Code: (860) 273-4686
Julie E. Rockmore, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
(Name and Address of Agent for Service)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on August 21, 1997 pursuant to paragraph (b) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of securities under the Securities Act of 1933.
Registrant filed a Rule 24f-2 Notice for the fiscal year ended December 31, 1996
on February 28, 1997.
<PAGE>
VARIABLE ANNUITY ACCOUNT B
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
LOCATION - PROSPECTUS DATED MAY 1, 1996
FORM N-4 AND AS AMENDED BY SUPPLEMENT DATED
ITEM NO. PART A (PROSPECTUS) AUGUST 21, 1997
<S> <C> <C>
1 Cover Page ...................................... Cover Page, and as amended
2 Definitions ..................................... Definitions
3 Synopsis ........................................ Prospectus Summary; Fee Table, and as
amended
4 Condensed Financial Information ................. Condensed Financial Information, and as
amended
5 General Description of Registrant, Depositor, The Company, and as amended; Variable
and Portfolio Companies ......................... Annuity Account B; The Funds, and as
amended
6 Deductions ...................................... Charges and Deductions; Distribution
7 General Description of Variable
Annuity Contracts ............................... Contract Rights; Miscellaneous
8 Annuity Period .................................. Annuity Period
9 Death Benefit ................................... Death Benefit
10 Purchases and Contract Value .................... Purchase; Determining Contract Value
11 Redemptions ..................................... Contract Rights - Withdrawals; Right to
Cancel
12 Taxes ........................................... Tax Status
13 Legal Proceedings ............................... Miscellaneous - Legal Proceedings
14 Table of Contents of the Statement of Additional Statement of Additional Information -
Information ..................................... Table of Contents, and as amended
<PAGE>
FORM N-4 LOCATION - STATEMENT OF ADDITIONAL
ITEM NO. ART B (STATEMENT OF ADDITIONAL INFORMATION) INFORMATION DATED AUGUST 21, 1997
15 Cover Page ...................................... Cover Page
16 Table of Contents ............................... Table of Contents
17 General Information and History ................. General Information and History
18 Services ........................................ General Information and History;
Independent Auditors
19 Purchase of Securities Being Offered ............ Offering and Purchase of Contracts
20 Underwriters .................................... Offering and Purchase of Contracts
21 Calculation of Performance Data ................. Performance Data; Average Annual Total
Return Quotations
22 Annuity Payments ................................ Annuity Payments
23 Financial Statements ............................ Financial Statements
</TABLE>
Part C (Other Information)
--------------------------
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
The Prospectus is incorporated into Part A of this Post-Effective Amendment
No. 8 by reference to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-4 (File No. 33-76002), as filed electronically on April
12, 1996.
<PAGE>
Supplement to Prospectus Dated May 1, 1996
Aetna Life Insurance and Annuity Company
Variable Annuity Account B
AEXTRA ASSETS
This Supplement incorporates the information included in the June 21, 1996
Supplement and further amends the May 1, 1996 Prospectus as follows:
The following information relates to upcoming changes in available Funds:
The following Funds will be replaced with the designated Substitute Funds after
the close of business of the New York Stock Exchange on November 26, 1997:
<TABLE>
<CAPTION>
Replaced Fund Substitute Fund
<S> <C>
Scudder Variable Life Investment Fund-- Portfolio Partners Scudder International Growth Portfolio
International Portfolio Class A Shares
Alger American Small Cap Portfolio Portfolio Partners MFS Emerging Equities Portfolio
American Century VP Capital Appreciation Portfolio Partners MFS Research Growth Portfolio
(Formerly TCI Growth)
Neuberger & Berman Growth Portfolio Portfolio Partners MFS Value Equity Portfolio
</TABLE>
The following Fund will be removed from the list of Funds as of the close of
business of the New York Stock Exchange on November 26, 1997, since it will be
closed to new investments after that date (except reinvested dividends and
capital gains earned on amounts already invested in the Fund through the
Separate Account):
Closed
Lexington Natural Resources Trust
SUBJECT TO COMPLETION OR AMENDMENT
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
The Date of this Supplement is August 21, 1997
Form No. X76002-97
<PAGE>
Fee Table - 3
The table on Annual Expenses of the Funds is amended for periods after November
26, 1997, by deleting the Replaced Funds and the Closed Fund and adding the
following Substitute Funds:
<TABLE>
<CAPTION>
Investment Total
Advisory Fees Other Expenses Annual
(after expense (after expense Fund
reimbursement) reimbursement) Expenses
<S> <C> <C> <C>
Portfolio Partners Scudder International Growth Portfolio 0.80% 0.20% 1.00%(1)
Portfolio Partners MFS Emerging Equities Portfolio 0.70%(2) 0.13% 0.83%(1)
Portfolio Partners MFS Research Growth Portfolio 0.70%(2) 0.15% 0.85%(1)
Portfolio Partners MFS Value Equity Portfolio 0.65% 0.25% 0.90%(1)
</TABLE>
(1) The Company has agreed to reimburse the Fund for expenses and/or waive its
fees so that the aggregate expenses will not exceed this amount through
April 30, 1999. Without such reimbursements or waivers, Total Annual Fund
Expenses are estimated to be as follows: 1.00% for the Scudder International
Growth Portfolio; .87% for the MFS Emerging Equities Portfolio; .92% for the
MFS Research Growth Portfolio; and .90% for the MFS Value Equity Portfolio.
(2) The advisory fee is .70% of the first $500 million in assets and .65% on the
excess.
Fee Table - 4
The hypothetical illustrations in Fee Table - 4 are amended by deleting all
information with respect to the Replaced Funds and the Closed Fund for periods
after November 26, 1997 and adding the following:
<TABLE>
<CAPTION>
1 year 3 yrs 5 yrs 10 yrs
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Portfolio Partners Scudder International Growth Portfolio $23 $72 $123 $263
Portfolio Partners MFS Emerging Equities Portfolio $22 $67 $114 $246
Portfolio Partners MFS Research Growth Portfolio $22 $67 $115 $248
Portfolio Partners MFS Value Equity Portfolio $22 $69 $118 $253
</TABLE>
Prospectus, Page 2:
In the Section, The Funds, the Substitute Funds will take the place of the
Replaced Funds after the close of business of the New York Stock Exchange on
November 26, 1997. Any amounts allocated to the Replaced Funds will
automatically be allocated to the Substitute Funds after that date. Information
about the Closed Fund will be deleted after November 26, 1997, since it will not
be eligible for the deposit of any new payments or transfers from other Funds.
The following will be added:
Portfolio Partners Scudder International Growth Portfolio seeks long-term growth
of capital primarily through a diversified portfolio of marketable foreign
equity securities.
Portfolio Partners MFS Emerging Equities Portfolio seeks long-term growth of
capital by investing primarily in common stocks issued by companies that its
subadviser believes are early in their life cycle but which have the potential
to become major enterprises (emerging growth companies).
Portfolio Partners MFS Research Growth Portfolio seeks long-term growth of
capital and future income by investing primarily in common stocks or securities
convertible into common stocks issued by companies that the subadviser believes
to possess better-than-average prospects for long-term growth, and, to a lesser
extent, in income-producing securities including bonds and preferred stock.
Portfolio Partners MFS Value Equity Portfolio seeks capital appreciation by
investing primarily in common stocks.
Aetna Life Insurance and Annuity Company serves as the investment adviser to
each Portfolio. Scudder, Stevens & Clark, Inc. serves as the subadviser to the
Scudder International Growth Portfolio, and Massachusetts Financial Services
Company serves as the subadviser to the MFS Emerging Equities, MFS Research
Growth and MFS Value Equity Portfolios.
The following information reflects updated financial and other information about
the Company and about the Funds currently available under the Contracts as of
the date of this Supplement. As described above, some of the Funds referenced
below will be replaced or closed in November 1997.
Cover:
The name of TCI Growth (a Twentieth Century fund) is replaced throughout the
prospectus with its new name: American Century VP Capital Appreciation.
<PAGE>
The second line of the sixth paragraph, is amended to read as follows:
"Additional information about the Separate Account is contained in a Statement
of Additional Information ("SAI") dated August 21, 1997 which has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference."
The following paragraph is added as paragraph seven on the cover page of the
Prospectus:
THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL INFORMATION AND OTHER INFORMATION
ABOUT THE SEPARATE ACCOUNT REQUIRED TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (SEC) CAN BE FOUND IN THE SEC'S WEB SITE AT
http://www.sec.gov.
Fee Table - 3:
The table on Annual Expenses of the Funds is deleted and replaced with the
following:
FUND ANNUAL EXPENSES
The following table illustrates the advisory fees and other expenses applicable
to the Funds. Except as noted, these figures are a percentage of each Fund's
average net assets and are based on figures for the year ended December 31,
1996. A Fund's "Other Expenses" include operating costs of the Fund. These
expenses are reflected in the Fund's net asset value and are not deducted from
the Contract Value under the Contract.
<TABLE>
<CAPTION>
Investment Other
Advisory Fees(1) Expenses
(after expense (after expense Total Fund
reimbursement) reimbursement) Annual Expenses
<S> <C> <C> <C>
Aetna Variable Fund(2) 0.50% 0.06% 0.56%
Aetna Income Shares(2) 0.40% 0.08% 0.48%
Aetna Variable Encore Fund(2) 0.25% 0.10% 0.35%
Aetna Investment Advisers Fund, Inc.(2) 0.50% 0.08% 0.58%
Alger American Small Cap Portfolio 0.85% 0.03% 0.88%
American Century VP Capital Appreciation(3) 1.00% 0.00% 1.00%
Janus Aspen Aggressive Growth Portfolio(4) 0.72% 0.04% 0.76%
Janus Aspen Flexible Income Portfolio 0.65% 0.19% 0.84%
Lexington Natural Resources Trust 1.00% 0.42% 1.42%
Neuberger & Berman Growth Portfolio(5) 0.83% 0.09% 0.92%
Scudder International Portfolio Class A Shares 0.86% 0.19% 1.05%
</TABLE>
(1) Certain of the unaffiliated Fund advisers reimburse the Company for
administrative costs incurred in connection with administering the Funds as
variable funding options under the Contract. These reimbursements are paid
out of the investment advisory fees and are not charged to investors.
(2) The Company provides administrative services to the Fund and assumes the
Fund's ordinary recurring direct costs under an Administrative Services
Agreement. The new Administrative Services Agreement became effective on May
1, 1996 for Aetna Variable Fund, Aetna Income Shares, Aetna Variable Encore
Fund, and Aetna Investment Advisers Fund, Inc. Therefore, the "Other
Expenses" shown are not based on actual figures for the year ended December
31, 1996, but reflect the fee payable under that Agreement.
Effective August 1, 1996, Investment Advisory Fees were increased for Aetna
Variable Fund, Aetna Income Shares, and Aetna Investment Advisers Fund, Inc.
The Advisory Fees shown above are not based on actual figures for the year
ended December 31, 1996, but reflect the increased Investment Advisory Fees.
(3) The Portfolio's investment adviser pays all expenses of the Portfolio except
brokerage commissions, taxes, interest, fees and expenses of the
non-interested person directors (including counsel fees) and extraordinary
expenses. These expenses have historically represented a very small
percentage (less than 0.01%) of total net assets in a fiscal year.
(4) The fees and expenses shown above are based on gross expenses of the Shares
before expense offset arrangements for the fiscal year ended December 31,
1996. The information for the Portfolio is net of fee waivers or reductions
from Janus Capital. Fee reductions for the Aggressive Growth Portfolio
reduce the management fee to the level of the corresponding Janus retail
fund. Other waivers, if applicable, are first applied against the management
fee and then against other expenses. Without such waivers or reductions, the
Management Fee, Other Expenses and Total Fund Annual Expenses would have
been 0.79%, 0.04% and 0.83% for Aggressive Growth Portfolio. Janus Capital
may modify or terminate the waivers or reductions at any time upon at least
90 days' notice to the Portfolio's Board of Trustees.
(5) Neuberger & Berman Advisers Management Trust is divided into portfolios
("Portfolios"), each of which invests all of its net investable assets in a
corresponding series ("Series") of Advisers Managers Trust. The figures
reported under "Investment Advisory Fees" include the aggregate of the
administration fees paid by the Portfolio and the management fees paid by
its corresponding Series. Similarly, "Other Expenses" includes all other
expenses of the Portfolio and its corresponding Series.
<PAGE>
Fee Table - 4:
The Hypothetical Illustration (Example) is deleted and replaced with the
following:
HYPOTHETICAL ILLUSTRATION (Example)
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
Assuming a 5% annual return on assets, you would have paid the following
expenses on a $1,000 investment whether or not you withdraw or annuitize your
contract at the end of the applicable time period:(1)
<TABLE>
<CAPTION>
1 year 3 yrs 5 yrs 10 yrs
------ ------- ------- -------
<S> <C> <C> <C> <C>
Aetna Variable Fund $19 $58 $100 $217
Aetna Income Shares $18 $56 $ 96 $209
Aetna Variable Encore Fund $17 $52 $ 89 $195
Aetna Investment Advisers Fund, Inc. $19 $59 $101 $220
Alger American Small Cap Portfolio $22 $68 $117 $251
American Century VP Capital Appreciation $23 $72 $123 $263
Janus Aspen Aggressive Growth Portfolio $21 $64 $111 $238
Janus Aspen Flexible Income Portfolio $22 $67 $115 $247
Lexington Natural Resources Trust $27 $84 $144 $305
Neuberger & Berman Growth Portfolio $22 $69 $119 $255
Scudder International Portfolio Class A Shares $24 $73 $125 $268
</TABLE>
(1) The illustration reflects the $15.00 annual maintenance fee as an annual
charge of 0.045% of assets.
<PAGE>
AUV History 1 and 2:
The Condensed Financial Information is deleted and replaced with the following:
CONDENSED FINANCIAL INFORMATION
(Selected data for accumulation units outstanding throughout each period)
- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the years in the
ten-year period ended December 31, 1996 (as applicable), is derived from the
financial statements of the Account, which financial statements have been
audited by KPMG Peat Marwick LLP, independent auditors. The financial statements
and the independent auditors' report thereon are included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
1996 1995 1994 1993
------------ ---------- ------------ ---------
<S> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $13.972 $10.698 $10.940 $10.378
Value at end of period $17.173 $13.972 $10.698 $10.940
Increase (decrease) in value of
accumulation unit(1) 22.91% 30.61% (2.21)% 5.41%
Number of accumulation units
outstanding at end of period 15,372,944 30,554,957 11,117,383 879,670
AETNA INCOME SHARES
Value at beginning of period $12.212 $10.457 $11.006 $10.160
Value at end of period $12.493 $12.212 $10.457 $11.006
Increase (decrease) in value of
accumulation unit(1) 2.30% 16.78% (4.99)% 8.33%
Number of accumulation units
outstanding at end of period 1,947,629 4,853,662 1,988,960 166,913
AETNA VARIABLE ENCORE FUND
Value at beginning of period $11.007 $10.509 $10.223 $10.031
Value at end of period $11.453 $11.007 $10.509 $10.223
Increase (decrease) in value of
accumulation unit(1) 4.05% 4.73% 2.79% 1.91%
Number of accumulation units
outstanding at end of period 1,984,269 4,354,272 1,822,449 90,782
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $13.803 $10.971 $11.164 $10.286
Value at end of period $15.698 $13.803 $10.971 $11.164
Increase (decrease) in value of
accumulation unit(1) 13.73% 25.81% (1.73)% 8.54%
Number of accumulation units
outstanding at end of period 3,885,730 6,430,772 3,541,703 318,711
ALGER AMERICAN SMALL CAP PORTFOLIO
Value at beginning of period $13.714 $ 9.622 $10.307 $10.000(7)
Value at end of period $14.109 $13.714 $9.622 $10.307
Increase (decrease) in value of
accumulation unit(1) 2.88% 42.52% (6.64)% 3.07%
Number of accumulation units
outstanding at end of period 881,881 1,364,901 441,809 31,855
AMERICAN CENTURY VP CAPITAL APPRECIATION*
Value at beginning of period $14.091 $10.883 $11.159 $10.232
Value at end of period $13.298 $14.091 $10.883 $11.159
Increase (decrease) in value of
accumulation unit(1) (5.63)% 29.47% (2.48)% 9.06%
Number of accumulation units
outstanding at end of period 1,337,306 2,735,782 1,123,366 261,107
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $12.992 $10.319 $10.000(9)
Value at end of period $13.850 $12.992 $10.319
Increase (decrease) in value of
accumulation unit(1) 6.60% 25.91% 3.19%
Number of accumulation units
outstanding at end of period 590,904 723,839 131,702
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $12.094 $ 9.886 $10.000(9)
Value at end of period $13.040 $12.094 $9.886
Increase (decrease) in value of
accumulation unit(1) 7.83% 22.33% (1.14)%
Number of accumulation units
outstanding at end of period 96,128 84,048 15,893
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period $10.479 $9.079 $9.716 $10.000(10)
Value at end of period $13.132 $10.479 $9.079 $9.716
Increase (decrease) in value of
accumulation unit(1) 25.31% 15.42% (6.56)% (2.84)%
Number of accumulation units
outstanding at end of period 115,869 162,462 141,076 27,908
1992 1991 1990 1989 1988 1987
------------ ---------- ---------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $84.249 $67.496 $66.174 $51.900 $45.839 $43.994
Value at end of period $10.378(2) $84.249 $67.496 $66.174 $51.900 $45.839
Increase (decrease) in value of
accumulation unit(1) (2) 24.82% 2.00% 27.50% 13.22% 4.19%
Number of accumulation units
outstanding at end of period 3,107 908,777 810,126 831,547 887,039 1,020,744
AETNA INCOME SHARES
Value at beginning of period $37.815 $32.066 $29.752 $26.291 $24.734 $23.888
Value at end of period $10.160(3) $37.815 $32.066 $29.752 $26.291 $24.734
Increase (decrease) in value of
accumulation unit(1) (3) 17.93% 7.78% 13.16% 6.29% 3.54%
Number of accumulation units
outstanding at end of period 4,196 427,893 358,454 366,176 383,856 377,078
AETNA VARIABLE ENCORE FUND
Value at beginning of period $34.122 $32.431 $30.285 $28.029 $26.401 $25.028
Value at end of period $10.031(4) $34.122 $32.431 $30.285 $28.029 $26.401
Increase (decrease) in value of
accumulation unit(1) (4) 5.21% 7.09% 8.05% 6.17% 5.49%
Number of accumulation units
outstanding at end of period 2,808 548,425 722,438 653,619 720,726 898,557
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $12.717 $10.882 $10.423 $10.000(5)
Value at end of period $10.286(6) $12.717 $10.882 $10.423
Increase (decrease) in value of
accumulation unit(1) (6) 16.86% 4.40% 4.23%
Number of accumulation units
outstanding at end of period 6,537 1,324,822 984,798 639,219
ALGER AMERICAN SMALL CAP PORTFOLIO
Value at beginning of period
Value at end of period Increase
(decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AMERICAN CENTURY VP CAPITAL APPRECIATION*
Value at beginning of period $10.000(8)
Value at end of period $10.232
Increase (decrease) in value of
accumulation unit(1) 2.32%
Number of accumulation units
outstanding at end of period 4,284
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
NEUBERGER & BERMAN GROWTH PORTFOLIO
Value at beginning of period $15.871 $12.199 $12.990 $10.123 $10.000(11)
Value at end of period $17.105 $15.871 $12.199 $12.990 $10.123
Increase (decrease) in value of
accumulation unit(1) 7.78% 30.10% (6.09)% 28.32% 1.23%
Number of accumulation units
outstanding at end of period 320,078 526,542 228,370 71,556 2,275
SCUDDER INTERNATIONAL PORTFOLIO
CLASS A SHARES
Value at beginning of period $14.674 $13.372 $13.654 $10.051 $10.000(11)
Value at end of period $16.633 $14.674 $13.372 $13.654 $10.051
Increase (decrease) in value of
accumulation units(1) 13.35% 9.74% (2.07)% 35.85% 0.51%
Number of accumulation units
outstanding at end of period 472,099 720,017 652,630 144,303 324
</TABLE>
- ----------
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year,
and dividing the result by the beginning Accumulation Unit value. These
figures do not reflect the deferred sales charges or the fixed dollar annual
maintenance fee, if any. Inclusion of these charges would reduce the
investment results shown.
(2) The Accumulation Unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $85.546. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 1.54%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 3.78%.
(3) The Accumulation Unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $39.496. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 4.45%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 1.60%.
(4) The Accumulation Unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $34.828. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 2.07%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 0.31%.
(5) The initial Accumulation Unit value was established at $10.000 on June 23,
1989, the date on which the Fund commenced operations.
(6) The Accumulation Unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $12.991. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 2.15%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 2.86%.
(7) The initial Accumulation Unit value was established at $10.000 on September
17, 1993, the date on which the Portfolio became available under the
Contract.
(8) The initial Accumulation Unit value was established at $10.000 on August 21,
1992, the date on which the Fund became available under the Contract.
(9) The initial Accumulation Unit value was established at $10.000 during
October 1994, when the funds were first received in this option.
(10)The initial Accumulation Unit value was established at $10.000 on May 26,
1993, the date on which the Fund became available under the Contract.
(11)The initial Accumulation Unit value was established at $10.000 on November
2, 1992, the date on which the Fund/Portfolio became available under the
Contract.
* Formerly TCI Portfolios, Inc. - TCI Growth
<PAGE>
Prospectus, Page 2:
In the Section, The Company, the second paragraph is deleted and replaced with
the following:
The Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc.,
which is in turn a wholly owned subsidiary of Aetna Retirement Services, Inc.
and an indirect wholly owned subsidiary of Aetna Inc.
In the Section, The Funds, the fund description for Alger American Fund - Alger
American Small Capitalization Portfolio is deleted and replaced with the
following:
Alger American Fund - Alger American Small Capitalization Portfolio seeks
long-term capital appreciation. Except during temporary defensive periods, the
Portfolio invests at least 65% of its total assets in equity securities of
companies that, at the time of purchase of such securities, have total market
capitalization within the range of companies included in the Russell 2000 Growth
Index ("Russell Index") and the S&P SmallCap 600 Index ("S&P" Index), updated
quarterly. As of March 31, 1997, the range of market capitalization of the
companies in the Russell Index was $10 million to $1.94 billion; the range of
market capitalization of the companies in the S&P Index at that date was $32
million to $2.58 billion. The combined range was $10 million to $2.58 billion.
In the Section, The Funds, the final sentence in the description of Janus Aspen
Series - Aggressive Growth Portfolio is updated as follows:
Medium-sized companies are those whose market capitalizations fall within the
range of companies in the S&P MidCap 400 Index, which as of December 30, 1996
included companies with capitalizations between approximately $192 million and
$6.5 billion, but which is expected to change on a regular basis.
In the Section, The Funds, the fund description for Neuberger & Berman Advisers
Management Trust - Growth Portfolio is deleted and replaced with the following:
Neuberger & Berman Advisers Management Trust - Growth Portfolio seeks capital
growth without regard to income through investments in common stocks of
companies believed to be undervalued and have above-average potential for
capital appreciation. The Portfolio is heavily diversified among a number of
stocks to limit risk.
The Investment Adviser for Aetna Variable Fund, Aetna Income Shares, Aetna
Variable Encore Fund and Aetna Investment Advisers Fund, Inc. is Aetna Life
Insurance and Annuity Company. Aeltus Investment Management, Inc. is
subadviser. The Investment Adviser for American Century VP Capital Appreciation
is American Century Investment Management, Inc.
Prospectus, Page 3:
The following sentence is added immediately preceding the Fund Investment
Advisers Section:
Additional Prospectuses and Statements of Additional Information for this
Prospectus and for each of the Funds can be obtained from the Company's Home
Office at the address and telephone number listed on the cover page of the
Prospectus.
Prospectus, Page 13:
The Section, Legal Matters, is deleted and replaced with the following:
Legal Matters
The validity of the securities offered by this Prospectus has been passed upon
by Counsel to the Company.
In the Section, Contents of the Statement of Additional Information, the heading
"Dollar-Cost Averaging" is deleted.
Form No. X76002-97
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
Statement of Additional Information dated August 21, 1997
AEXTRA ASSETS
Individual Variable Annuity Contracts
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Variable Annuity Account B (the
"Separate Account") dated May 1, 1996 as supplemented on August 21, 1997.
A free prospectus is available upon request from the local Aetna Life Insurance
and Annuity Company office or by writing to or calling:
Aetna Life Insurance and Annuity Company
Customer Service
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-531-4547
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the prospectus.
TABLE OF CONTENTS
Page
General Information and History....................................... 1
Variable Annuity Account B............................................ 1
Offering and Purchase of Contracts.................................... 2
Performance Data...................................................... 2
General......................................................... 2
Average Annual Total Return Quotations.......................... 3
Annuity Payments...................................................... 4
Sales Material and Advertising........................................ 5
Independent Auditors.................................................. 5
Financial Statements of the Separate Account.......................... S-1
Financial Statements of Aetna Life Insurance and Annuity Company...... F-1
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Life Insurance and Annuity Company (the "Company") is a stock life
insurance company which was organized under the insurance laws of the State of
Connecticut in 1976. Through a merger, it succeeded to the business of Aetna
Variable Annuity Life Insurance Company (formerly Participating Annuity Life
Insurance Company organized in 1954). As of December 31, 1996, the Company had
$30.1 billion invested through its products, including $15.0 billion in its
separate accounts (of which the Company oversees the management of $10.5
billion) and $1.1 billion in its mutual funds offered outside of its separate
accounts. As of December 31, 1995, it ranked among the top 2% of all U.S. life
insurance companies based on assets. The Company is a wholly owned subsidiary of
Aetna Retirement Holdings, Inc., which is in turn a wholly owned subsidiary of
Aetna Retirement Services, Inc., and an indirect wholly owned subsidiary of
Aetna Inc. The Company is engaged in the business of issuing life insurance
policies and annuity contracts in all states of the United States. The Company's
Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156.
In addition to serving as the principal underwriter and the depositor for the
Separate Account, the Company is also a registered investment adviser under the
Investment Advisers Act of 1940, and a registered broker-dealer under the
Securities Exchange Act of 1934. The Company provides investment advice to
several of the registered management investment companies offered as variable
investment options under the Contracts funded by the Separate Account (see
"Variable Annuity Account B" below).
Other than the mortality and expense risk charges and administrative expense
charge described in the prospectus, all expenses incurred in the operations of
the Separate Account are borne by the Company. See "Charges and Deductions" in
the prospectus. The Company receives reimbursement for certain administrative
costs from some unaffiliated sponsors of the Funds used as funding options under
the Contract. These fees generally range up to 0.25%.
The assets of the Separate Account are held by the Company. The Separate Account
has no custodian. However, the Funds in whose shares the assets of the Separate
Account are invested each have custodians, as discussed in their respective
prospectuses.
VARIABLE ANNUITY ACCOUNT B
Variable Annuity Account B (the "Separate Account") is a separate account
established by the Company for the purpose of funding variable annuity contracts
issued by the Company. The Separate Account is registered with the Securities
and Exchange Commission as a unit investment trust under the Investment Company
Act of 1940, as amended. Purchase Payments made under the Contract may be
allocated to one or more of the variable investment options listed in the
prospectus. The Company may make additions to, deletions from or substitutions
of available investment options as permitted by law and subject to the
conditions of the Contract. The availability of the Funds is subject to
applicable regulatory authorization. Not all Funds are available in all
jurisdictions or under all Contracts.
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectuses and statements of additional information for each of the Funds.
1
<PAGE>
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold by the prospectus. The Company offers the Contracts through life
insurance agents licensed to sell variable annuities who are registered
representatives of the Company or of other registered broker-dealers who have
sales agreements with the Company. The offering of the Contracts is continuous.
A description of the manner in which Contracts are purchased may be found in the
prospectus under the section titled "The Contract - Purchase."
PERFORMANCE DATA
GENERAL
From time to time, the Company may advertise different types of historical
performance for the variable options of the Separate Account available under the
Contracts issued by the Company. The Company may advertise the "standardized
average annual total returns," calculated in a manner prescribed by the
Securities and Exchange Commission (the "standardized return"), as well as the
"non-standardized returns," both of which are described below.
The standardized and non-standardized total return figures are computed
according to a formula in which a hypothetical initial Purchase Payment of
$1,000 is applied to the variable options under the Contract, and then related
to the ending redeemable values over one, five and ten year periods (or
fractional periods thereof). The redeemable value is then divided by the initial
investment and this quotient is taken to the Nth root (N represents the number
of years in the period) and 1 is subtracted from the result which is then
expressed as a percentage, carried to at least the nearest hundredth of a
percent. The standardized figures use the actual returns of the Fund since
inception and then adjust them to reflect the deduction of all recurring charges
under the Contracts during each period (e.g., mortality and expense risk
charges, maintenance fees and any applicable administrative expense charges).
These charges will be deducted on a pro rata basis in the case of fractional
periods. The maintenance fee is converted to a percentage of assets based on the
average account size under the Contracts described in the prospectus. The total
return figures shown below may be different from the actual historical total
return under your Contract because for periods prior to 1994, the investment
performance was based on the performance of the underlying Fund plus any cash
held in the Separate Account.
The non-standardized figures will be calculated in a similar manner, but may
also include monthly, quarterly, year-to-date and three year periods.
Investment results of the Funds will fluctuate over time, and any presentation
of the Funds' total return quotations for any prior period should not be
considered as a representation of how the variable options will perform in any
future period. Additionally, the Account Value upon redemption may be more or
less than your original cost.
2
<PAGE>
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
The table shown below reflects the average annual standardized and
non-standardized total return quotation figures for the periods ended December
31, 1996 for the variable options under the Contract. For those variable
investment options where results are not available for the full calendar period
indicated, the percentage shown is an average annual return since inception
(denoted with an *).
<TABLE>
<CAPTION>
FUND
$15 MAINTENANCE FEE STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPTION 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 22.86% 11.72% 12.76% 22.86% 16.17% 11.72% 12.76% 05/01/75
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares 2.26% 5.40% 7.44% 2.26% 4.23% 5.40% 7.44% 05/15/73
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund 4.01% 3.12% 4.72% 4.01% 3.79% 3.12% 4.72% 08/01/75
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc. 13.69% 9.85% 9.87%* 13.69% 11.95% 9.85% 9.87%* 04/03/89
- --------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap Portfolio 2.84% 9.60% 18.69%* 2.84% 11.42% 9.60% 18.69%* 09/21/88
- --------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation (5.56%) 4.81% 9.40%* (5.56%) 6.05% 4.81% 9.40%* 11/20/87
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 6.56% 19.74%* n/a 6.56% 15.49% 19.74%* n/a 09/13/93
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 7.78% 8.11%* n/a 7.78% 8.84% 8.11%* n/a 09/13/93
- --------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 25.27% 8.53% 8.60%* 25.27% 10.52% 8.53% 8.60%* 10/14/91
- --------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Growth Portfolio 7.73% 8.42% 10.01% 7.73% 9.53% 8.42% 10.01% 09/10/84
- --------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio
Class A Shares 13.30% 9.63% 8.53%* 13.30% 6.75% 9.63% 8.53%* 05/01/87
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These figures
represent historical performance and should not be considered a projection of
future performance.
3
<PAGE>
ANNUITY PAYMENTS
When Annuity payments are to begin, the value of the Contract is determined
using Accumulation Unit values as of the tenth Valuation Period before the first
Annuity payment is due. Such value (less any applicable premium tax) is applied
to provide an Annuity in accordance with the Annuity and investment options
elected.
The Annuity option tables found in the Contract show, for each form of Annuity,
the amount of the first Annuity payment for each $1,000 of value applied.
Thereafter, variable Annuity payments fluctuate as the Annuity Unit value(s)
fluctuates with the investment experience of the selected investment option(s).
The first payment and subsequent payments also vary depending on the assumed net
investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a
higher first payment, but Annuity payments will increase thereafter only to the
extent that the net investment rate increases by more than 5% on an annual
basis. Annuity payments would decline if the rate failed to increase by 5%. Use
of the 3.5% assumed rate causes a lower first payment, but subsequent payments
would increase more rapidly or decline more slowly as changes occur in the net
investment rate.
When the Annuity Period begins, the Annuitant is credited with a fixed number of
Annuity Units (which does not change thereafter) in each of the designated
investment options. This number is calculated by dividing (a) by (b), where (a)
is the amount of the first Annuity payment based on a particular investment
option, and (b) is the then current Annuity Unit value for that investment
option. As noted, Annuity Unit values fluctuate from one Valuation Period to the
next; such fluctuations reflect changes in the net investment factor for the
appropriate Fund(s) (with a ten Valuation Period lag which gives the Company
time to process Annuity payments) and a mathematical adjustment which offsets
the assumed net investment rate of 3.5% or 5% per annum.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Period.
EXAMPLE:
Assume that, at the date Annuity payments are to begin, there are 3,000
Accumulation Units credited under a particular Account and that the value of an
Accumulation Unit for the tenth Valuation Period prior to retirement was
$13.650000.
This produces a total value of $40,950.
Assume also that no premium tax is payable and that the Annuity table in the
Contract provides, for the option elected, a first monthly variable Annuity
payment of $6.68 per $1000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the Valuation Period on which
the first payment was due was $13.400000. When this value is divided into the
first monthly payment, the number of Annuity Units is determined to be 20.414.
The value of this number of Annuity Units will be paid in each subsequent month.
If the net investment factor with respect to the appropriate Fund is 1.0015000
as of the tenth Valuation Period preceding the due date of the second monthly
payment, multiplying this factor by .9999058* (to neutralize the assumed net
investment rate of 3.5% per annum built into the number of Annuity Units
determined above) produces a result of 1.0014057. This is then multiplied by the
Annuity Unit value for the prior Valuation Period (assume such value to be
$13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation
Period on which the second payment is due.
4
<PAGE>
The second monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359,
which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
neutralize such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
The Company may include hypothetical illustrations in its sales literature that
explain the mathematical principles of dollar cost averaging, compounded
interest, tax deferred accumulation, and the mechanics of variable annuity
contracts. The Company may also discuss the difference between variable annuity
contracts and other types of savings or investment products, including, but not
limited to, personal savings accounts and certificates of deposit.
We may distribute sales literature that compares the percentage change in
Accumulation Unit values for any of the investment options to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the Subaccounts
being compared.
We may publish in advertisements and reports, the ratings and other information
assigned to us by one or more independent rating organizations such as A.M. Best
Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors
Services, Inc. The purpose of the ratings is to reflect our financial strength
and/or claims-paying ability. We may also quote ranking services such as
Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable
Insurance Products Performance Analysis Service (VIPPAS), which rank variable
annuity or life subaccounts or their underlying funds by performance and/or
investment objective. We may illustrate in advertisements the performance of the
underlying funds, if accompanied by performance which also shows the performance
of such funds reduced by applicable charges under the Separate Account. We may
also show in advertisements the portfolio holdings of the underlying funds,
updated at various intervals. From time to time, we will quote articles from
newspapers and magazines or other publications or reports, including, but not
limited to The Wall Street Journal, Money magazine, USA Today and The VARDS
Report.
The Company may provide in advertising, sales literature, periodic publications
or other materials, information on various topics of interest to current and
prospective Contract Holders or Participants. These topics may include the
relationship between sectors of the economy and the economy as a whole and its
effect on various securities markets, investment strategies and techniques (such
as value investing, market timing, dollar cost averaging, asset allocation,
constant ratio transfer and account rebalancing), the advantages and
disadvantages of investing in tax-deferred and taxable investments, customer
profiles and hypothetical purchase and investment scenarios, financial
management and tax and retirement planning, and investment alternatives to
certificates of deposit and other financial instruments, including comparison
between the Contracts and the characteristics of and market for such financial
instruments.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the
independent auditors for the Separate Account and for the Company. The services
provided to the Separate Account include primarily the examination of the
Separate Account's financial statements and the review of filings made with the
SEC.
5
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT B
Index
Statement of Assets and Liabilities............................... S-2
Statements of Operations and Changes in Net Assets................ S-6
Notes to Financial Statements..................................... S-7
Independent Auditors' Report...................................... S-15
S-1
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1996:
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 22,674,496 shares (cost $674,480,933) .............................................. $ 734,460,247
Aetna Income Shares; 5,554,723 shares (cost $69,738,402) ................................................ 70,118,035
Aetna Variable Encore Fund; 8,093,492 shares (cost $107,322,605) ........................................ 106,781,998
Aetna Investment Advisers Fund, Inc; 8,423,410 shares (cost $112,230,262) ............................... 127,344,696
Aetna GET Fund, Series B; 1,148,634 shares (cost $11,845,728) ........................................... 16,333,339
Aetna GET Fund, Series C; 907,283 shares (cost $9,136,442) .............................................. 9,281,276
Aetna Ascent Variable Portfolio; 446,824 shares (cost $5,362,215) ....................................... 5,638,668
Aetna Crossroads Variable Portfolio; 442,088 shares (cost $5,144,208) ................................... 5,295,700
Aetna Legacy Variable Portfolio; 549,727 shares (cost $6,140,411) ....................................... 6,186,987
Aetna Variable Index Plus Portfolio; 182,043 shares (cost $1,989,418) ................................... 1,985,372
Alger American Funds:
Balanced Portfolio; 408,798 shares (cost $4,238,672) .................................................. 3,777,291
Growth Portfolio; 1,268,424 shares (cost $41,195,068) ................................................. 43,545,003
Income and Growth Portfolio; 768,597 shares (cost $7,300,499) ......................................... 6,471,587
Leveraged AllCap Portfolio; 589,862 shares (cost $11,198,918) ......................................... 11,419,728
MidCap Portfolio; 929,402 shares (cost $19,160,303) ................................................... 19,842,727
Small Capitalization Portfolio; 1,436,114 shares (cost $59,246,689) ................................... 58,751,429
Calvert Responsibly Invested Balanced Portfolio; 336,323 shares (cost $597,518) ......................... 596,637
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 3,446,529 shares (cost $66,707,023) .......................................... 72,480,497
Growth Portfolio; 1,860,260 shares (cost $54,670,184) ................................................. 57,928,484
High Income Portfolio; 1,174,877 shares (cost $13,895,035) ............................................ 14,709,464
Overseas Portfolio; 515,036 shares (cost $8,959,583) .................................................. 9,703,271
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 350,352 shares (cost $5,447,282) ............................................. 5,931,464
Contrafund Portfolio; 3,414,168 shares (cost $50,327,864) ............................................. 56,538,618
Index 500 Portfolio; 307,196 shares (cost $25,139,330) ................................................ 27,380,370
Investment Grade Bond Portfolio; 389,026 shares (cost $4,585,849) ..................................... 4,761,677
Insurance Management Series:
American Leaders Fund II; 4,005,705 shares (cost $52,316,587) ......................................... 61,127,055
Growth Strategies Fund II; 561,108 shares (cost $6,448,785) ........................................... 7,182,178
High Income Bond Fund II; 2,651,478 shares (cost $26,128,555) ......................................... 27,151,137
International Equity Fund II; 531,863 shares (cost $5,627,988) ........................................ 5,935,590
Prime Money Fund II; 7,744,318 shares (cost $7,744,318) ............................................... 7,744,318
US Government Securities Fund II; 758,792 shares (cost $7,582,811) .................................... 7,656,209
Utility Fund II; 1,420,364 shares (cost $15,043,602) .................................................. 16,774,494
Janus Aspen Series:
Aggressive Growth Portfolio; 1,729,280 shares (cost $31,007,236) ...................................... 31,542,060
Balanced Portfolio; 797,173 shares (cost $11,400,361) ................................................. 11,774,244
Flexible Income Portfolio; 457,937 shares (cost $5,073,822) ........................................... 5,147,217
Growth Portfolio; 1,346,496 shares (cost $19,790,729) ................................................. 20,884,154
Short-Term Bond Portfolio; 192,639 shares (cost $1,947,988) ........................................... 1,920,611
Worldwide Growth Portfolio; 3,419,377 shares (cost $61,321,568) ....................................... 66,472,691
Lexington Emerging Markets Fund; 249,599 shares (cost $2,582,550) ....................................... 2,515,960
Lexington Natural Resources Trust Fund; 332,525 shares (cost $4,213,645) ................................ 4,751,784
MFS Funds:
Emerging Growth Series; 679,608 shares (cost $9,083,804) .............................................. 8,998,008
Research Series; 516,109 shares (cost $6,571,748) ..................................................... 6,776,512
Total Return Series; 307,540 shares (cost $4,144,359) ................................................. 4,216,370
Value Series; 19,591 shares (cost $207,906) ........................................................... 208,841
Worldwide Government Series; 38,555 shares (cost $398,609) ............................................ 407,913
Neuberger & Berman Advisers Management Trust -
Growth Portfolio; 319,727 shares (cost $8,249,239) .................................................... 8,242,574
Scudder Variable Life Investment Fund -
International Portfolio; 909,444 shares (cost $10,539,678) ............................................ 12,050,127
</TABLE>
S-2
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
TCI Portfolios, Inc:
Balanced Fund; 396,732 shares (cost $2,846,031) ....................................................... $ 2,991,356
Growth Fund; 4,332,926 shares (cost $45,957,552) ...................................................... 44,369,162
International Fund; 789,697 shares (cost $4,330,759) .................................................. 4,706,594
--------------
NET ASSETS (cost $1,726,620,671) ......................................................................... $1,848,811,724
==============
Net assets represented by:
Reserves for annuity contracts in accumulation and payment period: (Notes 1 and 5)
Aetna Variable Fund:
Annuity contracts in accumulation ...................................................................... $ 644,728,031
Annuity contracts in payment period .................................................................... 89,732,216
Aetna Income Shares:
Annuity contracts in accumulation ...................................................................... 66,534,546
Annuity contracts in payment period .................................................................... 3,583,489
Aetna Variable Encore Fund:
Annuity contracts in accumulation ...................................................................... 106,781,998
Aetna Investment Advisers Fund, Inc:
Annuity contracts in accumulation ...................................................................... 119,402,212
Annuity contracts in payment period .................................................................... 7,942,484
Aetna GET Fund, Series B:
Annuity contracts in accumulation ...................................................................... 16,333,339
Aetna GET Fund, Series C:
Annuity contracts in accumulation ...................................................................... 9,281,276
Aetna Ascent Variable Portfolio:
Annuity contracts in accumulation ...................................................................... 5,638,668
Aetna Crossroads Variable Portfolio:
Annuity contracts in accumulation ...................................................................... 5,295,700
Aetna Legacy Variable Portfolio:
Annuity contracts in accumulation ...................................................................... 6,186,987
Aetna Variable Index Plus Portfolio:
Annuity contracts in accumulation ...................................................................... 1,985,372
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation ...................................................................... 3,777,291
Growth Portfolio:
Annuity contracts in accumulation ...................................................................... 43,545,003
Income and Growth Portfolio:
Annuity contracts in accumulation ...................................................................... 6,471,587
Leveraged AllCap Portfolio:
Annuity contracts in accumulation ...................................................................... 11,419,728
MidCap Portfolio:
Annuity contracts in accumulation ...................................................................... 19,842,727
Small Capitalization Portfolio:
Annuity contracts in accumulation ...................................................................... 58,751,429
Calvert Responsibly Invested Balanced Portfolio:
Annuity contracts in accumulation ...................................................................... 596,637
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation ...................................................................... 72,480,497
Growth Portfolio:
Annuity contracts in accumulation ...................................................................... 57,928,484
High Income Portfolio:
Annuity contracts in accumulation ...................................................................... 14,709,464
Overseas Portfolio:
Annuity contracts in accumulation ...................................................................... 9,703,271
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation ...................................................................... 5,931,464
</TABLE>
S-3
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
Contrafund Portfolio:
Annuity contracts in accumulation ....................................................................... $ 56,538,618
Index 500 Portfolio:
Annuity contracts in accumulation ....................................................................... 27,380,370
Investment Grade Bond Portfolio:
Annuity contracts in accumulation ....................................................................... 4,761,677
Insurance Management Series:
American Leaders Fund II:
Annuity contracts in accumulation ....................................................................... 61,127,055
Growth Strategies Fund II:
Annuity contracts in accumulation ....................................................................... 7,182,178
High Income Bond Fund II:
Annuity contracts in accumulation ....................................................................... 27,151,137
International Equity Fund II:
Annuity contracts in accumulation ....................................................................... 5,935,590
Prime Money Fund II:
Annuity contracts in accumulation ....................................................................... 7,744,318
US Government Securities Fund II:
Annuity contracts in accumulation ....................................................................... 7,656,209
Utility Fund II:
Annuity contracts in accumulation ....................................................................... 16,774,494
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation ....................................................................... 31,542,060
Balanced Portfolio:
Annuity contracts in accumulation ....................................................................... 11,774,244
Flexible Income Portfolio:
Annuity contracts in accumulation ....................................................................... 5,147,217
Growth Portfolio:
Annuity contracts in accumulation ....................................................................... 20,884,154
Short-Term Bond Portfolio:
Annuity contracts in accumulation ....................................................................... 1,920,611
Worldwide Growth Portfolio:
Annuity contracts in accumulation ....................................................................... 66,472,691
Lexington Emerging Markets Fund:
Annuity contracts in accumulation ....................................................................... 2,515,960
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation ....................................................................... 4,751,784
MFS Funds:
Emerging Growth Series:
Annuity contracts in accumulation ....................................................................... 8,998,008
Research Series:
Annuity contracts in accumulation ....................................................................... 6,776,512
Total Return Series:
Annuity contracts in accumulation ....................................................................... 4,216,370
Value Series:
Annuity contracts in accumulation ....................................................................... 208,841
Worldwide Government Series:
Annuity contracts in accumulation ....................................................................... 407,913
Neuberger & Berman Advisers Management Trust - Growth Portfolio:
Annuity contracts in accumulation ....................................................................... 8,242,574
Scudder Variable Life Investment Fund - International Portfolio:
Annuity contracts in accumulation ....................................................................... 12,050,127
TCI Portfolios, Inc:
Balanced Fund:
Annuity contracts in accumulation ....................................................................... 2,991,356
</TABLE>
S-4
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
Growth Fund:
Annuity contracts in accumulation ......................................................................... $ 44,369,162
International Fund:
Annuity contracts in accumulation ......................................................................... 4,706,594
--------------
$1,848,811,724
==============
</TABLE>
See Notes to Financial Statements
S-5
<PAGE>
Variable Annuity Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ..................................................................... $ 120,367,178 $ 112,097,675
Expenses: (Notes 2 and 5)
Valuation Period Deductions ................................................... (17,483,870) (11,786,592)
--------------- ---------------
Net investment income ............................................................ 102,883,308 100,311,083
--------------- ---------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ............................................................ 365,025,974 495,934,611
Cost of investments sold ....................................................... 347,598,566 463,921,121
--------------- ---------------
Net realized gain ............................................................ 17,427,408 32,013,490
Net unrealized gain (loss) on investments: (Note 5)
Beginning of year .............................................................. 28,746,944 (44,356,052)
End of year .................................................................... 122,191,053 28,746,944
--------------- ---------------
Net change in unrealized gain ................................................ 93,444,109 73,102,996
--------------- ---------------
Net realized and unrealized gain on investments .................................. 110,871,517 105,116,486
--------------- ---------------
Net increase in net assets resulting from operations ............................. 213,754,825 205,427,569
--------------- ---------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ...................................... 538,586,667 178,474,387
Sales and administrative charges deducted by the Company ......................... (17,370) (34,250)
--------------- ---------------
Net variable annuity contract purchase payments .............................. 538,569,297 178,440,137
Transfers from the Company for mortality guarantee adjustments ................... 690,779 1,565,140
Transfers from the Company's fixed account options ............................... 50,549,121 4,144,061
Redemptions by contract holders .................................................. (73,738,526) (46,390,791)
Annuity Payments ................................................................. (12,108,943) (9,198,421)
Other ............................................................................ 159,467 1,143,373
--------------- ---------------
Net increase in net assets from unit transactions (Note 5) ................... 504,121,195 129,703,499
--------------- ---------------
Change in net assets ............................................................. 717,876,020 335,131,068
NET ASSETS:
Beginning of year ................................................................ 1,130,935,704 795,804,636
--------------- ---------------
End of year ...................................................................... $ 1,848,811,724 $ 1,130,935,704
=============== ===============
</TABLE>
See Notes to Financial Statements
S-6
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996
1. Summary of Significant Accounting Policies
Variable Annuity Account B ("Account") is a separate account established by
Aetna Life Insurance and Annuity Company registered under the Investment
Company Act of 1940 as a unit investment trust. The Account is sold
exclusively for use with variable annuity contracts that may be entitled to
tax-deferred treatment under specific sections of the Internal Revenue Code
of 1986, as amended.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Account.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset
value per share as determined by each Fund on December 31, 1996:
<TABLE>
<S> <C>
Aetna Variable Fund Insurance Management Series:
Aetna Income Shares [bullet]American Leaders Fund II
Aetna Variable Encore Fund [bullet]Growth Strategies Fund II
Aetna Investment Advisers Fund, Inc. [bullet]High Income Bond Fund II
Aetna GET Fund, Series B [bullet]International Equity Fund II
Aetna GET Fund, Series C [bullet]Prime Money Fund II
Aetna Ascent Variable Portfolio [bullet]U.S. Government Securities Fund II
Aetna Crossroads Variable Portfolio [bullet]Utility Fund II
Aetna Legacy Variable Portfolio Janus Aspen Series:
Aetna Variable Index Plus Portfolio [bullet]Aggressive Growth Portfolio
Alger American Funds: [bullet]Balanced Portfolio
[bullet]Balanced Portfolio [bullet]Flexible Income Portfolio
[bullet]Growth Portfolio [bullet]Growth Portfolio
[bullet]Income and Growth Portfolio [bullet]Short-Term Bond Portfolio
[bullet]Leveraged AllCap Portfolio [bullet]Worldwide Growth Portfolio
[bullet]MidCap Portfolio Lexington Fund Emerging Markets Fund
[bullet]Small Capitalization Portfolio Lexington Natural Resources Trust Fund
Calvert Responsibly Invested Balanced Portfolio MFS Funds:
Fidelity Investments Variable Insurance Products Fund: [bullet]Emerging Growth Series
[bullet]Equity-Income Portfolio [bullet]Research Series
[bullet]Growth Portfolio [bullet]Total Return Series
[bullet]High Income Portfolio [bullet]Value Series
[bullet]Overseas Portfolio [bullet]World Government Series
Fidelity Investments Variable Insurance Products Fund II: Neuberger & Berman Advisers Management Trust -
[bullet]Asset Manager Portfolio [bullet]Growth Portfolio
[bullet]Contrafund Portfolio Scudder Variable Life Investment Fund -
[bullet]Index 500 Portfolio [bullet]International Portfolio
[bullet]Investment Grade Bond Portfolio [bullet]TCI Portfolios, Inc.:
[bullet]Balanced Fund
[bullet]Growth Fund
[bullet]International Fund
</TABLE>
S-7
<PAGE>
Notes to Financial Statements - December 31, 1996 (continued):
b. Other
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of Aetna Life Insurance and Annuity Company ("Company") which is
taxed as a life insurance company under the Internal Revenue Code of 1986,
as amended.
d. Annuity Reserves
Annuity reserves held in the Separate Accounts are computed for currently
payable contracts according to the Progressive Annuity, a49, 1971
Individual Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983
Group Annuity Mortality tables using various assumed interest rates not to
exceed seven percent. Mortality experience is monitored by the Company.
Charges to annuity reserves for mortality experience are reimbursed to the
Company if the reserves required are less than originally estimated. If
additional reserves are required, the Company reimburses the Account.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made
in accordance with the terms of the contracts and are paid to the Company.
3. Dividend Income
On an annual basis, the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions to
the Account are automatically reinvested in shares of the Funds. The
Account's proportionate share of each Fund's undistributed net investment
income (distributions in excess of net investment income) and accumulated
net realized gain (loss) on investments is included in net unrealized gain
(loss) in the Statements of Operations and Changes in Net Assets.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended December 31, 1996 and December
31, 1995 aggregated $972,030,476 and $365,025,974; $725,949,193 and
$495,934,611, respectively.
S-8
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets - Year Ended December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $77,000,986 ($7,148,689) $96,146,932 $97,318,697 ($1,171,765)
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 4,527,825 (813,024) 19,585,006 18,826,116 758,890
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 5,358,925 (1,043,955) 78,888,315 76,637,102 2,251,213
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 11,247,847 (1,372,478) 16,403,009 13,386,571 3,016,438
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 1,055,590 (226,340) 915,330 681,610 233,720
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 46,499 (14,753) 361,353 354,510 6,843
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 235,037 (27,609) 317,740 277,917 39,823
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 257,055 (29,943) 362,140 312,870 49,270
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 363,749 (38,623) 406,948 384,407 22,541
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 10,290 (2,403) 139,030 133,438 5,592
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 775,351 (33,904) 244,368 332,405 (88,037)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 758,872 (394,360) 6,990,444 6,528,212 462,232
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio: 2,009,995 (55,929) 390,051 732,537 (342,486)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 61,186 (116,503) 4,991,495 4,605,949 385,546
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
MidCap Portfolio: 190,158 (166,087) 3,198,308 3,039,709 158,599
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 184,900 (588,663) 31,506,275 29,929,826 1,576,449
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested 44,676 (3,984) 141,022 137,780 3,242
Balanced Portfolio:
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund:
Equity-Income Portfolio: 940,850 (608,164) 4,030,269 3,343,817 686,452
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 1,412,110 (540,670) 2,600,136 2,280,711 319,425
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 178,909 (112,363) 1,318,057 1,318,142 (85)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-9
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Net
Net Unrealized Increase
Gain (Loss) Net (Decrease) Net Assets
----------- Change in In Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund: ($8,051,873) $59,979,314 $68,031,187 $4,966,306
Annuity contracts in accumulation $530,231,821 $644,728,031
Annuity contracts in payment period 62,550,401 89,732,216
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 3,224,044 379,633 (2,844,411) ($9,600,618)
Annuity contracts in accumulation 74,693,652 66,534,546
Annuity contracts in payment period 3,395,721 3,583,489
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 2,487,618 (540,607) (3,028,225) $22,111,260
Annuity contracts in accumulation 81,132,780 106,781,998
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 12,419,220 15,114,435 2,695,215 $602,270
Annuity contracts in accumulation 104,415,595 119,402,212
Annuity contracts in payment period 6,739,809 7,942,484
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 2,566,580 4,487,610 1,921,030 ($650,835)
Annuity contracts in accumulation 14,000,174 16,333,339
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 0 144,834 144,834 $9,097,853
Annuity contracts in accumulation 0 9,281,276
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 5,570 276,453 270,883 $4,773,151
Annuity contracts in accumulation 347,383 5,638,668
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 8,209 151,493 143,284 $4,409,627
Annuity contracts in accumulation 466,407 5,295,700
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 1,609 46,576 44,967 $5,470,774
Annuity contracts in accumulation 323,579 6,186,987
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 0 (4,046) (4,046) $1,975,940
Annuity contracts in accumulation (1) 1,985,372
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 1,644 (461,380) (463,024) $2,897,855
Annuity contracts in accumulation 689,050 3,777,291
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: (63,817) 2,349,936 2,413,753 $29,514,421
Annuity contracts in accumulation 10,790,085 43,545,003
- ------------------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio: (6,769) (828,912) (822,143) $4,660,630
Annuity contracts in accumulation 1,021,520 6,471,587
- ------------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 32,561 220,810 188,249 $8,946,454
Annuity contracts in accumulation 1,954,796 11,419,728
- ------------------------------------------------------------------------------------------------------------------------------------
MidCap Portfolio: 7,193 682,424 675,231 $15,727,261
Annuity contracts in accumulation 3,257,565 19,842,727
- ------------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 46,283 (495,260) (541,543) $32,655,969
Annuity contracts in accumulation 25,464,317 58,751,429
- ------------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested (13,512) (881) 12,631 $193,226
Balanced Portfolio:
Annuity contracts in accumulation 346,846 596,637
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund:
Equity-Income Portfolio: 966,600 5,773,475 4,806,875 $51,230,275
Annuity contracts in accumulation 15,424,209 72,480,497
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: (34,190) 3,258,300 3,292,490 $38,219,867
Annuity contracts in accumulation 15,225,262 57,928,484
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 15,029 814,429 799,400 $12,636,277
Annuity contracts in accumulation 1,207,326 14,709,464
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-10
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets - Year Ended December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Overseas Portfolio: $75,181 ($91,010) $880,668 $813,434 $67,234
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio: 119,231 (54,259) 540,553 465,407 75,146
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 146,164 (428,708) 5,044,449 4,308,117 736,332
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 143,406 (203,362) 6,086,685 5,356,843 729,842
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 45,797 (42,799) 882,619 925,636 (43,017)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II: 857,970 (631,122) 6,368,961 4,596,688 1,772,273
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 405 (44,481) 119,084 103,727 15,357
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 1,647,290 (260,987) 5,863,283 5,644,702 218,581
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 10,567 (51,003) 250,169 236,027 14,142
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II: 289,134 (87,958) 12,400,851 12,398,826 2,025
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 367,608 (86,361) 5,011,311 5,085,345 (74,034)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Utility Fund II: 547,259 (186,219) 1,034,753 867,262 167,491
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 243,931 (266,292) 6,134,481 4,875,603 1,258,878
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 181,099 (68,277) 2,812,822 2,536,688 276,134
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 304,512 (43,754) 1,127,628 1,090,808 36,820
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 324,844 (141,840) 1,249,735 1,041,911 207,824
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: 79,326 (23,159) 2,910,009 2,872,811 37,198
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 642,050 (384,732) 4,899,145 3,899,490 999,655
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 0 (27,131) 1,463,410 1,431,864 31,546
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 15,653 (38,378) 2,192,808 1,809,743 383,065
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-11
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ------------------------------------------------------------------------------------------------------------------
Net Unrealized
Gain (Loss) Net
----------- Change in
Beginning End Unrealized
of Year of Year Gain (Loss)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Overseas Portfolio: $51,434 $743,689 $692,255
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio: 98,360 484,182 385,822
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 122,841 6,210,754 6,087,913
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 70,864 2,241,040 2,170,176
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 11,466 175,829 164,363
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II: 2,916,888 8,810,467 5,893,579
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 3,614 733,393 729,779
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 229,008 1,022,582 793,574
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 43,172 307,602 264,430
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Prime Money Fund II: (1,182) 0 1,182
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 75,600 73,398 (2,202)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Utility Fund II: 799,746 1,730,892 931,146
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 1,164,909 534,823 (630,086)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 26,040 373,883 347,843
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 29,809 73,395 43,586
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 84,852 1,093,423 1,008,571
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: 1,330 (27,376) (28,706)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 253,639 5,151,123 4,897,484
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: (4,024) (66,591) (62,567)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 188,717 538,139 349,422
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ----------------------------------------------------------------------------------------------------------------
Net
Increase
(Decrease) Net Assets
In Net Assets ------------------------------------
from Unit Beginning End
Transactions of Year of Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Overseas Portfolio: $6,948,020
Annuity contracts in accumulation $2,011,591 $9,703,271
- ----------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio: $4,043,035
Annuity contracts in accumulation 1,362,489 5,931,464
- ----------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: $38,043,675
Annuity contracts in accumulation 11,953,242 56,538,618
- ----------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: $22,367,490
Annuity contracts in accumulation 2,172,818 27,380,370
- ----------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: $3,931,632
Annuity contracts in accumulation 705,701 4,761,677
- ----------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II: $26,548,788
Annuity contracts in accumulation 26,685,567 61,127,055
- ----------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: $6,301,239
Annuity contracts in accumulation 179,879 7,182,178
- ----------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: $12,876,189
Annuity contracts in accumulation 11,876,490 27,151,137
- ----------------------------------------------------------------------------------------------------------------
International Equity Fund II: $4,073,916
Annuity contracts in accumulation 1,623,538 5,935,590
- ----------------------------------------------------------------------------------------------------------------
Prime Money Fund II: $1,765,443
Annuity contracts in accumulation 5,774,492 7,744,318
- ----------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: $2,942,870
Annuity contracts in accumulation 4,508,328 7,656,209
- ----------------------------------------------------------------------------------------------------------------
Utility Fund II: $6,514,735
Annuity contracts in accumulation 8,800,082 16,774,494
- ----------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: $19,085,222
Annuity contracts in accumulation 11,850,407 31,542,060
- ----------------------------------------------------------------------------------------------------------------
Balanced Portfolio: $10,311,561
Annuity contracts in accumulation 725,884 11,774,244
- ----------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: $3,237,811
Annuity contracts in accumulation 1,568,242 5,147,217
- ----------------------------------------------------------------------------------------------------------------
Growth Portfolio: $16,916,813
Annuity contracts in accumulation 2,567,942 20,884,154
- ----------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: $1,106,654
Annuity contracts in accumulation 749,298 1,920,611
- ----------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: $54,723,321
Annuity contracts in accumulation 5,594,913 66,472,691
- ----------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: $2,232,953
Annuity contracts in accumulation 341,159 2,515,960
- ----------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: $2,162,813
Annuity contracts in accumulation 1,879,209 4,751,784
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
S-12
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets - Year Ended December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of
Period from Investments
Dividends Deductions Sales Sold
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Funds:
Emerging Growth Series: $73,635 ($33,243) $190,630 $186,959
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Research Series: 94,710 (22,219) 253,406 258,774
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return Series: 87,973 (13,218) 140,628 132,113
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Value Series: 4,089 (372) 496 486
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
World Government Series: 0 (1,705) 19,663 19,513
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust-
Growth Portfolio: 770,877 (98,063) 3,864,131 3,857,033
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life
Investment Fund-
International Portfolio: 276,128 (136,107) 4,557,311 4,016,790
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.:
Balanced Fund: 67,198 (24,832) 247,893 231,495
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Growth Fund: 6,228,055 (611,968) 19,145,021 17,607,144
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
International Fund: 62,276 (41,867) 397,143 365,001
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $120,367,178 ($17,483,870) $365,025,974 $347,598,566
==================================================================================================================================
</TABLE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized
Gain (Loss) Net
Net ----------- Change in
Realized Beginning End Unrealized
Gain (Loss) of Year of Year Gain (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Funds:
Emerging Growth Series: $3,671 $0 ($85,796) ($85,796)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Research Series: (5,368) 0 204,764 204,764
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return Series: 8,515 0 72,010 72,010
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Value Series: 10 0 935 935
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
World Government Series: 150 0 9,304 9,304
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust-
Growth Portfolio: 7,098 77,158 (6,666) (83,824)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life
Investment Fund-
International Portfolio: 540,521 652,411 1,510,449 858,038
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.:
Balanced Fund: 16,398 16,540 145,325 128,785
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Growth Fund: 1,537,877 8,206,103 (1,588,390) (9,794,493)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
International Fund: 32,142 15,650 375,835 360,185
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $17,427,408 $28,746,944 $122,191,053 $93,444,109
==================================================================================================================================
</TABLE>
S-13
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ------------------------------------------------------------------------------------------------------------------
Net
Increase
(Decrease) Net Assets
In Net Assets ------------------------------------
from Unit Beginning End
Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MFS Funds:
Emerging Growth Series: $9,039,741
Annuity contracts in accumulation $0 $8,998,008
- ------------------------------------------------------------------------------------------------------------------
Research Series: $6,504,625
Annuity contracts in accumulation 0 6,776,512
- ------------------------------------------------------------------------------------------------------------------
Total Return Series: $4,061,090
Annuity contracts in accumulation 0 4,216,370
- ------------------------------------------------------------------------------------------------------------------
Value Series: $204,179
Annuity contracts in accumulation 0 208,841
- ------------------------------------------------------------------------------------------------------------------
World Government Series: $400,164
Annuity contracts in accumulation 0 407,913
- ------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust-
Growth Portfolio: ($710,088)
Annuity contracts in accumulation 8,356,574 8,242,574
- ------------------------------------------------------------------------------------------------------------------
Scudder Variable Life
Investment Fund-
International Portfolio: ($54,117)
Annuity contracts in accumulation 10,565,664 12,050,127
- ------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.:
Balanced Fund: $2,313,929
Annuity contracts in accumulation 489,878 2,991,356
- ------------------------------------------------------------------------------------------------------------------
Growth Fund: ($7,301,710)
Annuity contracts in accumulation 54,311,401 44,369,162
- ------------------------------------------------------------------------------------------------------------------
International Fund: $3,691,239
Annuity contracts in accumulation 602,619 4,706,594
- ------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $504,121,195 $1,130,935,704 $1,848,811,724
==================================================================================================================
</TABLE>
S-14
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and Contract
Owners of Variable Annuity Account B:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account B (the "Account") as
of December 31, 1996, and the related statements of operations and changes in
net assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1996. These financial
statements and condensed financial information are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements and condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of Aetna Life Insurance and Annuity Company Variable Annuity Account B
as of December 31, 1996, the results of its operations and the changes in its
net assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 14, 1997
S-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBIDIARIES
Index to Consolidated Financial Statements
Page
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 F-3
Consolidated Balance Sheets as of December 31, 1996
and 1995 F-4
Consolidated Statements of Changes in Shareholder's Equity
for the Years Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, changes in shareholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aetna Life Insurance
and Annuity Company and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
February 4, 1997
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
Years Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Revenue:
Premiums $133.6 $212.7 $191.6
Charges assessed against policyholders 396.5 318.9 279.0
Net investment income 1,045.6 1,004.3 917.2
Net realized capital gains 19.7 41.3 1.5
Other income 45.4 42.0 10.3
------- ------- -------
Total revenue 1,640.8 1,619.2 1,399.6
------- ------- -------
Benefits and expenses:
Current and future benefits 968.6 997.2 921.5
Operating expenses 342.2 310.8 225.7
Amortization of deferred policy
acquisition costs 69.8 48.0 31.5
Severance and facilities charges 61.3 -- --
------- ------- -------
Total benefits and expenses 1,441.9 1,356.0 1,178.7
------- ------- -------
Income before income taxes 198.9 263.2 220.9
Income taxes 57.8 87.3 75.6
------- ------- -------
Net income $141.1 $175.9 $145.3
======= ======= =======
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
December 31,
-------------------------
1996 1995
---- ----
Assets
- ------
Investments:
Debt securities, available for sale:
(amortized cost: $12,539.1 and $11,923.7) $12,905.5 $12,720.8
Equity securities, available for sale:
Non-redeemable preferred stock
(cost: $107.6 and $51.3) 119.0 57.6
Investment in affiliated mutual funds
(cost: $77.3 and $173.4) 81.1 191.8
Common stock (cost: $0.0 and $6.9) 0.3 8.2
Short-term investments 34.8 15.1
Mortgage loans 13.0 21.2
Policy loans 399.3 338.6
--------- ---------
Total investments 13,553.0 13,353.3
Cash and cash equivalents 459.1 568.8
Accrued investment income 159.0 175.5
Premiums due and other receivables 26.6 37.3
Deferred policy acquisition costs 1,515.3 1,341.3
Reinsurance loan to affiliate 628.3 655.5
Other assets 33.7 26.2
Separate Account assets 15,318.3 10,987.0
--------- ---------
Total assets $31,693.3 $27,144.9
========= =========
Liabilities and Shareholder's Equity
- -------------------------------------
Liabilities:
Future policy benefits $3,617.0 $3,594.6
Unpaid claims and claim expenses 28.9 27.2
Policyholders' funds left with the Company 10,663.7 10,500.1
--------- ---------
Total insurance reserve liabilities 14,309.6 14,121.9
Other liabilities 354.7 257.2
Income taxes:
Current 20.7 26.2
Deferred 80.5 169.6
Separate Account liabilities 15,318.3 10,987.0
--------- ---------
Total liabilities 30,083.8 25,561.9
--------- ---------
Shareholder's equity:
Common stock, par value $50 (100,000 shares
authorized; 55,000 shares issued and
outstanding) 2.8 2.8
Paid-in capital 418.0 407.6
Net unrealized capital gains 60.5 132.5
Retained earnings 1,128.2 1,040.1
--------- ---------
Total shareholder's equity 1,609.5 1,583.0
--------- ---------
Total liabilities and shareholder's equity $31,693.3 $27,144.9
========= =========
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
Years Ended December 31,
-----------------------------------
1996 1995 1994
---- ---- ----
Shareholder's equity, beginning of year $1,583.0 $1,088.5 $1,246.7
Capital contributions 10.4 -- --
Net change in unrealized capital gains (losses) (72.0) 321.5 (303.5)
Net income 141.1 175.9 145.3
Other changes (49.5) -- --
Common stock dividends declared (3.5) (2.9) --
-------- -------- --------
Shareholder's equity, end of year $1,609.5 $1,583.0 $1,088.5
======== ======== ========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $141.1 $175.9 $145.3
Adjustments to reconcile net income to net
cash (used for) provided by operating activities:
Decrease (increase) in accrued investment income 16.5 (33.3) (17.5)
Decrease in premiums due and other receivables 1.6 25.4 1.3
Increase in policy loans (60.7) (89.9) (46.0)
Increase in deferred policy acquisition costs (174.0) (177.0) (105.9)
Decrease in reinsurance loan to affiliate 27.2 34.8 27.8
Net increase in universal life account balances 243.2 393.4 164.7
(Decrease) increase in other insurance
reserve liabilities (211.5) 79.0 75.1
Net increase in other liabilities and other assets 3.1 13.0 52.5
Decrease in income taxes (26.7) (4.5) (10.3)
Net accretion of discount on investments (68.0) (66.4) (77.9)
Net realized capital gains (19.7) (41.3) (1.5)
Other, net 1.1 -- (1.0)
-------- -------- --------
Net cash (used for) provided by operating activities (126.8) 309.1 206.6
-------- -------- --------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 5,182.2 4,207.2 3,593.8
Equity securities 190.5 180.8 93.1
Mortgage loans 8.7 10.7 --
Limited partnership -- 26.6 --
Investment maturities and collections of:
Debt securities available for sale 885.2 583.9 1,289.2
Short-term investments 35.0 106.1 30.4
Cost of investment purchases in:
Debt securities available for sale (6,534.3) (6,034.0) (5,621.4)
Equity securities (118.1) (170.9) (162.5)
Short-term investments (54.7) (24.7) (106.1)
Mortgage loans -- (21.3) --
Limited partnership -- -- (25.0)
Other, net (17.6) -- --
-------- -------- --------
Net cash used for investing activities (423.1) (1,135.6) (908.5)
-------- -------- --------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,579.5 1,884.5 1,737.8
Withdrawals of investment contracts (1,146.2) (1,109.6) (948.7)
Additional capital contributions 10.4 -- --
Dividends paid to shareholder (3.5) (2.9) --
-------- -------- --------
Net cash provided by financing activities 440.2 772.0 789.1
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (109.7) (54.5) 87.2
Cash and cash equivalents, beginning of year 568.8 623.3 536.1
-------- -------- --------
Cash and cash equivalents, end of year $459.1 $568.8 $623.3
======== ======== ========
Supplemental cash flow information:
Income taxes paid, net $85.5 $92.8 $85.9
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries
(collectively, the "Company") is a provider of financial services and life
insurance products in the United States. The Company has two business
segments: financial services and individual life insurance.
Financial services products include annuity contracts that offer a variety
of funding and payout options for individual and employer-sponsored
retirement plans qualified under Internal Revenue Code Sections 401, 403,
408 and 457, and non-qualified annuity contracts. These contracts may be
deferred or immediate ("payout annuities"). Financial services also include
investment advisory services, financial planning and pension plan
administrative services.
Individual life insurance products include universal life, variable
universal life, traditional whole life and term insurance.
Basis of Presentation
The consolidated financial statements include Aetna Life Insurance and
Annuity Company and its wholly owned subsidiaries, Aetna Insurance Company
of America and Aetna Private Capital, Inc. Aetna Life Insurance and Annuity
Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc.
("HOLDCO"). HOLDCO is a wholly owned subsidiary of Aetna Retirement
Services, Inc., whose ultimate parent is Aetna Inc. ("Aetna").
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. Certain reclassifications have
been made to 1995 and 1994 financial information to conform to the 1996
presentation.
Future Application of Accounting Standards
Financial Accounting Standard ("FAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was
issued in June 1996. This statement provides accounting and reporting
standards for transfers of financial assets and extinguishments of
liabilities. Transactions covered by this statement would include
securitizations, sales of partial interests in assets, repurchase
agreements and securities lending. This statement requires that after a
transfer of financial assets, an entity would recognize any assets it
controls and liabilities it has incurred. An entity would not recognize
assets when control has been surrendered or liabilities have been
satisfied. Portions of this statement are effective for each of 1997 and
1998 financial statements and early adoption is not permitted. The Company
does not expect adoption of this statement to have a material effect on its
financial position or results of operations.
F-7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from reported results
using those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments
and other debt issues with a maturity of 90 days or less when purchased.
Investments
All of the Company's debt and equity securities are classified as available
for sale and carried at fair value. These securities are written down (as
realized capital losses) for other than temporary declines in value.
Unrealized capital gains and losses related to available for sale other
than amounts allocable to experience rated contractholders, are reflected
in shareholder's equity, net of related taxes.
Fair values for debt and equity securities are based on quoted market
prices or dealer quotations. Where quoted market prices or dealer
quotations are not available, fair values are measured utilizing quoted
market prices for similar securities or by using discounted cash flow
methods. Cost for mortgage-backed securities is adjusted for unamortized
premiums and discounts, which are amortized using the interest method over
the estimated remaining term of the securities, adjusted for anticipated
prepayments.
Purchases and sales of debt and equity securities are recorded on the trade
date.
The investment in affiliated mutual funds primarily represents an
investment in the Aetna Series Fund, Inc., a retail mutual fund which has
been seeded by the Company, and is carried at fair value.
Mortgage loans and policy loans are carried at unpaid principal balances,
net of impairment reserves. Sales of mortgage loans are recorded on the
closing date.
Short-term investments, consisting primarily of money market instruments
and other debt issues purchased with a maturity of 91 days to one year, are
considered available for sale and are carried at fair value, which
approximates amortized cost.
F-8
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Futures contracts are carried at fair value and require daily cash
settlement. Changes in the fair value of futures contracts that qualify as
hedges are deferred and recognized as an adjustment to the hedged asset or
liability. Deferred gains or losses on such futures contracts are amortized
over the life of the acquired asset or liability as a yield adjustment or
through net realized capital gains or losses upon disposal of an asset.
Changes in the fair value of futures contracts that do not qualify as
hedges are recorded in net realized capital gains or losses. Hedge
designation requires specific asset or liability identification, a
probability at inception of high correlation with the position underlying
the hedge, and that high correlation be maintained throughout the hedge
period. If a hedging instrument ceases to be highly correlated with the
position underlying the hedge, hedge accounting ceases at that date and
excess gains and losses on the hedging instrument are reflected in net
realized capital gains or losses.
Swap agreements which are designated as interest rate risk management
instruments at inception are accounted for using the accrual method.
Accordingly, the difference between amounts paid and received on such
agreements is reported in net investment income. There is no recognition in
the Consolidated Balance Sheets for changes in the fair value of the
agreement.
Deferred Policy Acquisition Costs
Certain costs of acquiring insurance business are deferred. These costs,
all of which vary with and are primarily related to the production of new
and renewal business, consist principally of commissions, certain expenses
of underwriting and issuing contracts, and certain agency expenses. For
fixed ordinary life contracts, such costs are amortized over expected
premium-paying periods (up to 20 years). For universal life and certain
annuity contracts, such costs are amortized in proportion to estimated
gross profits and adjusted to reflect actual gross profits over the life of
the contracts (up to 20 years).
Deferred policy acquisition costs are written off to the extent that it is
determined that future policy premiums and investment income or gross
profits are not adequate to cover related losses and expenses.
Insurance Reserve Liabilities
Future Policy Benefits include reserves for universal life, immediate
annuities with life contingent payouts and traditional life insurance
contracts. Reserves for universal life contracts are equal to cumulative
deposits less charges and withdrawals plus credited interest thereon.
Reserves for immediate annuities with life contingent payouts and
traditional life insurance contracts are computed on the basis of assumed
investment yield, mortality, and expenses, including a margin for adverse
deviations. Such assumptions generally vary by plan, year of issue and
policy duration. Reserve interest rates range from 2.25% to 12.00%.
Investment yield is based on the Company's experience. Mortality and
withdrawal rate assumptions are based on relevant Aetna experience and are
periodically reviewed against both industry standards and experience.
F-9
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Policyholders' Funds Left With the Company include reserves for deferred
annuity investment contracts and immediate annuities without life
contingent payouts. Reserves on such contracts are equal to cumulative
deposits less charges and withdrawals plus credited interest thereon (rates
range from 4.00% to 7.00%), net of adjustments for investment experience
that the Company is entitled to reflect in future credited interest.
Reserves on contracts subject to experience rating reflect the rights of
contractholders, plan participants and the Company.
Unpaid claims for all lines of insurance include benefits for reported
losses and estimates of benefits for losses incurred but not reported.
Premiums, Charges Assessed Against Policyholders, Benefits and Expenses
For universal life and certain annuity contracts, charges assessed against
policyholders' funds for the cost of insurance, surrender charges,
actuarial margin and other fees are recorded as revenue in charges assessed
against policyholders. Other amounts received for these contracts are
reflected as deposits and are not recorded as revenue. Life insurance
premiums, other than premiums for universal life and certain annuity
contracts, are recorded as premium revenue when due. Related policy
benefits are recorded in relation to the associated premiums or gross
profit so that profits are recognized over the expected lives of the
contracts. When annuity payments begin under contracts with life contingent
payouts that were initially investment contracts, the accumulated balance
in the account is treated as a single premium for the purchase of an
annuity, reflected as an offsetting amount in both premiums and current and
future benefits in the Consolidated Statements of Income.
Separate Accounts
Assets held under variable universal life and variable annuity contracts
are segregated in Separate Accounts and are invested, as designated by the
contractholder or participant under a contract, in shares of Aetna Variable
Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment
Advisers Fund, Inc., Aetna GET Fund, the Aetna Series Fund Inc., or the
Aetna Generation Funds (collectively, "Funds"), which are managed by the
Company, or other selected mutual funds not managed by the Company.
Separate Accounts assets and liabilities are carried at fair value except
for those relating to a guaranteed interest option. Since the Company bears
the investment risk where the contract is held to maturity, the assets of
the Separate Account supporting the guaranteed interest option are carried
at an amortized cost of $515.6 million for 1996 (fair value $523.0 million)
and $322.2 million for 1995 (fair value $343.9 million). Reserves relating
to the guaranteed interest option are maintained at fund value and reflect
interest credited at rates ranging from 4.10% to 8.00% in 1996 and 4.50% to
8.38% in 1995.
F-10
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Separate Accounts assets and liabilities are shown as separate captions in
the Consolidated Balance Sheets. Deposits, investment income and net
realized and unrealized capital gains and losses of the Separate Accounts
are not reflected in the Consolidated Statements of Income (with the
exception of realized capital gains and losses on the sale of assets
supporting the guaranteed interest option). The Consolidated Statements of
Cash Flows do not reflect investment activity of the Separate Accounts.
Income Taxes
The Company is included in the consolidated federal income tax return of
Aetna. The Company is taxed at regular corporate rates after adjusting
income reported for financial statement purposes for certain items.
Deferred income tax expenses/benefits result from changes during the year
in cumulative temporary differences between the tax basis and book basis of
assets and liabilities.
F-11
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments
Debt securities available for sale as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(millions)
<S> <C> <C> <C> <C>
U.S. government and government
agencies and authorities $ 1,072.4 $ 20.5 $ 4.5 $ 1,088.4
States, municipalities and political
subdivisions 6.0 1.2 -- 7.2
U.S. corporate securities:
Financial 2,143.4 43.1 9.7 2,176.8
Food & fiber 198.2 4.6 1.3 201.5
Healthcare & consumer products 735.9 20.2 6.3 749.8
Media & broadcast 274.9 7.0 2.8 279.1
Natural resources 187.7 4.5 0.4 191.8
Transportation & capital goods 521.9 22.0 1.8 542.1
Utilities 448.8 14.8 2.8 460.8
Other 141.5 3.0 -- 144.5
--------- --------- --------- ---------
Total U.S. corporate securities 4,652.3 119.2 25.1 4,746.4
Foreign Securities:
Government 758.6 36.0 5.7 788.9
Utilities 187.8 16.1 -- 203.9
Other 945.5 30.9 6.3 970.1
--------- --------- --------- ---------
Total foreign securities 1,891.9 83.0 12.0 1,962.9
Residential mortgage-backed securities:
Pass-throughs 792.2 78.3 3.1 867.4
Collateralized mortgage obligations 2,227.8 94.9 13.7 2,309.0
--------- --------- --------- ---------
Total residential mortgage-
backed securities 3,020.0 173.2 16.8 3,176.4
Commercial/Multifamily mortgage-
backed securities 1,008.7 24.8 5.6 1,027.9
Other asset-backed securities 887.8 10.7 2.2 896.3
--------- --------- --------- ---------
Total Debt Securities $12,539.1 $ 432.6 $ 66.2 $12,905.5
========= ========= ========= =========
</TABLE>
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Debt securities available for sale as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(millions)
<S> <C> <C> <C> <C>
U.S. government and government
agencies and authorities $ 539.5 $ 47.5 $ -- $ 587.0
States, municipalities and political
subdivisions 41.4 12.4 -- 53.8
U.S. Corporate securities:
Financial 2,764.4 110.3 2.1 2,872.6
Food & fiber 310.8 20.8 0.6 331.0
Healthcare & consumer products 766.0 59.2 0.2 825.0
Media & broadcast 191.7 10.0 -- 201.7
Natural resources 186.9 12.6 0.2 199.3
Transportation & capital goods 602.4 46.7 0.2 648.9
Utilities 454.4 27.8 1.0 481.2
Other 119.9 10.2 -- 130.1
--------- --------- --------- ---------
Total U.S. corporate securities 5,396.5 297.6 4.3 5,689.8
Foreign securities:
Government 316.4 26.1 2.0 340.5
Utilities 236.3 32.9 269.2
Other 749.9 60.5 3.5 806.9
--------- --------- --------- ---------
Total foreign securities 1,302.6 119.5 5.5 1,416.6
Residential mortgage-backed securities:
Pass-throughs 556.7 99.2 1.8 654.1
Collateralized mortgage obligations 2,383.9 167.6 2.2 2,549.3
--------- --------- --------- ---------
Total residential mortgage-
backed securities 2,940.6 266.8 4.0 3,203.4
Commercial/multifamily mortgage-
backed securities 741.9 32.3 0.2 774.0
Other asset-backed securities 961.2 35.5 0.5 996.2
--------- --------- --------- ---------
Total Debt Securities $11,923.7 $ 811.6 $ 14.5 $12,720.8
========= ========= ========= =========
</TABLE>
F-13
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
At December 31, 1996 and 1995, net unrealized appreciation of $366.4
million and $797.1 million, respectively, on available for sale debt
securities included $288.5 million and $619.1 million, respectively,
related to experience rated contracts, which were not reflected in
shareholder's equity but in Future Policy Benefits and Policyholders' Funds
Left With the Company.
The amortized cost and fair value of debt securities for the year ended
December 31, 1996 are shown below by contractual maturity. Actual
maturities may differ from contractual maturities because securities may be
restructured, called, or prepaid.
Amortized Fair
Cost Value
--------- -----
(millions)
Due to mature:
One year or less $ 424.4 $ 425.7
After one year through five years 2,162.4 2,194.2
After five years through ten years 2,467.4 2,509.6
After ten years 2,568.4 2,675.4
Mortgage-backed securities 4,028.7 4,204.3
Other asset-backed securities 887.8 896.3
--------- ---------
Total $12,539.1 $12,905.5
========= =========
The Company engages in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time.
Collateral, primarily cash, which is in excess of the market value of the
loaned securities, is deposited by the borrower with a lending agent, and
retained and invested by the lending agent to generate additional income
for the Company. The market value of the loaned securities is monitored on
a daily basis with additional collateral obtained or refunded as the market
value fluctuates. At December 31, 1996 and 1995, the Company had loaned
securities (which are reflected as invested assets) with a market value of
approximately $444.7 million and $264.5 million, respectively.
At December 31, 1996 and 1995, debt securities carried at $7.6 million and
$7.4 million, respectively, were on deposit as required by regulatory
authorities.
The carrying value of non-income producing investments was $0.9 million and
$0.1 million at December 31, 1996 and 1995, respectively.
The Company did not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10%
of the Company's shareholder's equity at December 31, 1996.
F-14
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Included in the Company's total debt securities were residential
collateralized mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
Fair Amortized Fair Amortized
Value Cost Value Cost
----- ---- ----- ----
(millions)
<S> <C> <C> <C> <C>
Total residential CMOs (1) $2,309.0 $2,227.8 $2,549.4 $2,383.9
======== ======== ======== ========
Percentage of total:
Supporting experience rated products 84.2% 85.3%
Supporting remaining products 15.8% 14.7%
-------- --------
100.0% 100.0%
======== ========
</TABLE>
(1) At December 31, 1996 and 1995, approximately 71% and 81%,
respectively, of the Company's residential CMO holdings were backed by
government agencies such as GNMA, FNMA, FHLMC.
There are various categories of CMOs which are subject to different degrees
of risk from changes in interest rates and, for nonagency-backed CMOs,
defaults. The principal risks inherent in holding CMOs are prepayment and
extension risks related to dramatic decreases and increases in interest
rates resulting in the repayment of principal from the underlying mortgages
either earlier or later than originally anticipated.
At December 31, 1996 and 1995, approximately 68% and 79%, respectively, of
the Company's CMO holdings were in planned amortization class ("PAC") and
sequential structure tranches, which are subject to less prepayment and
extension risk than other types of CMO instruments. At December 31, 1996
and 1995, approximately 3% of the Company's CMO holdings were in the
interest-only ("IOs") and principal-only ("POs") tranches, which are
subject to more prepayment and extension risks than other types of CMO
instruments. Remaining CMO holdings are in other tranches that have
prepayment and extension risks which fall between the degree of risk
associated with PACs and sequentials, and IOs and POs.
F-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Investments in available for sale equity securities were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ---------- ---------- -----
(millions)
1996
Equity Securities $ 184.9 $ 16.3 $ 0.8 $ 200.4
======= ======= ======= =======
1995
Equity Securities $ 231.6 $ 27.2 $ 1.2 $ 257.6
======= ======= ======= =======
3. Financial Instruments
Estimated Fair Value
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------ -----------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
(millions)
<S> <C> <C> <C> <C>
Assets:
Mortgage loans $ 13.0 $ 13.2 $ 21.2 $ 21.9
Liabilities:
Investment contract liabilities:
With a fixed maturity $ 1,014.1 $ 1,028.8 $ 989.1 $ 1,001.2
Without a fixed maturity 9,649.6 9,427.6 9,511.0 9,298.4
</TABLE>
Fair value estimates are made at a specific point in time, based on
available market information and judgments about the financial instrument,
such as estimates of timing and amount of future cash flows. Such estimates
do not reflect any premium or discount that could result from offering for
sale at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates cannot
be substantiated by comparison to independent markets, nor can the
disclosed value be realized in immediate settlement of the instrument. In
evaluating the Company's management of interest rate, price and liquidity
risks, the fair values of all assets and liabilities should be taken into
consideration, not only those presented above.
F-16
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Mortgage loans: Fair values are estimated by discounting expected mortgage
loan cash flows at market rates which reflect the rates at which similar
loans would be made to similar borrowers. The rates reflect management's
assessment of the credit quality and the remaining duration of the loans.
Investment contract liabilities (included in Policyholders' Funds Left With
the Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Without a fixed maturity: Fair value is estimated as the amount payable to
the contractholder upon demand. However, the Company has the right under
such contracts to delay payment of withdrawals which may ultimately result
in paying an amount different than that determined to be payable on demand.
Off-Balance-Sheet and Other Financial Instruments (including Derivative
Financial Instruments)
The Company uses off-balance-sheet and other financial instruments
primarily to manage portfolio risks, including interest rate,
prepayment/call, credit, price, and liquidity risks. In 1996, Treasury
futures contracts were used to manage interest rate risk in the Company's
bond portfolio and stock index futures contracts were used to manage price
risk in the Company's equity portfolio. In 1996 and 1995, interest rate
swaps and forward commitments to enter into interest rate swaps,
respectively, were also used to manage interest rate risk in the Company's
bond portfolio.
Futures Contracts:
Futures contracts represent commitments to either purchase or sell
underlying assets at a specified future date. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk. Cash
settlements are made daily based on changes in the prices of the underlying
assets. There were no futures contracts open as of December 31, 1996 and
1995.
F-17
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
Interest Rate Swaps:
Under interest rate swaps, the Company agrees with other parties to
exchange interest amounts calculated by reference to an agreed notional
principal amount. Generally, no cash is exchanged at the outset of the
contract and no principal payments are made. A single net payment is
usually made by one counterparty at each due date or upon termination of
the contract. The Company would be exposed to credit-related losses in the
event of nonperformance by counterparties to financial instruments,
however, the Company controls its exposure to credit risk through credit
approvals, credit limits and regular monitoring procedures. The credit
exposure of interest rate swaps is represented by the fair value (market
value) of contracts with a positive fair value (market value) at the
reporting date. There were no interest rate swap agreements open as of
December 31, 1996. At December 31, 1995, the Company had an open forward
swap agreement with a notional amount of $100.0 million and a fair value of
$0.1 million.
During 1995, the Company received $0.4 million for writing call options on
underlying securities. The Company did not write any call options in 1996.
As of December 31, 1996 and 1995, there were no option contracts
outstanding.
The Company also had investments in certain debt instruments with
derivative characteristics, including those whose market value is at least
partially determined by, among other things, levels of or changes in
domestic and/or foreign interest rates (short or long term), exchange
rates, prepayment rates, equity markets or credit ratings/spreads. The
amortized cost and fair value of these securities, included in the debt
securities portfolio, as of December 31, 1996 was as follows:
Amortized Fair
Cost Value
---- -----
(millions)
Residential collateralized mortgage obligations $ 2,227.8 $ 2,309.0
Principal-only strips (included above) 44.5 53.3
Interest-only strips (included above) 10.3 22.8
Other structured securities with derivative
characteristics (1) 126.3 129.2
(1) Represents non-leveraged instruments whose fair values and credit risk
are based on underlying securities, including fixed income securities
and interest rate swap agreements.
F-18
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
4. Net Investment Income
Sources of net investment income were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ 945.3 $ 891.5 $ 823.9
Preferred stock 5.9 4.2 3.9
Investment in affiliated mutual funds 14.3 14.9 5.2
Mortgage loans 2.2 1.4 1.4
Policy loans 18.4 13.7 11.5
Reinsurance loan to affiliate 44.1 46.5 51.5
Cash equivalents 29.4 38.9 29.5
Other 2.1 8.4 6.7
-------- -------- --------
Gross investment income 1,061.7 1,019.5 933.6
Less investment expenses (16.1) (15.2) (16.4)
-------- -------- --------
Net investment income $1,045.6 $1,004.3 $ 917.2
======== ======== ========
Net investment income includes amounts allocable to experience rated
contractholders of $787.6 million, $744.2 million and $677.1 million for
the years ended December 31, 1996, 1995 and 1994, respectively. Interest
credited to contractholders is included in Current and Future Benefits.
5. Dividend Restrictions and Shareholder's Equity
The Company paid $3.5 million in cash dividends to HOLDCO in 1996. In 1995,
the Company dividended $2.9 million in the form of two of its subsidiaries,
Systematized Benefits Administrators, Inc. and Aetna Investment Services,
Inc., to Aetna Retirement Services, Inc. (the Company's former parent).
The amount of dividends that may be paid to the shareholder in 1997 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$71.1 million.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's capital and surplus those
amounts determined in conformity with statutory accounting practices
prescribed or permitted by the Department, which differ in certain respects
from generally accepted accounting principles. Statutory net income was
$57.8 million, $70.0 million and $64.9 million for the years ended December
31, 1996, 1995 and 1994, respectively. Statutory capital and surplus was
$713.6 million and $670.7 million as of December 31, 1996 and 1995,
respectively.
As of December 31, 1996 the Company does not utilize any statutory
accounting practices which are not prescribed by state regulatory
authorities that, individually or in the aggregate, materially affect
statutory capital and surplus.
F-19
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold.
Net realized capital gains on investments were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ 11.1 $ 32.8 $ 1.0
Equity securities 8.6 8.3 0.2
Mortgage loans -- 0.2 0.3
-------- -------- -------
Pretax realized capital gains $ 19.7 $ 41.3 $ 1.5
======== ======= =======
After tax realized capital gains $ 13.0 $ 25.8 $ 1.0
======== ======= =======
Net realized capital gains of $53.1 million and $61.1 million for 1996 and
1995, respectively, and net realized capital losses of $29.1 million for
1994, allocable to experience rated contracts, were deducted from net
realized capital gains (losses) and an offsetting amount was reflected in
policyholder funds' left with the Company. Net unamortized gains were $53.3
million and $7.3 million at December 31, 1996 and 1995, respectively.
Changes to the mortgage loan valuation reserve and writedowns on debt
securities for other than temporary declines in value are included in net
realized capital gains (losses) and amounted to $(3.3) million, $3.1
million and $1.1 million, of which $(3.2) million, $2.2 million and $0.8
million were allocable to experience rated contractholders, for the years
ended December 31, 1996, 1995 and 1994, respectively. There was no
valuation reserve for mortgage loans at December 31, 1996 or at December
31, 1995.
Proceeds from the sale of available for sale debt securities and the
related gross gains and losses were as follows:
1996 1995 1994
---- ---- ----
(millions)
Proceeds on Sales $5,182.2 $4,207.2 $3,593.8
Gross gains 24.3 44.6 26.6
Gross losses 13.2 11.8 25.6
F-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations (Continued)
Changes in shareholder's equity related to changes in unrealized capital
gains (losses), (excluding those related to experience rated
contractholders), were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ (100.1) $ 255.9 $ (242.1)
Equity securities (10.5) 27.3 (13.3)
Limited partnership -- 1.8 (1.8)
-------- -------- --------
(110.6) 285.0 (257.2)
Deferred income taxes (See Note 8) (38.6) (36.5) 46.3
-------- -------- --------
Net change in unrealized
capital gains (losses) $ (72.0) $ 321.5 $ (303.5)
======== ======== ========
Net unrealized capital gains allocable to experience rated contracts of
$245.2 million and $43.3 million at December 31, 1996 and $515.0 million
and $104.1 million at December 31, 1995 are reflected on the Consolidated
Balance Sheets in Policyholders' Funds Left With the Company and Future
Policy Benefits, respectively, and are not included in shareholder's
equity.
Shareholder's equity included the following unrealized capital gains
(losses), which are net of amounts allocable to experience rated
contractholders, at December 31:
1996 1995 1994
---- ---- ----
(millions)
Debt securities
Gross unrealized capital gains $101.7 $179.3 $ 27.4
Gross unrealized capital losses (23.8) (1.3) (105.2)
------ ------ --------
77.9 178.0 (77.8)
Equity securities
Gross unrealized capital gains 16.3 27.2 6.5
Gross unrealized capital losses (0.8) (1.2) (7.9)
------ ------ --------
15.5 26.0 (1.4)
Limited Partnership -- -- --
Gross unrealized capital gains -- -- --
Gross unrealized capital losses -- -- (1.8)
------ ------ --------
-- -- (1.8)
Deferred income taxes (See Note 8) 32.9 71.5 108.0
------ ------ --------
Net unrealized capital gains (losses) $ 60.5 $132.5 $(189.0)
====== ====== ========
F-21
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
7. Severance and Facilities Charges
Severance and facilities charges during 1996, as described below, included
the following (pretax):
<TABLE>
<CAPTION>
Vacated
Asset Leased Corporate
(Millions) Severance Write-Off Property Other Allocation Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial Services $ 29.1 $ 1.0 $ 1.3 $ 1.7 $ -- $ 33.1
Individual Life Insurance 12.5 0.4 0.5 0.8 -- 14.2
Corporate Allocation -- -- -- -- 14.0 14.0
---------------------------------------------------------------
Total Company $ 41.6 $ 1.4 $ 1.8 $ 2.5 $ 14.0 $ 61.3
- --------------------------------------------------------------------------------------------
</TABLE>
In the third quarter of 1996, the Company recorded a $30.7 million after
tax ($47.3 million pretax) charge principally related to actions taken or
expected to be taken to improve its cost structure relative to its
competitors. The severance portion of the charge is based on a plan to
eliminate 702 positions (primarily customer service, sales and information
technology support staff). The facilities portion of the charge is based on
a plan to consolidate sales/service field offices.
In addition to the above charge, Aetna recorded a facilities and severance
charge in the second quarter of 1996, primarily as a result of actions
taken or expected to be taken to reduce the level of corporate expenses and
other costs previously absorbed by Aetna's property-casualty operations.
The cost allocated to the Company associated with this charge was $9.1
million after tax ($14.0 million pretax).
The activity during 1996 within the severance and facilities reserve
(pretax, in millions) and the number of positions eliminated related to
such actions were as follows:
Reserve Positions
---------------------------------------------------------------------------
Beginning of year $ -- --
Severance and facilities charges 47.3 702
Corporate Allocation 14.0 --
Actions taken (1) (13.4) (178)
-------------------------------
End of year $ 47.9 524
---------------------------------------------------------------------------
(1) Includes $8.0 million of severance-related actions and $4.1 million of
corporate allocation-related actions.
The Company's severance actions are expected to be substantially completed
by March 31, 1998. The corporate allocation actions and the vacating of the
leased office space are expected to be substantially completed in 1997.
F-22
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes
The Company is included in the consolidated federal income tax return and
combined Connecticut and New York state income tax returns of Aetna. Aetna
allocates to each member an amount approximating the tax it would have
incurred were it not a member of the consolidated group, and credits the
member for the use of its tax saving attributes used in the consolidated
returns.
Income taxes for the years ended December 31, consist of:
1996 1995 1994
---- ---- ----
(millions)
Current taxes (benefits):
Income Taxes:
Federal $ 50.9 $ 82.9 $ 78.7
State 3.7 3.2 4.4
Net realized capital gains (losses) 25.3 28.5 (33.2)
------ ------ ------
79.9 114.6 49.9
------ ------ ------
Deferred taxes (benefits):
Income Taxes:
Federal (3.5) (14.4) (8.0)
Net realized capital gains (losses) (18.6) (12.9) 33.7
------ ------ ------
(22.1) (27.3) 25.7
------ ------ ------
Total $ 57.8 $ 87.3 $ 75.6
====== ====== ======
Income taxes were different from the amount computed by applying the
federal income tax rate to income before income taxes for the following
reasons:
1996 1995 1994
---- ---- ----
(millions)
Income before income taxes $198.9 $263.2 $220.9
Tax rate 35% 35% 35%
------ ------ ------
Application of the tax rate 69.6 92.1 77.3
------ ------ ------
Tax effect of:
State income tax, net of federal benefit 2.4 2.1 2.9
Excludable dividends (8.7) (9.3) (8.6)
Other, net (5.5) 2.4 4.0
------ ------ ------
Income taxes $ 57.8 $ 87.3 $ 75.6
====== ====== ======
F-23
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
1996 1995
---- ----
(millions)
Deferred tax assets:
Insurance reserves $ 344.6 $ 290.4
Unrealized gains allocable to
experience rated contracts 100.8 216.7
Investment losses 7.5 7.3
Postretirement benefits other
than pensions 27.0 7.7
Deferred compensation 25.0 18.9
Pension 7.6 5.7
Other 29.3 9.2
------- -------
Total gross assets 541.8 555.9
Deferred tax liabilities:
Deferred policy acquisition costs 482.1 433.0
Market discount 6.8 4.4
Net unrealized capital gains 133.7 288.2
Other (0.3) (0.1)
------- -------
Total gross liabilities 622.3 725.5
------- -------
Net deferred tax liability $ 80.5 $ 169.6
======= =======
Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. Valuation allowances are provided when it is
not considered more likely than not that deferred tax assets will be
realized. As of December 31, 1996 and 1995, no valuation allowances were
required for unrealized capital gains and losses.
The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that
has not been subject to taxation. As of December 31, 1983, no further
additions could be made to the Policyholders' Surplus Account for tax
return purposes under the Deficit Reduction Act of 1984. The balance in
such account was approximately $17.2 million at December 31, 1996. This
amount would be taxed only under certain conditions. No income taxes have
been provided on this amount since management believes the conditions under
which such taxes would become payable are remote.
F-24
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The Internal Revenue Service ("Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1990. Discussions
are being held with the Service with respect to proposed adjustments.
Management believes there are adequate defenses against, or sufficient
reserves to provide for, any such adjustments. The Service has commenced
its examinations for the years 1991 through 1994.
9. Benefit Plans
Employee Pension Plans - The Company, in conjunction with Aetna, has
noncontributory defined benefit pension plans covering substantially all
employees. The plans provide pension benefits based on years of service and
average annual compensation (measured over 60 consecutive months of highest
earnings in a 120-month period). Contributions are determined using the
Projected Unit Credit Method and, for qualified plans subject to ERISA
requirements, are limited to the amounts that are tax-deductible. As of
December 31, 1996, Aetna's accrued pension cost has been allocated to its
subsidiaries, including the Company, under an allocation based on eligible
salaries. Data on a separate company basis regarding the proportionate
share of the projected benefit obligation and plan assets is not available.
The accumulated benefit obligation and plan assets are recorded by Aetna.
As of the measurement date (i.e., September 30), the accumulated plan
assets exceeded accumulated plan benefits. Allocated pretax charges to
operations for the pension plan (based on the Company's total salary cost
as a percentage of Aetna's total salary cost) were $4.3 million, $6.1
million and $5.5 million for the years ended December 31, 1996, 1995 and
1994, respectively.
Employee Postretirement Benefits - In addition to providing pension
benefits, Aetna currently provides health care and life insurance benefits,
subject to certain caps, for retired employees. A comprehensive medical and
dental plan is offered to all full-time employees retiring at age 50 with
15 years of service or at age 65 with 10 years of service. Retirees are
generally required to contribute to the plans based on their years of
service with Aetna. The costs to the Company associated with the Aetna
postretirement plans for 1996, 1995 and 1994 were $1.8 million, $1.4
million and $1.0 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately
$77.7 million of accrued liabilities, primarily related to the pension and
postretirement benefit plans described above, that had been previously
recorded by Aetna. The after tax amount of this transfer (approximately
$50.5 million) is reported as a reduction in retained earnings.
Agent Pension Plans - The Company, in conjunction with Aetna, has a
non-qualified pension plan covering certain agents. The plan provides
pension benefits based on annual commission earnings. As of the measurement
date (i.e., September 30), the accumulated plan assets exceeded accumulated
plan benefits.
F-25
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
9. Benefit Plans (Continued)
Agent Postretirement Benefits - The Company, in conjunction with Aetna,
also provides certain postretirement health care and life insurance
benefits for certain agents. The costs to the Company associated with the
agents' postretirement plans for 1996, 1995 and 1994 were $0.7 million,
$0.8 million and $0.7 million, respectively.
Incentive Savings Plan - Substantially all employees are eligible to
participate in a savings plan under which designated contributions, which
may be invested in common stock of Aetna or certain other investments, are
matched, up to 5% of compensation, by Aetna. Pretax charges to operations
for the incentive savings plan were $5.4 million, $4.9 million and $3.3
million in 1996, 1995 and 1994, respectively.
Stock Plans - Aetna has a stock incentive plan that provides for stock
options, deferred contingent common stock or equivalent cash awards or
restricted stock to certain key employees. Executive and middle management
employees may be granted options to purchase common stock of Aetna at or
above the market price on the date of grant. Options generally become 100%
vested three years after the grant is made, with one-third of the options
vesting each year. Aetna does not recognize compensation expense for stock
options granted at or above the market price on the date of grant under its
stock incentive plans. In addition, executives may be granted incentive
units which are rights to receive common stock or an equivalent value in
cash. The incentive units may vest within a range from 0% to 175% at the
end of a four year period based on the attainment of performance goals. The
costs to the Company associated with the Aetna stock plans for 1996, 1995
and 1994, were $8.1 million, $6.3 million and $1.7 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately
$1.1 million of deferred tax benefits related to stock options. This amount
is reported as an increase in retained earnings.
10. Related Party Transactions
The Company is compensated by the Separate Accounts for bearing mortality
and expense risks pertaining to variable life and annuity contracts. Under
the insurance contracts, the Separate Accounts pay the Company a daily fee
which, on an annual basis, ranges, depending on the product, from .10% to
1.90% of their average daily net assets. The Company also receives fees
from the variable life and annuity mutual funds and The Aetna Series Fund
for serving as investment adviser. Under the advisory agreements, the Funds
pay the Company a daily fee which, on an annual basis, ranges, depending on
the fund, from .25% to .85% of their average daily net assets. The Company
also receives fees (expressed as a percentage of the average daily net
assets) from the variable life and annuity mutual funds and The Aetna
Series Fund for providing administration services, and from The Aetna
Series Fund for providing shareholder services and promoting sales. The
amount of compensation and fees received from the Separate Accounts and
Funds, included in Charges Assessed Against Policyholders, amounted to
$185.4 million, $128.1 million and $104.6 million in 1996, 1995 and 1994,
respectively. The Company may waive advisory fees at its discretion.
F-26
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
The Company acts as an investment adviser for its affiliated mutual funds.
Since August 1996, Aeltus Investment Management, Inc. ("Aeltus"), a wholly
owned subsidiary of HOLDCO and an affiliate of the Company, has been acting
as Subadvisor of all affiliated mutual funds and of most of the General
Account assets. Fees paid by the Company to Aeltus, included in both
Charges Assessed Against Policyholders and Net Investment Income, on an
annual basis, range from .06% to .55% of the average daily net assets under
management. For the year ended December 31, 1996, the Company paid $16.0
million in such fees.
The Company may, from time to time, make reimbursements to a Fund for some
or all of its operating expenses. Reimbursement arrangements may be
terminated at any time without notice.
Since 1981, all domestic individual non-participating life insurance of
Aetna and its subsidiaries has been issued by the Company. Effective
December 31, 1988, the Company entered into a reinsurance agreement with
Aetna Life Insurance Company ("Aetna Life") in which substantially all of
the non-participating individual life and annuity business written by Aetna
Life prior to 1981 was assumed by the Company. A $108.0 million commission,
paid by the Company to Aetna Life in 1988, was capitalized as deferred
policy acquisition costs. An additional $6.1 million commission, paid by
the Company to Aetna Life in 1996, was capitalized as deferred policy
acquisition costs. The Company maintained insurance reserves of $628.3
million and $655.5 million as of December 31, 1996 and 1995, respectively,
relating to the business assumed. In consideration for the assumption of
this business, a loan was established relating to the assets held by Aetna
Life which support the insurance reserves. The loan is being reduced in
accordance with the decrease in the reserves. The fair value of this loan
was $625.3 million and $663.5 million as of December 31, 1996 and 1995,
respectively, and is based upon the fair value of the underlying assets.
Premiums of $25.3 million, $28.0 million and $32.8 million and current and
future benefits of $39.5 million, $43.0 million and $43.8 million were
assumed in 1996, 1995 and 1994, respectively.
Investment income of $44.1 million, $46.5 million and $51.5 million was
generated from the reinsurance loan to affiliate in 1996, 1995 and 1994,
respectively. Net income of approximately $8.1 million, $18.4 million and
$25.1 million resulted from this agreement in 1996, 1995 and 1994,
respectively.
On December 16, 1988, the Company assumed $25.0 million of premium revenue
from Aetna Life for the purchase and administration of a life contingent
single premium variable payout annuity contract. In addition, the Company
also is responsible for administering fixed annuity payments that are made
to annuitants receiving variable payments. Reserves of $28.9 million and
$28.0 million were maintained for this contract as of December 31, 1996 and
1995, respectively.
Effective February 1, 1992, the Company increased its retention limit per
individual life to $2.0 million and entered into a reinsurance agreement
with Aetna Life to reinsure amounts in excess of this limit, up to a
maximum of $8.0 million on any new individual life business, on a yearly
renewable term basis. Premium amounts related to this agreement were $5.2
million, $3.2 million and $1.3 million for 1996, 1995 and 1994,
respectively.
F-27
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
The Company received a capital contribution of $10.4 million in cash from
HOLDCO in 1996. The Company received no capital contributions in 1995 or
1994.
The Company paid $3.5 million in cash dividends to HOLDCO in 1996. In 1995,
the Company dividended $2.9 million in the form of two of its subsidiaries,
Systematized Benefits Administrators, Inc. and Aetna Investment Services,
Inc., to Aetna Retirement Services, Inc. (the Company's former parent).
Premiums due and other receivables include $2.8 million and $5.7 million
due from affiliates in 1996 and 1995, respectively. Other liabilities
include $10.7 million and $12.4 million due to affiliates for 1996 and
1995, respectively.
Substantially all of the administrative and support functions of the
Company are provided by Aetna and its affiliates. The financial statements
reflect allocated charges for these services based upon measures
appropriate for the type and nature of service provided.
11. Reinsurance
The Company utilizes indemnity reinsurance agreements to reduce its
exposure to large losses in all aspects of its insurance business. Such
reinsurance permits recovery of a portion of losses from reinsurers,
although it does not discharge the primary liability of the Company as
direct insurer of the risks reinsured. The Company evaluates the financial
strength of potential reinsurers and continually monitors the financial
condition of reinsurers. Only those reinsurance recoverables deemed
probable of recovery are reflected as assets on the Company's Consolidated
Balance Sheets.
F-28
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
11. Reinsurance (Continued)
The following table includes premium amounts ceded/assumed to/from
affiliated companies as discussed in Note 10 above.
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
------ --------- --------- ------
(millions)
1996
Premiums:
Life Insurance $ 34.6 $ 11.2 $ 25.3 $ 48.7
Accident and Health Insurance 6.3 6.3 -- --
Annuities 84.3 -- 0.6 84.9
======= ======= ======= =======
Total earned premiums $ 125.2 $ 17.5 $ 25.9 $ 133.6
======= ======= ======= =======
1995
Premiums:
Life Insurance $ 28.8 $ 8.6 $ 28.0 $ 48.2
Accident and Health Insurance 7.5 7.5 -- --
Annuities 164.0 -- 0.5 164.5
======= ======= ======= =======
Total earned premiums $ 200.3 $ 16.1 $ 28.5 $ 212.7
======= ======= ======= =======
1994
Premiums:
Life Insurance $ 27.3 $ 6.0 $ 32.8 $ 54.1
Accident and Health Insurance 9.3 9.3 -- --
Annuities 137.3 -- 0.2 137.5
======= ======= ======= =======
Total earned premiums $ 173.9 $ 15.3 $ 33.0 $ 191.6
======= ======= ======= =======
12. Commitments and Contingent Liabilities
Commitments
Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a
specified future date and at a specified price or yield. The inability of
counterparties to honor these commitments may result in either higher or
lower replacement cost. Also, there is likely to be a change in the value
of the securities underlying the commitments. At December 31, 1996, the
Company had commitments to purchase investments of $17.9 million. The fair
value of the investments at December 31, 1996 approximated $18.3 million.
F-29
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
12. Commitments and Contingent Liabilities (Continued)
Litigation
The Company is involved in numerous lawsuits arising, for the most part, in
the ordinary course of its business operations. While the ultimate outcome
of litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related
reserves established, it is not expected to result in liability for amounts
material to the financial condition of the Company, although it may
adversely affect results of operations in future periods.
F-30
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
13. Segment Information (1)
The Company's operations are reported through two major business segments:
Financial Services and Individual Life Insurance.
Summarized financial information for the Company's principal operations was
as follows:
(Millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Revenue:
Financial Services $ 1,195.1 $ 1,211.3 $ 1,013.5
Individual Life Insurance 445.7 407.9 386.1
---------------------------------
Total revenue $ 1,640.8 $ 1,619.2 $ 1,399.6
- --------------------------------------------------------------------------------
Income before income taxes: (2)
Financial Services $ 129.9 $ 160.1 $ 122.5
Individual Life Insurance 83.0 103.1 98.4
---------------------------------
Total income before income taxes $ 212.9 $ 263.2 $ 220.9
- --------------------------------------------------------------------------------
Net income: (2)
Financial Services $ 94.3 $ 113.8 $ 85.5
Individual Life Insurance 55.9 62.1 59.8
---------------------------------
Net income $ 150.2 $ 175.9 $ 145.3
- --------------------------------------------------------------------------------
Assets under management: (3)
Financial Services $27,268.1 $22,534.4 $18,122.9
Individual Life Insurance 2,830.5 2,590.9 2,220.5
- --------------------------------------------------------------------------------
Total assets under management $30,098.6 $25,125.3 $20,343.4
- --------------------------------------------------------------------------------
(1) The 1996 results include severance and facilities charges of $30.7 million,
after tax. Of this charge $21.5 million related to the Financial Services
segment and $9.2 million related to the Individual Life Insurance segment.
(2) Excludes any effect of the corporate facilities and severance charge
recorded in 1996 which is not directly allocable to the Financial Services
and Individual Life Insurance segments. (Refer to Note 7).
(3) Excludes net unrealized capital gains (losses) of $366.4 million, $797.1
million and $(386.4) million at December 31, 1996, 1995 and 1994,
respectively.
F-31
<PAGE>
Form No. SAI.76002-97 ALIAC Ed. August 1997
<PAGE>
VARIABLE ANNUITY ACCOUNT B
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A, and as amended:
Condensed Financial Information
(2) Included in Part B:
Financial Statements of Variable Annuity Account B:
- Statement of Assets and Liabilities as of December 31,
1996
- Statements of Operations and Changes in Net Assets for the
years ended December 31, 1996 and 1995
- Notes to Financial Statements
- Independent Auditors' Report
Financial Statements of the Depositor:
- Independent Auditors' Report
- Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994
- Consolidated Balance Sheets as of December 31, 1996 and
1995
- Consolidated Statements of Changes in Shareholder's Equity
for the years ended December 31, 1996, 1995 and 1994
- Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
- Notes to Consolidated Financial Statements
(b) Exhibits
(1) Resolution of the Board of Directors of Aetna Life Insurance
and Annuity Company establishing Variable Annuity Account B(1)
(2) Not applicable
(3.1) Form of Broker-Dealer Agreement(2)
(3.2) Alternative Form of Wholesaling Agreement and Related Selling
Agreement(2)
(4) Form of Variable Annuity Contract (I-CDA-HI(NQ))
(5) Form of Variable Annuity Contract Application (707.00.1B)
(6.1) Certificate of Incorporation and By-Laws of Depositor(3)
(6.2) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(4)
(7) Not applicable
(8.1) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Janus Aspen Series dated April 19, 1994
and amended March 1, 1996(2)
(8.2) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Lexington Management Corporation regarding
Natural Resources Trust dated December 1, 1988 and amended
February 11, 1991(2)
(9) Opinion and Consent of Counsel
(10) Consent of Independent Auditors
(11) Not applicable
(12) Not applicable
(13) Computation of Performance Data(5)
(14) Not applicable
(15.1) Powers of Attorney(6)
(15.2) Authorizations for Signatures(2)
(27) Financial Data Schedule
1. Incorporated by reference to Post-Effective Amendment No. 6 to Registration
Statement on Form N-4 (File No. 33-75986), as filed electronically on April
22, 1996.
2. Incorporated by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-4 (File No. 33-75986), as filed electronically on April
12, 1996.
3. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-60477), as filed electronically on April
15, 1996.
4. Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-75964), as filed
electronically on February 11, 1997.
5. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-76002), as filed on April 28, 1995.
6. Incorporated by reference to Post-Effective Amendment No. 8 to Registration
Statement on Form S-6 (File No. 33-76004), as filed electronically on July
14, 1997.
<PAGE>
Item 25. Directors and Officers of the Depositor
Name and Principal
Business Address* Positions and Offices with Depositor
Daniel P. Kearney Director and President
Timothy A. Holt Director, Senior Vice President and Chief Financial
Officer
Christopher J. Burns Director and Senior Vice President
J. Scott Fox Director and Senior Vice President
John Y. Kim Director and Senior Vice President
Shaun P. Mathews Director and Vice President
Glen Salow Director and Vice President
Deborah Koltenuk Vice President and Treasurer, Corporate Controller
Frederick D. Kelsven Vice President and Chief Compliance Officer
Kirk P. Wickman Vice President, General Counsel and Secretary
* The principal business address of all directors and officers listed is
151 Farmington Avenue, Hartford, Connecticut 06156.
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated herein by reference to Item 25 of Post-Effective Amendment No.
22 to the Registration Statement on Form N-1A (File No. 33-41694), as filed
electronically on July 9, 1997.
Item 27. Number of Contract Owners
As of June 30, 1997, there were 53,749 individuals holding interests in
variable annuity contracts funded through Variable Annuity Account B.
<PAGE>
Item 28. Indemnification
Reference is hereby made to Section 33-771(f) of the Connecticut General
Statutes ("C.G.S.") regarding indemnification of directors and Section 33-776(4)
regarding indemnification of officers, employees and agents of Connecticut
corporations. These statutes provide in general that Connecticut corporations
incorporated prior to January 1, 1997 shall indemnify their officers, directors,
employees and agents against "liability" (defined as the obligation to pay a
judgment, settlement, penalty, fine, excise tax in the case of an employee
benefit plan or reasonable expenses incurred with respect to a proceeding). In
the case of a proceeding by or in the right of the corporation, indemnification
is limited to reasonable expenses incurred in connection with the proceeding
against the corporation to which the individual was named a party. The
corporation's obligation to provide such indemnification does not apply unless
(1) the individual has met the standard of conduct set forth in Section 33-771;
and (2) a determination is made (by majority vote of a quorum of the board of
directors who were not parties to the proceeding, or if a quorum cannot be
obtained, by a committee of the board selected as described in Section
33-775(b)(2); by special legal counsel selected by the board of directors or
members thereof as described in Section 33-775(b)(3); by shareholders) that the
individual met the standard set forth in Section 33-771; or (3) the court, upon
application by the individual, determines in view of all the circumstances that
such person is reasonably entitled to be indemnified. Also, unless limited by
its Certificate of Incorporation, a corporation must indemnify an individual who
was wholly successful on the merits or otherwise against reasonable expenses
incurred by him in connection with a proceeding to which he was a party because
of his relationship as director, officer, employee or agent of the corporation.
The statute does specifically authorize a corporation to procure indemnification
insurance on behalf of an individual who is or was a director, officer, employer
or agent of the corporation. Consistent with the statute, Aetna Inc. has
procured insurance from Lloyd's of London and several major United States excess
insurers for its directors and officers and the directors and officers of its
subsidiaries, including the Depositor.
Item 29. Principal Underwriter
(a) In addition to serving as the principal underwriter and depositor for
the Registrant, Aetna Life Insurance and Annuity Company (Aetna) also
acts as the investment adviser for Aetna Series Fund, Inc. and the
principal underwriter and investment adviser for Portfolio Partners,
Inc., Aetna Variable Encore Fund, Aetna Variable Fund, Aetna Generation
Portfolios, Inc., Aetna Income Shares, Aetna Investment Advisers Fund,
Inc., Aetna GET Fund, and Aetna Variable Portfolios, Inc. (all
management investment companies registered under the Investment Company
Act of 1940 (1940 Act)). Additionally, Aetna acts as the principal
underwriter and depositor for Variable Life Account B of Aetna,
Variable Annuity Account C of Aetna and Variable Annuity Account G of
Aetna (separate accounts of Aetna registered as unit investment trusts
under the 1940 Act). Aetna is also the principal underwriter for
Variable Annuity Account I of Aetna Insurance Company of America (AICA)
(a separate account of AICA registered as a unit investment trust under
the 1940 Act).
(b) See Item 25 regarding the Depositor.
(c) Compensation as of December 31, 1996:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation on
Principal Underwriter Discounts and Redemption or Brokerage
Commissions Annuitization Commissions Compensation*
<S> <C> <C> <C> <C>
Aetna Life Insurance $288,029 $17,661,810
and Annuity Company
</TABLE>
* Compensation shown in column 5 includes deductions for mortality and
expense risk guarantees and contract charges assessed to cover costs
incurred in the sales and administration of the contracts issued under
Variable Annuity Account B.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules under it relating to the securities
described in and issued under this Registration Statement are located at the
home office of the Depositor as follows:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Item 31. Management Services
Not applicable
Item 32. Undertakings
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement on
Form N-4 as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than
sixteen months old for as long as payments under the variable annuity
contracts may be accepted;
(b) to include as part of any application to purchase a contract offered by
a prospectus which is part of this registration statement on Form N-4,
a space that an applicant can check to request a Statement of
Additional Information; and
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
(d) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(e) Aetna Life Insurance and Annuity Company represents that the fees and
charges deducted under the contracts covered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed
by the insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Variable Annuity Account B of Aetna Life Insurance and
Annuity Company, certifies that it meets the requirements of Securities Act Rule
485(b) for effectiveness of this Post-Effective Amendment No. 8 to its
Registration Statement on Form N-4 (File No. 33-76002) and has caused this
Post-Effective Amendment No 8 to its Registration Statement on Form N-4 (File
No. 33-76002) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hartford, State of Connecticut, on the 14th day of
August, 1997.
VARIABLE ANNUITY ACCOUNT B OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)
By: AETNA LIFE INSURANCE AND ANNUITY COMPANY
(Depositor)
By: Daniel P. Kearney*
--------------------------------------
Daniel P. Kearney
President
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 8 to the Registration Statement on Form N-4 (File No. 33-76002) has been
signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
Daniel P. Kearney* Director and President )
- ------------------------- (principal executive officer) )
Daniel P. Kearney )
)
Timothy A. Holt* Director, Senior Vice President ) August
- ------------------------- and Chief Financial Officer )
Timothy A. Holt ) 14, 1997
)
Christopher J. Burns* Director )
- ------------------------- )
Christopher J. Burns )
)
J. Scott Fox* Director )
- ------------------------- )
J. Scott Fox )
)
John Y. Kim* Director )
- ------------------------- )
John Y. Kim )
<PAGE>
Shaun P. Mathews* Director )
- ------------------------- )
Shaun P. Mathews )
)
Glen Salow* Director )
- ------------------------- )
Glen Salow )
)
Deborah Koltenuk* Vice President and Treasurer, )
- ------------------------- Corporate Controller )
Deborah Koltenuk )
By: /s/ Julie E. Rockmore
--------------------------
Julie E. Rockmore
*Attorney-in-Fact
<PAGE>
VARIABLE ANNUITY ACCOUNT B
EXHIBIT INDEX
Exhibit No. Exhibit Page
99-B.1 Resolution of the Board of Directors of Aetna Life *
Insurance and Annuity Company establishing
Variable Annuity Account B
99-B.3.1 Form of Broker-Dealer Agreement *
99-B.3.2 Alternative Form of Wholesaling Agreement and Related *
Selling Agreement
99-B.4 Form of Variable Annuity Contract (I-CDA-HI(NQ))
_______
99-B.5 Form of Variable Annuity Contract Application (707.00.1B)
_______
99-B.6.1 Certificate of Incorporation and By-Laws of Depositor *
99-B.6.2 Amendment of Certificate of Incorporation of Aetna *
Life Insurance and Annuity Company
99-B.8.1 Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Janus Aspen
Series dated April 19, 1994 and amended March 1, 1996
99-B.8.2 Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Lexington
Management Corporation regarding Natural Resources
Trust dated December 1, 1988 and amended
February 11, 1991
99-B.9 Opinion and Consent of Counsel
_______
99-B.10 Consent of Independent Auditors
_______
99-B.13 Computation of Performance Data *
99-B.15.1 Powers of Attorney *
99-B.15.2 Authorizations for Signatures *
27 Financial Data Schedule
_______
*Incorporated by reference
Aetna Life Insurance and Annuity Company
Home Office: 151 FARMINGTON AVE.
HARTFORD, CONNECTICUT 06156
1-800-525-4225
Herein called Aetna
Agrees to pay the benefits stated in this Contract.
THE VARIABLE FEATURES OF THIS CONTRACT ARE DESCRIBED IN PARTS III AND IV.
RIGHT TO CANCEL
The Contract Owner may cancel this Contract within 10 days of receiving it, by
returning this Contract along with a written notice to Aetna at its Home Office.
Within 7 days after it receives the notice of cancellation and this Contract at
its Home Office, Aetna will return the entire consideration paid; plus any
increase or minus any decrease in the cash value of any funds allocated to the
Separate Accounts.
This page, the following pages, and the application make up the entire Contract.
Signed at the Home Office on the Effective Date.
/s/ Lucille M. Nickerson /s/ Dan Kearney
Secretary President
INDIVIDUAL VARIABLE, FIXED, OR COMBINATION ANNUITY CONTRACT
NON-PARTICIPATING
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT,
WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT,
ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
<PAGE>
SPECIFICATIONS
CONTRACT OWNER
CONTRACT NO.
EFFECTIVE DATE
THIS CONTRACT IS DELIVERED IN
AND IS SUBJECT TO THE LAWS OF THAT JURISDICTION
Guaranteed Interest Rate - There is a guaranteed interest rate for Purchase
Payment(s) held in the General Account. (See 3.02.)
Deductions from the Separate Account - There will be deductions for mortality
and expense risks and administrative fees. (See 3.05.)
Deduction from Purchase Payment(s) - Purchase Payment(s) are subject to a
deduction for premium taxes, if any. (See 3.01.)
This Contract is a legal contract and constitutes the entire legal relationship
between Aetna and the Contract Owner.
READ THIS CONTRACT CAREFULLY. This Contract sets forth, in detail, all of the
rights and obligations of both you and Aetna. IT IS THEREFORE IMPORTANT THAT YOU
READ THIS CONTRACT CAREFULLY.
2
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TABLE OF CONTENTS
Page
I. GENERAL DEFINITIONS
1.01. Annuitant ............................................................ 5
1.02. Annuity .............................................................. 5
1.03. Fixed Account ........................................................ 5
1.04. Fixed Annuity ........................................................ 5
1.05. Fund(s) .............................................................. 5
1.06. General Account ...................................................... 5
1.07. Purchase Payment(s) .................................................. 5
1.08. Separate Account ..................................................... 5
1.09. Valuation Period (Period) ............................................ 5
1.10. Variable Annuity ..................................................... 5
II. GENERAL PROVISIONS
2.01. Change of Contract ................................................... 6
2.02. Change of Fund(s) .................................................... 6
2.03. Nonparticipating Contract ............................................ 6
2.04. Payments ............................................................. 6
2.05. State Laws ........................................................... 6
2.06. Control of Contract .................................................. 6
2.07. Designation of Beneficiary ........................................... 7
2.08. Misstatements and Adjustments ........................................ 7
2.09. Incontestability ..................................................... 7
2.10. Grace Period ......................................................... 7
III. PURCHASE PAYMENT, CURRENT VALUE, AND SURRENDER PROVISIONS
3.01. Net Purchase Payment(s) .............................................. 8
3.02. Guaranteed Interest Rate -- Fixed Account ............................ 8
3.03. Maintenance Fee ...................................................... 8
3.04. Fund(s) Record Units -- Separate Account ............................. 8
3.05. Net Return Factor(s) -- Separate Account ............................. 8
3.06. Fund(s) Record Unit Value -- Separate Account ........................ 9
3.07. Current Value ........................................................ 9
3.08. Transfer of Current Value from the Funds ............................. 9
3.09. Transfer of Current Value from the Fixed Account ..................... 9
3.10. Notice to the Contract Owner ......................................... 9
3.11. Sum Payable at Death (Before Annuity Payments Start) ................. 9
3.12. Surrender Value ...................................................... 10
3.13. Payment of Surrender Value ........................................... 10
3.14. Table of Minimum Values .............................................. 11
3.15. Reinstatement ........................................................ 12
3.16. Payment of Current Value ............................................. 12
3
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IV. ANNUITY PROVISIONS
4.01. Choices to be Made ................................................... 13
4.02. Terms of Annuity Options ............................................. 13
4.03. Death of Annuitant/Beneficiary ....................................... 13
4.04. Fund(s) Annuity Units -- Separate Account ............................ 13
4.05. Fund(s) Annuity Unit Value -- Separate Account ....................... 14
4.06. Annuity Options ...................................................... 14
4
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I. GENERAL DEFINITIONS
1.01. Annuitant - A person on whose life an Annuity has been effected under
this Contract.
1.02. Annuity - Payment of an income:
(a) For the life of one or two persons;
(b) For a stated period, or amount; or
(c) For a combination of (a) and (b).
1.03. Fixed Account - An accumulation option with a guaranteed minimum interest
rate. Aetna may credit a higher rate which is not guaranteed.
1.04. Fixed Annuity - An Annuity with payments which do not vary in amount.
1.05. Fund(s) - The open-end registered management investment companies
(mutual funds) made available by Aetna under this Contract.
1.06. General Account - The Account holding the assets of Aetna, other than
those assets held in the Separate Account.
1.07. Purchase Payment(s) - Payment(s) made to Aetna.
1.08. Separate Account - Variable Annuity Account B is a separate account set
up by Aetna under the Connecticut Insurance Laws which purchases shares
of the Fund(s).
1.09. Valuation Period (Period) - The period of time from the end of one
business day on the New York Stock Exchange to the end of the next
business day.
1.10. Variable Annuity - An Annuity with payments which vary with the net
investment results of a Separate Account.
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II. GENERAL PROVISION
2.01. Change of Contract: Only an authorized officer of Aetna may change the
terms of this Contract. Aetna will notify the Contract Owner in writing
at least 30 days before the effective date of any change. Any change will
not affect the amount or terms of any Annuity which begins before the
change. Aetna may elect to discontinue accepting Purchase Payment(s)
under this Contract upon 30 days written notice to the Contract Owner.
The following provisions of this Contract will not be changed:
(a) Net Purchase Payment(s);
(b) Guaranteed Interest Rate - Fixed Account;
(c) Net Return Factor(s) - Separate Account;
(d) Current Value;
(e) Surrender Value;
(f) Fund(s) Annuity Unit Value - Separate Account;
(g) Annuity Options;
(h) Fixed Annuity minimum interest rate;
(i) Maximum transfer, maintenance, or surrender fees.
This Contract may also be changed as required by federal or state law.
2.02. Change of Fund(s): Aetna, or the Separate Account and the Fund(s), may:
(a) Change the Fund(s) which may be invested in by the Separate Account;
and
(b) Replace the shares of any Fund(s) held in the Separate Account with
shares of any other Fund(s).
Changes must be:
(a) Approved by a majority vote of persons having an interest in the
Separate Account and the Fund(s); or
(b) Deemed necessary by Aetna under the Investment Company Act of 1940;
or
(c) Deemed necessary by Aetna to accomplish the purpose of the Separate
Account.
Aetna will notify the Contract Owner of any change.
2.03. Nonparticipating Contract: The Contract Owner, Annuitant, or
beneficiaries will not have a right to share in the earnings of Aetna.
2.04. Payments: Aetna will make Annuity payments as and when due. Aetna will
make other payments within 7 days of receipt at its Home Office of a
written claim for payment which is in good order, except as provided in
3.13.
2.05. State Laws: This Contract complies with the laws of the state in which it
is delivered. Any cash, death, or Annuity payments are equal to or
greater than the minimum required by such laws. Annuity tables for legal
reserve valuation shall be as required by state law. Such tables may be
different from annuity tables used to determine Annuity payments.
2.06. Control of Contract: All rights in this Contract rest with the Contract
Owner. The Contract Owner owns all amounts held under this Contract. The
Contract Owner may make any choices allowed by this Contract. Choices
made under this Contract must be in writing. Until receipt of such
choices at its
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Home Office, Aetna may rely on any previous choices made
2.07. Designation of Beneficiary: The Contract Owner shall name the
beneficiary. The beneficiary may be changed at any time. Until receipt of
written notice of change of beneficiary, Aetna may rely upon the last
named beneficiary.
2.08. Misstatements and Adjustments: If Aetna finds the age, or any relevant
acts to be misstated, the correct facts will be used to adjust payments.
2.09. Incontestability: Aetna cannot cancel this Contract because of any error
of fact on the application.
2.10. Grace Period: This Contract will remain in effect even if Purchase
Payments are not continued.
7
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III. PURCHASE PAYMENT, CURRENT
VALUE, AND SURRENDER PROVISIONS
3.01. Net Purchase Payment(s): The actual Purchase Payment(s) less any premium
tax. As a rule, Aetna will deduct the premium tax when Annuity benefits
are purchased (see Part IV). If Aetna determines that it must pay a
premium tax when Purchase Payments are received or at any other time, it
will deduct the tax at that time. Aetna may elect to discontinue
accepting Purchase Payment(s) under this Contract upon 30 days' written
notice to the Contract Owner.
The Net Purchase Payment(s) will be credited to:
(a) The Fixed Account; or
(b) The Fund(s) in which the Separate Account invests.
Aetna must be told the percentage of the Net Purchase Payment(s) to be
applied to each investment above.
During any calendar year, Aetna may be told to change the investment mix
12 times if more than one Purchase Payment is made. Should Aetna allow
additional changes, each may be subject to a fee of up to $10.
3.02. Guaranteed Interest Rate - Fixed Account: On any Purchase Payment(s) made
to the Fixed Account, Aetna will add interest daily at any annual rate no
less than 4%. Aetna may add interest daily at any higher rate determined
by its Board of Directors.
3.03. Maintenance Fee: The Maintenance Fee, will be $15. The Maintenance Fee
will be deducted from the Current Value on the anniversary of the
Contract effective date and on surrender of the entire Contract.
3.04. Fund(s) Record Units - Separate Account: The portion of the Net Purchase
Payment(s) applied to the Separate Account will determine the number of
Fund(s) Record Units. This number is equal to the Net Purchase Payment(s)
divided by the Fund(s) Record Unit Value (see 3.06) for the Valuation
Period in which the Purchase Payment is received in good order.
3.05. Net Return Factor(s) - Separate Account: The Net Return Factors are used
to compute all Separate Account values and payments for any Fund.
The Net Return Factor for each Fund is equal to 1.0000000 plus the Net
Return Rate. The Net Return Rate is equal to:
(a) The value of the shares of the Fund held by the Separate Account at
the end of a Valuation Period; minus
(b) The value of the shares of the Fund held by the Separate Account at
the start of the Valuation Period; plus or minus
(c) Taxes (or reserves for taxes) on the Separate Account (if any);
divided by
(d) The total value of the Fund Record Units and Fund Annuity Units of
the Separate Account (see 3.06 and 4.05) at the start of the
Valuation Period; minus
(e) A daily actuarial charge at an annual rate of 1.25% for annuity
mortality and expense risks and profit; and a daily administrative
charge which will not exceed .25% on an annual basis.
A Net Return Rate may be more or less than 0.
The value of a share of the Fund is equal to the net assets of the Fund
divided by the number of shares outstanding.
The administrative charge may be changed annually except for amounts
which have been used to purchase an Annuity. This charge will not exceed
.25%.
8
<PAGE>
3.06. Fund(s) Record Unit Value - Separate Account: The Fund(s) Record Unit
Value is computed by multiplying the Net Return Factor for the current
Valuation Period by the Fund(s) Record Unit Value for the previous
Period. The dollar value of the Fund(s) Record Units, Separate Account
assets, and Variable Annuity payments may go up or down due to investment
gain or loss.
3.07. Current Value: The Current Value (of this Contract) is equal to:
(a) Any amounts in the Fixed Account, including Fixed Account interest
added by Aetna; plus
(b) The sum of any Separate Account Record Unit value(s); less
(c) Any Maintenance Fee(s) due.
Current Value does not include amounts used to purchase an Annuity.
3.08. Transfer of Current Value from the Funds: Before an Annuity Option is
elected, all or any portion of the Current Value may be transferred from
any Fund to any other Fund or to the Fixed Account.
Twelve transfers of Current Value can be made during a calendar year
period. Should Aetna allow additional changes, each may be subject to a
fee of up to $10.
3.09. Transfer of Current Value from the Fixed Account: 10% and/or less of the
Current Value held in the Fixed Account may be transferred to any
Fund(s). Such transfer will be:
(a) Without charge;
(b) Allowed once per calendar year;
(c) Not allowed under an annuity option.
Aetna may, on a temporary basis, allow any larger percent to be
transferred.
The Current Value of the Fixed Account, as used above, is the value when
the request is received at the Home Office of Aetna.
3.10. Notice to the Contract Owner: Aetna will notify the Contract Owner each
year of:
(a) The value of any amounts held in:
(1) The Fixed Account; and
(2) The Fund(s) for the Separate Account; and
(b) The number of any Fund(s) Record Units;
(c) The Fund(s) Record Unit Value(s); and
(d) The Surrender Value of these amounts.
Such number or values will be as of a date no more than 60 days before
the date of the notice.
3.11. Sum Payable at Death (Before Annuity Payments Start): Aetna will pay the
Current Value to the beneficiary if:
(a) The Contract Owner dies before Annuity payments start; and
(b) The notice of death is received in good order by Aetna.
The sum paid will be the Current Value on the date when the notice is
received at Aetna's Home Office. The amount paid from the Fixed Account
will not be less than the Net Purchase Payment(s) allocated to the Fixed
Account including Fixed Account interest added by Aetna (less any prior
transfers (see 3.09) or surrenders).
The following choices are available to any beneficiary subject to any
other terms and
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conditions of this contract and this section. The beneficiary may choose
to:
(a) Apply any sum to an Annuity Option (see Part IV). In no event may
payments to any beneficiary under an Annuity Option extend beyond the
life expectancy of the beneficiary or any period certain greater than
the beneficiary's life expectancy;
(b) Maintain the Contract, allocate or reallocate any amount to any of
the available investment options; or
(c) Receive a lump sum payment.
If the beneficiary is the surviving spouse, the beneficiary shall be
treated as the successor Contract Owner on Aetna's records. Such
successor Contract Owner may exercise all rights under the Contract.
If the beneficiary is not the surviving spouse, all of the Current Value
must either be applied to Annuity Options 2, 3 or 4 within one year of
the Contract Owner's death, or be paid to the beneficiary within 5 years
of the Contract Owner's death (see Part IV).
If no beneficiary exists, payment will be made to the estate of the
Contract Owner.
3.12. Surrender Value: The Surrender Value is equal to the Current Value less
the Maintenance Fee.
3.13. Payment of Surrender Value: Under certain emergency conditions, Aetna may
defer payment:
(a) For a period of up to 6 months (unless not allowed by state law); and
(b) As provided by federal law.
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3.14. Table of Minimum Values:
The values in the following Table only apply to Annual Purchase Payments
of exactly $1,000. Values would be different for other Purchase Payment
amounts, if Purchase Payments are not made when due, if partial
surrenders are made, or if Aetna adds interest at a rate greater than the
Guaranteed Interest Rate (see 3.02).
The Surrender Value assumes that a Purchase Payment of exactly $1,000 is
credited at the Guaranteed Interest Rate at the beginning of each
Contract year. An annual Maintenance Fee is deducted at the beginning of
each Contract year after the Contract effective date.
TABLE OF MINIMUM CONTRACT VALUES
PER $1,000 OF NET PURCHASE PAYMENTS
FOR THE FIXED ACCOUNT
Minimum Minimum
End of Minimum Surrender End of Minimum Surrender
Year Reserve Value Year Reserve Value
---- ------- ----- ---- ------- -----
1 $ 1,025 $ 1,025 16 $ 22,370 $ 22,370
2 2,091 2,091 17 24,290 24,290
3 3,200 3,200 18 26,287 26,287
4 4,353 4,353 19 28,363 28,363
5 5,552 5,552 20 30,523 30,523
6 6,799 6,799
7 8,096 8,096 25 42,687 42,687
8 9,445 9,445
9 10,897 10,897 30 57,487 57,487
10 12,306 12,306
11 13,824 13,824 35 75,494 75,494
12 15,401 15,401 40 97,401 97,401
13 17,043 17,043 45 124,055 124,055
14 18,749 18,749 50 156,484 156,484
15 20,524 20,524
11
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3.15. Reinstatement: All or a portion of the proceeds of a full surrender of
this Contract may be reinvested within 30 days after the surrender if
allowed by law. Any Maintenance Fee charged at the time of surrender will
be included in the reinstatement. Amounts will be reinstated among the
Fixed Account and the Separate Account in the same proportion as they
were at the time of surrender. The number of Record Units reinstated will
be based on the Record Unit Value(s) next computed after receipt at
Aetna's Home Office of the reinstatement request and the amount to be
reinvested.
Any Maintenance Fee which falls due after the surrender and before the
reinstatement will be deducted from the amount reinstated.
Reinstatement is permitted only once.
3.16. Payment of Current Value: Aetna may pay in a lump sum any Current Value
if Purchase Payment(s) have not been received for three full years and
the Current Value is less than $2,000. Such Current Value paid may not be
reinstated.
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IV. ANNUITY PROVISION
4.01. Choices to be Made: An Annuity Option may be elected by telling Aetna to
pay all or any portion of the Current Value (minus any premium tax) as a
premium for an Annuity under Option 2, 3, or 4 (see 4.06). The first
Annuity payment must generally be made no later than the first day of the
month following the Annuitant's 75th birthday.
When an Option is chosen, Aetna must also be told whether payments are to
be made other than monthly and to pay:
(a) A Fixed Annuity using the General Account; or
(b) A Variable Annuity using any of the Fund(s) made available by Aetna
for Annuity purposes; or
(c) A combination of (a) and (b).
If a Fixed Annuity is chosen, Aetna will add interest daily at an annual
rate no less than 3.5%. Aetna may add interest daily at any higher rate.
If a Variable Annuity is chosen, an Assumed Annual Net Return Rate of 5%
may be chosen. If not chosen, Aetna will use an Assumed Annual Net Return
Rate of 3.5%.
4.02. Terms of Annuity Options:
(a) When payments start, the age of the Annuitant plus the number of
years for which payments are guaranteed must not exceed 95.
(b) No choice of any Annuity Option may be made if the first payment
would be less than $20 or if the total payments in a year would be
less than $100.
(c) If a Fixed Annuity under Option 2, 3 or 4 is chosen and a larger
payment would result from applying the surrender value to a current
Aetna single premium immediate Annuity, Aetna will make the larger
payment.
(d) Age, where used in the following tables, means age on the birthday
closest to the date of the first payment.
(e) Assumed Annual Net Return Rate is the interest rate used to determine
the amount of the first annuity payment under a Variable Annuity. The
Separate Account must earn this rate plus enough to cover the
mortality and expense risk and administrative fee charges if future
Variable Annuity Payments are to remain level.
4.03. Death of Annuitant/Beneficiary: When an Annuitant dies any remaining
payments will be continued to the beneficiary. If the beneficiary is not
a person or persons, the present value of any remaining payments will be
paid in one sum. If no beneficiary exists, the present value of any
remaining payments will be paid in one sum to the estate of the
Annuitant.
If a beneficiary dies while under Option 1 or while receiving Annuity
payments, the present value of any remaining payments will be paid in one
sum to the estate of the beneficiary. The interest rate used to determine
the first payment will be used to calculate the present value.
4.04. Fund(s) Annuity Units - Separate Account: The number of Fund(s) Annuity
Units is based on the amount of the first Variable Annuity payment which
is equal to:
(a) The portion of the Current Value (minus any premium tax) applied to
pay a Variable Annuity; divided by
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(b) 1,000; times
(c) The payment rate for the Option chosen.
Such amount, or portion, of the variable payment will be divided by the
Fund(s) Annuity Unit Value (see 4.05) on the tenth Valuation Period
before the due date of the first payment to determine the number of
Fund(s) Annuity Units. The number of Fund(s) Annuity Units remains fixed.
Each future payment is equal to this number times the Fund(s) Annuity
Unit Value on the tenth Valuation Period prior to the due date of the
payment.
4.05. Fund(s) Annuity Unit Value - Separate Account: For any Valuation Period
the Fund(s) Annuity Unit Value is equal to:
(a) The Value for the previous Period; times
(b) The Net Return Factor(s) (see 3.05) for the Period; times
(c) A factor to reflect the Assumed Annual Net Return Rate.
The factor for 3.5% per year is .9999058; for 5% per year it is .9998663.
The dollar value of a Fund(s) Annuity Unit Values and payments may go up
or down due to investment gain or loss.
If Variable Annuity payments are not to decrease, Aetna must earn a gross
return on the assets of the Separate Account of:
[bullet] 4.75% on an annual basis, plus an annual return of up to .25%
needed to offset the administrative charge set at the time
Annuity payments commenced, if an Assumed Annual Net Return Rate
of 3.5% is chosen; or,
[bullet] 6.25% on an annual basis, plus an annual return of up to .25%
needed to offset the administrative charge set at the time
Annuity payments commence, if an Assumed Annual Net Return Rate
of 5% is chosen.
Payments shall not be changed due to changes in the mortality or expense
results or administrative charges.
4.06. Annuity Options:
Option 1 - Payment of Interest on Sum Left with Aetna - This Option may
be used only by the beneficiary when the Annuitant dies before Aetna has
started paying an Annuity. A portion or all of the sum paid upon death
may be held under this Option and will be held in the General Account of
Aetna at interest (see 4.01). The beneficiary may later tell Aetna to:
(a) Pay a portion, or all, of the sum held by Aetna; or
(b) Apply a portion, or all, of the sum held by Aetna to any Annuity
Option below.
If the beneficiary elects that some or all of the sum paid upon death is
to be held under this Option, the beneficiary must tell Aetna to pay the
full sum held under this Option within 5 years after the death of the
Contract Owner.
Option 2 - Payments for a Stated Period of Time - An Annuity will be paid
for the number of years chosen. The number of years must be at least 3
and not more than 30.
If payments for this Option are made under a Variable Annuity, the
present value of any remaining payments may be withdrawn at any time.
Option 3 - Life Income - An Annuity will be paid for the life of the
Annuitant. If also chosen, Aetna will guarantee payments for 60, 120,
180, or 240 months.
Option 4 - Life Income for Two Payees - An Annuity will be paid during
the lives of
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the Annuitant and a second Annuitant. At the death of either, payments
will continue to the survivor. When this Option is chosen, a choice must
be made of:
(a) 100% of the payment to continue to the survivor;
(b) 66-2/3% of the payment to continue to the survivor;
(c) 50% of the payment to continue to the survivor; or
(d) Payments for a minimum of 120 months, with 100% of the payment to
continue to the survivor.
(e) 100% of the payment to continue to the survivor if the survivor is
the Annuitant, and 50% of the payment to continue to the survivor if
the survivor is the second Annuitant.
Other Options - Aetna may make other options available as allowed by the
laws of the state in which this Contract is delivered.
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OPTION 2
PAYMENTS FOR A STATED PERIOD OF TIME
AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000
AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES
Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5%; and
Rates for a Variable Annuity with Assumed Net Return Rate of 3.5%
Years Amount of Years Amount of Years Amount of
of Payments Payments of Payments Payments of Payments Payments
- ----------- -------- ----------- -------- ----------- --------
3 $29.19 13 $7.94 22 $5.39
4 22.27 14 7.49 23 5.24
5 18.12 15 7.10 24 5.09
6 15.35 16 6.76 25 4.96
7 13.38 17 6.47 26 4.84
8 11.90 18 6.20 27 4.73
9 10.75 19 5.97 28 4.63
10 9.83 20 5.75 29 4.53
11 9.09 21 5.56 30 4.45
12 8.46
Rates for a Variable Annuity with Assumed Net Return Rate of 5%
Years Amount of Years Amount of Years Amount of
of Payments Payments of Payments Payments of Payments Payments
- ----------- -------- ----------- -------- ----------- --------
3 $29.80 13 $8.64 22 $6.17
4 22.89 14 8.20 23 6.02
5 18.74 15 7.82 24 5.88
6 15.99 16 7.49 25 5.76
7 14.02 17 7.20 26 5.65
8 12.56 18 6.94 27 5.54
9 11.42 19 6.71 28 5.45
10 10.51 20 6.51 29 5.36
11 9.77 21 6.33 30 5.28
12 9.16
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OPTION 3
LIFE INCOME
AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000
AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES
Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5%; and
Rates for a Variable Annuity with Assumed Net Return Rate of 3.5%
Payments Guaranteed for a Stated Period of Months
Age of
Annuitant None 60 120 180 240
--------- ---- -- --- --- ---
50 $4.34 $4.34 $4.31 $4.27 $4.22
51 4.41 4.40 4.38 4.33 4.27
52 4.48 4.47 4.45 4.40 4.32
53 4.56 4.55 4.52 4.46 4.38
54 4.64 4.63 4.59 4.53 4.44
55 4.72 4.71 4.67 4.60 4.50
56 4.81 4.80 4.75 4.67 4.56
57 4.91 4.89 4.84 4.75 4.62
58 5.01 4.99 4.93 4.83 4.69
59 5.12 5.10 5.03 4.92 4.75
60 5.23 5.21 5.13 5.00 4.82
61 5.36 5.33 5.24 5.09 4.88
62 5.49 5.45 5.35 5.19 4.95
63 5.63 5.59 5.47 5.28 5.02
64 5.78 5.73 5.60 5.38 5.08
65 5.94 5.89 5.73 5.48 5.15
66 6.11 6.05 5.87 5.58 5.21
67 6.29 6.22 6.02 5.69 5.27
68 6.49 6.41 6.17 5.79 5.33
69 6.70 6.60 6.33 5.90 5.38
70 6.92 6.81 6.49 6.00 5.43
71 7.17 7.04 6.66 6.10 5.48
72 7.43 7.27 6.84 6.20 5.52
73 7.71 7.53 7.02 6.30 5.55
74 8.02 7.80 7.20 6.39 5.59
75 8.35 8.08 7.38 6.48 5.62
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed on a
basis consistent with the rates in the above tables.
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OPTION 3
Life Income
Amount of First Monthly Payment for Each $1,000
After Deduction of any Charge for Premium Taxes
Rates for a Variable Annuity with Assumed Net Return Rate of 5.0%
Payments Guaranteed for a Stated Period of Months
Age of
Annuitant None 60 120 180 240
--------- ---- -- --- --- ---
50 $5.26 $5.25 $5.22 $5.17 $5.11
51 5.33 5.32 5.28 5.23 5.15
52 5.40 5.38 5.34 5.29 5.20
53 5.47 5.45 5.41 5.35 5.26
54 5.54 5.53 5.48 5.41 5.31
55 5.63 5.61 5.56 5.47 5.36
56 5.71 5.69 5.63 5.54 5.42
57 5.80 5.78 5.72 5.61 5.47
58 5.90 5.88 5.81 5.69 5.53
59 6.01 5.98 5.90 5.77 5.59
60 6.12 6.09 6.00 5.85 5.65
61 6.24 6.21 6.10 5.93 5.71
62 6.37 6.33 6.21 6.02 5.77
63 6.51 6.46 6.33 6.11 5.83
64 6.66 6.60 6.45 6.20 5.89
65 6.82 6.75 6.57 6.30 5.95
66 6.99 6.91 6.71 6.39 6.01
67 7.17 7.08 6.85 6.49 6.06
68 7.36 7.27 6.99 6.59 6.12
69 7.57 7.46 7.15 6.69 6.17
70 7.80 7.67 7.30 6.78 6.21
71 8.05 7.89 7.47 6.88 6.25
72 8.31 8.13 7.64 6.97 6.29
73 8.59 8.38 7.81 7.06 6.33
74 8.90 8.64 7.99 7.15 6.36
75 9.23 8.93 8.16 7.23 6.38
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed on a
basis consistent with the rates in the above tables.
18
<PAGE>
OPTION 4
LIFE INCOME FOR TWO PAYEES
JOINT AND LAST SURVIVOR ANNUITY
100% TO THE SURVIVOR
NO MINIMUM PERIOD
AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000
AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES
Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5%; and
Rates for a Variable Annuity with Assumed Net Return Rate of 3.5%
Age Age of Second Annuitant
of Male
Annuitant 45 50 55 60 65 70 75 80 85
- --------- ----- ----- ----- ----- ----- ----- ----- ----- -----
45 $3.69 $3.75 $3.81 $3.84 $3.87 $3.90 $3.91 $3.92 $3.92
50 3.75 3.89 3.97 4.04 4.09 4.13 4.15 4.17 4.18
55 3.81 3.97 4.16 4.27 4.35 4.42 4.47 4.50 4.51
60 3.84 4.04 4.27 4.51 4.66 4.78 4.86 4.92 4.95
65 3.87 4.09 4.35 4.66 4.99 5.19 5.35 5.46 5.53
70 3.90 4.13 4.42 4.78 5.19 5.67 5.95 6.17 6.31
75 3.91 4.15 4.47 4.86 5.35 5.95 6.64 7.04 7.34
80 3.92 4.17 4.50 4.92 5.46 6.17 7.04 8.04 8.63
85 3.92 4.18 4.51 4.95 5.53 6.31 7.34 8.63 10.05
Rates for a Variable Annuity with Assumed Net Return Rate of 5%
Age Age of Second Annuitant
of Male
Annuitant 45 50 55 60 65 70 75 80 85
- --------- ----- ----- ----- ----- ----- ----- ----- ----- -----
45 $4.63 $4.68 $4.73 $4.77 $4.80 $4.82 $4.84 $4.85 $4.86
50 4.68 4.80 4.88 4.95 5.00 5.04 5.06 5.08 5.10
55 4.73 4.88 5.04 5.15 5.24 5.30 5.35 5.39 5.41
60 4.77 4.95 5.15 5.37 5.52 5.63 5.72 5.79 5.83
65 4.80 5.00 5.24 5.52 5.83 6.04 6.20 6.31 6.39
70 4.82 5.04 5.30 5.63 6.04 6.49 6.77 6.99 7.15
75 4.84 5.06 5.35 5.72 6.20 6.77 7.45 7.86 8.16
80 4.85 5.08 5.39 5.79 6.31 6.99 7.86 8.84 9.43
85 4.86 5.10 5.41 5.83 6.39 7.15 8.16 9.43 10.86
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed on a
basis consistent with the rates in the above tables.
19
<PAGE>
OPTION 4
LIFE INCOME FOR TWO PAYEES
JOINT AND LAST SURVIVOR ANNUITY
66-2/3% TO THE SURVIVOR
NO MINIMUM PERIOD
AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000
AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES
Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5%; and
Rates for a Variable Annuity with Assumed Net Return Rate of 3.5%
Age Age of Second Annuitant
of
Annuitant 45 50 55 60 65 70 75 80 85
- --------- ----- ----- ----- ----- ----- ----- ----- ----- -----
45 $3.94 $4.05 $4.18 4.32 $4.48 $4.66 $4.84 $5.02 $5.19
50 4.05 4.20 4.35 4.51 4.69 4.89 5.09 5.30 5.49
55 4.18 4.35 4.54 4.73 4.95 5.18 5.42 5.65 5.87
60 4.32 4.51 4.73 4.99 5.25 5.53 5.82 6.11 6.37
65 4.48 4.69 4.95 5.25 5.61 5.97 6.33 6.69 7.02
70 4.66 4.89 5.18 5.53 5.97 6.49 6.96 7.43 7.88
75 4.84 5.09 5.42 5.82 6.33 6.96 7.73 8.39 9.02
80 5.02 5.30 5.65 6.11 6.69 7.43 8.39 9.54 10.46
85 5.19 5.49 5.87 6.37 7.02 7.88 9.02 10.46 12.15
Rates for a Variable Annuity with Assumed Net Return Rate of 5%
Age Age of Second Annuitant
of
Annuitant 45 50 55 60 65 70 75 80 85
- --------- ----- ----- ----- ----- ----- ----- ----- ----- -----
45 $4.87 $4.99 $5.12 $5.27 $5.44 $5.64 $5.86 $6.09 $6.30
50 4.99 5.12 5.26 5.43 5.63 5.85 6.09 6.33 6.57
55 5.12 5.26 5.44 5.63 5.85 6.11 6.38 6.65 6.92
60 5.27 5.43 5.63 5.87 6.14 6.44 6.75 7.07 7.38
65 5.44 5.63 5.85 6.14 6.49 6.84 7.23 7.62 8.00
70 5.64 5.85 6.11 6.44 6.84 7.35 7.84 8.34 8.83
75 5.86 6.09 6.38 6.75 7.23 7.84 8.60 9.28 9.93
80 6.09 6.33 6.65 7.07 7.62 8.34 9.28 10.42 11.35
85 6.30 6.57 6.92 7.38 8.00 8.83 9.93 11.35 13.04
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed on a
basis consistent with the rates in the above tables.
20
<PAGE>
OPTION 4
LIFE INCOME FOR TWO PAYEES
JOINT AND LAST SURVIVOR ANNUITY
50% TO THE SURVIVOR
NO MINIMUM PERIOD
AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000
AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES
Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5%; and
Rates for a Variable Annuity with Assumed Net Return Rate of 3.5%
Age Age of Second Annuitant
of
Annuitant 45 50 55 60 65 70 75 80 85
- --------- ----- ----- ----- ----- ----- ----- ----- ----- -----
45 $4.07 $4.22 $4.40 $4.61 $4.87 $5.17 $5.49 $5.84 $6.18
50 4.22 4.37 4.56 4.79 5.06 5.39 5.75 6.13 6.51
55 4.40 4.56 4.76 5.00 5.31 5.66 6.06 6.49 6.91
60 4.61 4.79 5.00 5.27 5.61 6.01 6.46 6.95 7.43
65 4.87 5.06 5.31 5.61 5.99 6.44 6.96 7.54 8.11
70 5.17 5.39 5.66 6.01 6.44 6.99 7.61 8.29 9.00
75 5.49 5.75 6.06 6.46 6.96 7.61 8.43 9.29 10.17
80 5.84 6.13 6.49 6.95 7.54 8.29 9.29 10.54 11.71
85 6.18 6.51 6.91 7.43 8.11 9.00 10.17 11.71 13.57
Rates for a Variable Annuity with Assumed Net Return Rate of 5%
Age Age of Second Annuitant
of
Annuitant 45 50 55 60 65 70 75 80 85
- --------- ----- ----- ----- ----- ----- ----- ----- ----- -----
45 $5.01 $5.15 $5.33 $5.56 $5.83 $6.17 $6.55 $6.98 $7.40
50 5.15 5.29 5.48 5.71 6.01 6.36 6.78 7.32 7.68
55 5.33 5.48 5.66 5.91 6.23 6.61 7.05 7.54 8.05
60 5.56 5.71 5.91 6.16 6.51 6.93 7.42 7.96 8.53
65 5.83 6.01 6.23 6.51 6.87 7.34 7.89 8.51 9.16
70 6.17 6.36 6.61 6.93 7.34 7.87 8.51 9.23 10.00
75 6.55 6.78 7.05 7.42 7.89 8.51 9.33 10.20 11.14
80 6.98 7.23 7.54 7.96 8.51 9.23 10.20 11.44 12.64
85 7.40 7.68 8.05 8.53 9.16 10.00 11.14 12.64 14.51
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed on a
basis consistent with the rates in the above tables.
21
<PAGE>
OPTION 4
LIFE INCOME FOR TWO PAYEES
JOINT AND LAST SURVIVOR ANNUITY
100% TO THE SURVIVOR
120 MONTHS MINIMUM PERIOD
AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000
AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES
Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5%; and
Rates for a Variable Annuity with Assumed Net Return Rate of 3.5%
Age Age of Second Annuitant
of
Annuitant 45 50 55 60 65 70 75 80 85
- --------- ----- ----- ----- ----- ----- ----- ----- ----- -----
45 $3.69 $3.75 $3.80 $3.84 $3.87 $3.89 $3.91 $3.91 $3.92
50 3.75 3.89 3.97 4.04 4.09 4.13 4.15 4.16 4.17
55 3.80 3.97 4.15 4.26 4.35 4.41 4.46 4.48 4.49
60 3.84 4.04 4.26 4.50 4.65 4.78 4.84 4.89 4.91
65 3.87 4.09 4.35 4.65 4.98 5.17 5.31 5.41 5.46
70 3.89 4.13 4.41 4.76 5.17 5.62 5.87 6.05 6.15
75 3.91 4.15 4.46 4.84 5.31 5.87 6.48 6.79 6.98
80 3.91 4.16 4.48 4.89 5.41 6.05 6.79 7.50 7.83
85 3.92 4.17 4.49 4.91 5.46 6.15 6.98 7.83 8.50
Rates for a Variable Annuity with Assumed Net Return Rate of 5%
Age Age of Second Annuitant
of
Annuitant 45 50 55 60 65 70 75 80 85
- --------- ----- ----- ----- ----- ----- ----- ----- ----- -----
45 $4.63 $4.68 $4.73 $4.77 $4.80 $4.82 $4.84 $4.85 $4.85
50 4.68 4.80 4.88 4.94 4.99 5.03 5.06 5.07 5.08
55 4.73 4.88 5.04 5.14 5.23 5.29 5.34 5.37 5.38
60 4.77 4.94 5.14 5.37 5.51 5.62 5.70 5.75 5.78
65 4.80 4.99 5.23 5.51 5.82 6.00 6.15 6.24 6.30
70 4.82 5.03 5.29 5.62 6.00 6.44 6.68 6.86 6.96
75 4.84 5.06 5.34 5.70 6.15 6.68 7.27 7.57 7.76
80 4.85 5.07 5.37 5.75 6.24 6.86 7.57 8.26 8.58
85 4.85 5.08 5.38 5.78 6.30 6.96 7.76 8.58 9.23
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed on a
basis consistent with the rates in the above tables.
22
<PAGE>
OPTION 4
LIFE INCOME FOR TWO PAYEES
JOINT AND 1/2 CONTINGENT LIFE INCOME ANNUITY
NO MINIMUM PERIOD
AMOUNT OF FIRST MONTHLY PAYMENT FOR EACH $1,000
AFTER DEDUCTION OF ANY CHARGE FOR PREMIUM TAXES
Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.5%; and
Rates for a Variable Annuity with Assumed Net Return Rate of 3.5%
Age Age of Second Annuitant
of
Annuitant 45 50 55 60 65 70 75 80 85
- --------- ----- ----- ----- ----- ----- ----- ----- ----- -----
45 $3.86 $3.89 $3.93 $3.94 $3.96 $3.97 $3.98 $3.98 $3.98
50 4.02 4.10 4.15 4.18 4.21 4.23 4.24 4.25 4.26
55 4.22 4.31 4.42 4.48 4.53 4.57 4.59 4.61 4.61
60 4.43 4.56 4.70 4.84 4.93 4.99 5.04 5.07 5.09
65 4.69 4.84 5.02 5.22 5.42 5.54 5.63 5.69 5.73
70 4.99 5.17 5.39 5.65 5.93 6.23 6.40 6.52 6.60
75 5.33 5.54 5.82 6.14 6.52 6.95 7.40 7.64 7.81
80 5.70 5.96 6.29 6.69 7.17 7.75 8.41 9.08 9.45
85 6.07 6.38 6.75 7.24 7.84 8.59 9.49 10.51 11.50
Rates for a Variable Annuity with Assumed Net Return Rate of 5%
Age Age of Second Annuitant
of
Annuitant 45 50 55 60 65 70 75 80 85
- --------- ----- ----- ----- ----- ----- ----- ----- ----- -----
45 $4.80 $4.83 $4.86 $4.88 $4.89 $4.90 $4.91 $4.92 $4.92
50 4.95 5.02 5.06 5.10 5.13 5.15 5.16 5.17 5.18
55 5.14 5.23 5.32 5.38 5.43 5.46 5.49 5.51 5.52
60 5.36 5.47 5.59 5.72 5.80 5.86 5.91 5.95 5.97
65 5.63 5.77 5.93 6.10 6.29 6.41 6.50 6.56 6.60
70 5.96 6.12 6.31 6.54 6.81 7.08 7.25 7.37 7.46
75 6.35 6.54 6.77 7.06 7.42 7.81 8.25 8.49 8.66
80 6.79 7.01 7.30 7.66 8.11 8.65 9.28 9.93 10.21
85 7.26 7.53 7.86 8.29 8.85 9.55 10.41 11.39 12.37
These Annuity rates are based on mortality from 1983 Table a.
23
<PAGE>
Aetna Life Insurance and Annuity Company
Home Office: 151 FARMINGTON AVE.
HARTFORD, CONNECTICUT 06156
1-800-525-4225
INDIVIDUAL VARIABLE, FIXED, OR COMBINATION ANNUITY CONTRACT
NONPARTICIPATING
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT,
WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT,
ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
Individual Application Aetna Life Insurance and Annuity Company
for Nonqualified Deferred 151 Farmington Avenue
Annuity Contract Hartford, CT 06156-8383
1-800-525-4225
<TABLE>
____________________________________________________________________________________________________________________________
<S> <C>
Customer Information Name (Last, First, Middle Initial) | Social Security Number
|
_____________________________________________|_________________________________________________
Address (Street, City, State, ZIP Code)
_______________________________________________________________________________________________
Date of Birth | Marital Status | [ ] Male |Telephone Number [ ] Home or [ ] Work
| [ ] M [ ] S | [ ] Female |
________________|___________________|_____________|____________________________________________
Aetna Employee Number | Planned Retirement | Annual Income | U.S. Citizen [ ] Yes [ ] No
| Age | | If no, please specify:
____________________________________________________|____________________|________________|_________________________________
Account Information Monthly Installment Payment Amount $________ (Minimum amount is $50; maximum $999.99)
This payment will be made by payroll deduction. This request must be accompanied by a properly
completed Payroll Deduction Authorization form.
_______________________________________________________________________________________________
Single Payment Amount $______________________
An additional payment of at least $500 may be made at the same time as the initial installment
or at any time during the accumulation period of the annuity. For amounts of $5,000 or more,
dollar cost averaging is available. Please call 1-800-525-4225 for more information.
_______________________________________________________________________________________________
Will this contract change or replace any existing life insurance or annuity contracts?
[ ] No [ ] Yes
Cost Basis in Transferred Funds $______________
____________________________________________________________________________________________________________________________
Investment Options ____% Aetna Variable Fund (Growth & Income)
____% Aetna Fixed Account
Investment allocations are ____% Aetna Variable Encore Fund (Money Market)
in whole percentages and ____% Aetna Income Shares (Bond)
must total 100%. ____% Aetna Investment Advisers Fund, Inc. (Managed)
____% Neuberger & Berman Advisers Management Trust (Growth)
____% Lexington Natural Resources Trust
____% Scudder Variable Life Investment Fund (International)
____% TCI Growth (Capital Growth)
____% Alger American Small Cap Portfolio
____% Other ________________
____% Other ________________
____% Other ________________
____% Other ________________
100 % Total
____________________________________________________________________________________________________________________________
Beneficiary Indicate primary or contingent beneficiary. Attach separate sheet for additional beneficiaries.
Designation _______________________________________________________________________________________________
Primary | Relationship | Social Security Number
| |
__________________________________|__________________________________|_________________________
[ ] Primary or [ ] Contingent | Relationship | Social Security Number
| |
__________________________________|__________________________________|_________________________
[ ] Primary or [ ] Contingent | Relationship | Social Security Number
| |
| |
<PAGE>
____________________________________________________________________________________________________________________________
Variable Annuity Contract Before entering into this Contract, please read the following information carefully:
Explanation
1. This variable annuity Contract is intended to be used for long term accumulation for
retirement.
2. Variable benefits cannot be predicted or guaranteed as to dollar amount.
3. A periodic deduction is made from the variable portion of Contract values for investment
See the prospectus managementfor expenses and the mortality and expense risk charges.
complete details. 4. A maintenance fee will be deducted from the value of an installment Contract each year.
5. Once annuity payments begin, they can be stopped only if provided for in the Contract.
____________________________________________________________________________________________________________________________
Additional Information [bullet] The National Association of Securities Dealers, Inc. (NASD) requires that the sales
representative must have reason to believe that this contract is suitable for the
participant. The sales representative must rely on information provided by the
participant as shown on this form and any other information available.
[bullet] Corrections: Errors and omissions may be corrected by the Company but no change in
plan, age at issue, birthdate, payment amount, investment allocation or change of
investment allocation may be made without written consent of the owner. (Not
applicable in W. Va.)
____________________________________________________________________________________________________________________________
Signature
I understand that any payments and termination values provided by the Contract, when based on
investment experience of a Separate Account, are variable and are not guaranteed as to a fixed
Please read this section dollar amount. However, fixed and/or General Account funds will not vary and are guaranteed as
carefully before signing to a fixed dollar amount.
I represent that this information is correct and complete and that, under penalties of perjury,
the number shown on this form is my correct Social Security Number.
I have received the prospectus dated ___________________ and all current prospectuses
pertaining to all of the investment options under the contract.
[ ] I wish to receive a Statement of Additional Information for Prospectus 707.00.1-4.
_______________________________________________________________________________________________
Signature of Contract Holder
_______________________________________________________________________________________________
City and State | Date
_________________________________________________________________________________|__________________________________________
Producer's Note Do you have any reason to believe any existing insurance or annuity contracts will be modified
or replaced if this contract is issued? [ ] Yes [ ] No
(Applicable only in
FL and NC) I have reviewed the details of the client's retirement program during the solicitation of the
application, and believe the Contract applied for is suitable for that program.
Signature of Producer/Agent __________________________________________ Date ___________________
Print Name ______________________________________________ License ID No. ______________________
____________________________________________________________________________________________________________________________
Aetna Use Only Producer Name | Producer Code | Aetna Office Code
Producer information | |
for FL & NC only | |
________________________________|___________________________________|__________________________
Contract No ....................| Mdl. ............................ | Area ....................
Accepted: Eff. Date ......................| Premium ......................... | State ...................
________________________________|___________________________________|__________________________
Corrections: | |
| |
</TABLE>
[Aetna Letterhead]
[Aetna Logo] 151 Farmington Avenue
Hartford, CT 06156
Julie E. Rockmore
Counsel
Law Division, RE4A
August 14, 1997 Investments & Financial Services
(860) 273-4686
Fax: (860) 273-8340
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Aetna Life Insurance and Annuity Company and its Variable Annuity Account B
Post-Effective Amendment No. 8 to Registration Statement on Form N-4
Prospectus Title: Aextra Assets - Individual Variable Annuity
Contracts Made Available to Individuals Who Wish to Supplement their
Retirement Income
File Nos. 33-76002 and 811-2512
Dear Sir or Madam:
The undersigned serves as counsel to Aetna Life Insurance and Annuity Company, a
Connecticut life insurance company (the "Company"). It is my understanding that
the Company, as depositor, has registered an indefinite amount of securities
(the "Securities") under the Securities Act of 1933 (the "Securities Act") as
provided in Rule 24f-2 under the Investment Company Act of 1940 (the "Investment
Company Act").
In connection with this opinion, I have reviewed the N-4 Registration Statement,
as amended to the date hereof, and this Post-Effective Amendment No. 8. I have
also examined originals or copies, certified or otherwise identified to my
satisfaction, of such documents, trust records and other instruments I have
deemed necessary or appropriate for the purpose of rendering this opinion. For
purposes of such examination, I have assumed the genuineness of all signatures
on original documents and the conformity to the original of all copies.
I am admitted to practice law in Connecticut, and do not purport to be an expert
on the laws of any other state. My opinion herein as to any other law is based
upon a limited inquiry thereof which I have deemed appropriate under the
circumstances.
<PAGE>
Based upon the foregoing, and, assuming the Securities are sold in accordance
with the provisions of the prospectus, I am of the opinion that the Securities
being registered will be legally issued and will represent binding obligations
of the Company.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Julie E. Rockmore
Julie E. Rockmore
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of Aetna Life Insurance and Annuity Company and Contract
Owners of Aetna Variable Annuity Account B:
We consent to the use of our reports dated February 4, 1997 and February 14,
1997 included in the registration statement (No. 33-76002) on Form N-4 and to
the references to our Firm under the captions "Condensed Financial Information"
in the Prospectus and "Independent Auditors" in the Statement of Additional
Information.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
August 14, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000103005
<NAME> Aetna Variable Annuity Account B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1,726,620,671
<INVESTMENTS-AT-VALUE> 1,848,811,724
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,848,811,724
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,848,811,724
<DIVIDEND-INCOME> 120,367,178
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 17,483,870
<NET-INVESTMENT-INCOME> 102,883,308
<REALIZED-GAINS-CURRENT> 17,427,408
<APPREC-INCREASE-CURRENT> 93,444,109
<NET-CHANGE-FROM-OPS> 213,754,825
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
