VARIABLE ANNUITY ACCOUNT B OF AETNA LIFE INS & ANNUITY CO
485BPOS, 1998-04-15
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As filed with the Securities and Exchange          Registration No. 33-88722
Commission on April 15, 1998                       Registration No. 811-2512

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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM N-4

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

                        POST-EFFECTIVE AMENDMENT NO. 7 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 May 1, 1998 pursuant to paragraph (b) of Rule 485



<PAGE>



                           VARIABLE ANNUITY ACCOUNT B
                              CROSS REFERENCE SHEET


FORM
N-4
ITEM
NO.                   PART A (PROSPECTUS)                    LOCATION

    1     Cover Page............................   Cover Page

    2     Definitions...........................   Definitions

    3     Synopsis..............................   Prospectus Summary; Fee
                                                   Table

    4     Condensed Financial Information.......   Condensed Financial
                                                   Information

    5     General Description of Registrant,
          Depositor, and Portfolio Companies....   The Company; Variable Annuity
                                                   Account B; The Funds

    6     Deductions and Expenses...............   Charges and Deductions;
                                                   Distribution

    7     General Description of Variable
          Annuity Contracts.....................   Purchase; Miscellaneous

    8     Annuity Period........................   Annuity Period

    9     Death Benefit.........................   Death Benefit During
                                                   Accumulation Period; Death
                                                   Benefit Payable During
                                                   the Annuity Period

   10     Purchases and Contract Value..........   Purchase; Contract Valuation

   11     Redemptions...........................   Right to Cancel; Withdrawals

   12     Taxes.................................   Tax Status

   13     Legal Proceedings ....................   Miscellaneous - Legal Matters
                                                   and Proceedings

   14     Table of Contents of the Statement       Contents of the Statement of
          of Additional Information.............   Additional Information


<PAGE>


FORM
N-4
ITEM
NO.  PART B (STATEMENT OF ADDITIONAL INFORMATION)     LOCATION

   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

                           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>


                                  PROSPECTUS
===============================================================================

The Contracts offered in connection with this Prospectus are group deferred
variable annuity contracts ("Contracts") issued by Aetna Life Insurance and
Annuity Company (the "Company"). The Contracts are designed for use in
connection with retirement programs for select management and highly
compensated healthcare employees in plans formerly carried under certain
hospital association endorsements ("Plans"). Such Plans may be (1)
employer-sponsored deferred compensation plans sponsored by tax-exempt
organizations for deferrals not subject to Section 457 of the Internal Revenue
Code of 1986, as amended ("Code") or by taxable organizations for their
employees and/or independent contractors ("Non-Section 457 Plans"); or (2)
employer-sponsored deferred compensation plans sponsored by tax-exempt
organizations for deferrals that are subject to Code Section 457 for their
employees and/or independent contractors ("Section 457 Plans").

The Contracts provide that contributions may be allocated to one or more of the
Credited Interest Options or to one or more of the Subaccounts of Variable
Annuity Account B, a separate account of the Company. The Subaccounts invest
directly in shares of the following Funds:

   
[bullet] Aetna Ascent VP (formerly Aetna Ascent Variable Portfolio)
[bullet] Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers
         Fund, Inc.)
[bullet] Aetna Income Shares d/b/a Aetna Bond VP
[bullet] Aetna Crossroads VP (formerly Aetna Crossroads Variable Portfolio)
[bullet] Aetna Growth VP (formerly Aetna Variable Growth Portfolio)
[bullet] Aetna Variable Fund d/b/a Aetna Growth and Income VP
[bullet] Aetna High Yield VP
[bullet] Aetna Index Plus Large Cap VP (formerly Aetna Variable Index Plus
         Portfolio)
[bullet] Aetna Index Plus Mid Cap VP
[bullet] Aetna Index Plus Small Cap VP
[bullet] Aetna International VP
[bullet] Aetna Legacy VP (formerly Aetna Legacy Variable Portfolio)
[bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP
[bullet] Aetna Real Estate Securities VP
[bullet] Aetna Small Company VP (formerly Aetna Variable Small Company 
         Portfolio)
[bullet] Aetna Value Opportunity VP (formerly Aetna Variable Capital
         Appreciation Portfolio)
[bullet] Calvert Social Balanced Portfolio (formerly Calvert Responsibly
         Invested Portfolio)
[bullet] Fidelity VIP Equity-Income Portfolio
[bullet] Fidelity VIP Growth Portfolio
[bullet] Fidelity VIP Overseas Portfolio
[bullet] Fidelity VIP II Contrafund Portfolio
[bullet] Janus Aspen Aggressive Growth Portfolio
[bullet] Janus Aspen Balanced Portfolio
[bullet] Janus Aspen Flexible Income Portfolio
[bullet] Janus Aspen Growth Portfolio
[bullet] Janus Aspen Worldwide Growth Portfolio
[bullet] Lexington Natural Resources Trust*
[bullet] Oppenheimer Global Securities Fund
[bullet] Oppenheimer Strategic Bond Fund
[bullet] Portfolio Partners MFS Emerging Equities Portfolio
[bullet] Portfolio Partners MFS Research Growth Portfolio
[bullet] Portfolio Partners MFS Value Equity Portfolio
[bullet] Portfolio Partners Scudder International Growth Portfolio
[bullet] Portfolio Partners T. Rowe Price Growth Equity Portfolio

*This Fund is only available for investment by Participants who established an
Account under the Contract before May 1, 1998. As soon as all such Participants
have redirected their allocations to other investment options, the Fund will be
closed to all new investment (except reinvested dividends and capital gains
earned on amounts already invested in the Fund through the Separate Account and
loan repayments automatically deposited into the Fund pursuant to the Company's
loan repayment procedures).
    

The Credited Interest Options currently available under the Contract are the
Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account.
Except as specifically mentioned, this Prospectus describes only investments
through the Separate Account. A brief description of each of the Credited
Interest Options is contained in Appendices to this Prospectus. Additional
information concerning the Guaranteed Accumulation Account is contained in a
separate prospectus.

The availability of the Funds and the Credited Interest Options is subject to
applicable regulatory authorization. Not all Funds or Credited Interest Options
may be available in all jurisdictions, under all Contracts, or in all Plans.
Please check with your employer to determine option availability. (See
"Investment Options.")

   
This Prospectus provides investors with the information that they should know
about the Separate Account before investing in the Contract. Additional
information about the Separate Account is contained in a Statement of
Additional Information ("SAI") which is available at no charge. The SAI has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The Table of Contents for the SAI is printed on page 19 of
this Prospectus. An SAI may be obtained by indicating the request on the
enrollment form or on the prospectus receipt contained in this Prospectus, or
by calling the number listed under the "Inquiries" section of the Prospectus
Summary. You may also obtain an SAI for any of the Funds by calling that phone
number.
    

THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS AND GUARANTEED ACCUMULATION ACCOUNT. ALL PROSPECTUSES SHOULD BE READ
AND RETAINED FOR FUTURE REFERENCE.

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.

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

   
     THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED
                                  MAY 1, 1998.
    
 
<PAGE>

   
                               TABLE OF CONTENTS
===============================================================================

DEFINITIONS ................................................. DEFINITIONS - 1
PROSPECTUS SUMMARY ..........................................     SUMMARY - 1
FEE TABLE ...................................................   FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION ..........................................  1
THE COMPANY ..............................................................  1
VARIABLE ANNUITY ACCOUNT B ...............................................  1
INVESTMENT OPTIONS .......................................................  1
  The Funds ..............................................................  1
  Credited Interest Options ..............................................  4
PURCHASE .................................................................  5
  Contract Availability ..................................................  5
  Contract Purchase ......................................................  5
  Purchase Payments ......................................................  5
  Allocation of Purchase Payments ........................................  6
  Right to Cancel ........................................................  6
  Transfer Credits .......................................................  6
CHARGES AND DEDUCTIONS ...................................................  6
  Daily Deductions from the Separate Account .............................  6
  Deferred Sales Charge ..................................................  7
  Fund Expenses ..........................................................  8
  Premium and Other Taxes ................................................  8
CONTRACT VALUATION .......................................................  8
  Account Value ..........................................................  8
  Accumulation Units .....................................................  8
  Net Investment Factor ..................................................  9
TRANSFERS ................................................................  9
  Telephone Transfer ....................................................   9
  Dollar Cost Averaging Program ..........................................  9
WITHDRAWALS .............................................................. 10
SYSTEMATIC DISTRIBUTION OPTIONS .......................................... 10
DEATH BENEFIT DURING ACCUMULATION PERIOD ................................. 11
ANNUITY PERIOD ........................................................... 11
  Annuity Period Elections ............................................... 11
  Annuity Options ........................................................ 12
  Annuity Payments ....................................................... 12
  Charges Deducted During the Annuity Period ............................. 13
  Death Benefit Payable During the Annuity Period ........................ 13
    

<PAGE>

   
TAX STATUS ............................................................... 13
  Introduction ........................................................... 13
  Taxation of the Company ................................................ 13
  Tax Status of the Contract ............................................. 14
  Contracts Used With Certain Retirement Plans ........................... 14
  Section 457 Plans ...................................................... 14
  Plans of Non-Section 457 Tax-Exempt Organizations and
    Taxable Organizations ................................................ 15
MISCELLANEOUS ............................................................ 16
  Voting Rights .......................................................... 16
  Modification of the Contract ........................................... 16
  Distribution ........................................................... 16
  Performance Reporting .................................................. 17
  Transfer of Ownership; Assignment ...................................... 17
  Delay or Suspension of Payments ........................................ 17
  Legal Matters and Proceedings .......................................... 18
  Year 2000 .............................................................. 18
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ...................... 19
APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT .............................. 20
APPENDIX II--FIXED ACCOUNT ............................................... 21
APPENDIX III--FIXED PLUS ACCOUNT ......................................... 22
APPENDIX IV--CONDENSED FINANCIAL INFORMATION ............................. 24

NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
    

<PAGE>

                                  DEFINITIONS
===============================================================================

As used in this Prospectus, the following terms have the meanings shown:

Account: A record established for each Participant, as directed by the Contract
Holder, to identify contract values during the Accumulation Period.

Account Year: A period of twelve months measured from the date on which an
Account is established (the effective date) or from an anniversary of such
effective date.

Account Value: The total dollar value of amounts held in an Account as of any
Valuation Date during the Accumulation Period.

Accumulation Period: The period during which Purchase Payment(s) credited to an
Account are invested to fund future Annuity Payments.

Accumulation Unit: A measure of the value of each Subaccount before Annuity
Payments begin.

Aggregate Purchase Payment(s): The sum of all Purchase Payment(s) made under a
Contract.

Annuitant: The person on whose life or life expectancy the Annuity Payments are
based.

Annuity: A series of payments for life, for a definite period or a combination
of the two.

Annuity Period: The period during which Annuity Payments are made.

Annuity Unit: A measure of the value of each Subaccount selected during the
Annuity Period.

Beneficiary: The Contract Holder is the Contract Beneficiary.

Code: The Internal Revenue Code of 1986, as amended.

Company (We, Us): Aetna Life Insurance and Annuity Company.

Contracts: The group deferred, variable annuity contracts described in this
Prospectus.

Contract Beneficiary: The Contract Holder is the Contract Beneficiary.

Contract Holder: The entity which owns the Contract and to which the Contract
is issued.

Credited Interest Options: The fixed interest options under the Contract. The
Credited Interest Options currently consist of the Guaranteed Accumulation
Account, the Fixed Account and the Fixed Plus Account, each of which is
described in an Appendix to this Prospectus. Amounts allocated to the Credited
Interest Options are included in the Account Value.

Fund(s): An open-end management investment company whose shares are purchased
by the Separate Account to fund the benefits provided by the Contracts.

Home Office: The Company's principal executive offices located at 151
Farmington Avenue, Hartford, Connecticut 06156.

Non-Section 457 Plan(s): Employer-sponsored deferred compensation plans
sponsored by tax-exempt organizations for deferrals not subject to Code Section
457 and by taxable organizations for their employees and or independent
contractors.

Participant (You): A person participating in a Plan maintained by an eligible
organization. The terms of the Plan govern Participant benefits.

Plan(s): Employer-sponsored deferred compensation plans sponsored by tax-exempt
organizations and/or taxable organizations for their employees or independent
contractors (or both).


- --------------------------------------------------------------------------------
                                DEFINITIONS - 1

<PAGE>

Plan Account: The record established for a Contract Holder of the net Purchase
Payments accumulated under a Contract where Accounts are not maintained.

Purchase Payment(s): The gross payment(s) made to the Company under a Contract.

Purchase Payment Period: For "Installment Purchase Payment Accounts" the period
of time for completion of the agreed upon annual number and amount of Purchase
Payments. For example, if it is determined that the Purchase Payment Period
will consist of 12 payments per year and only 11 payments are made, the
Purchase Payment Period is not completed until the twelfth Purchase Payment is
made.

Section 457 Plan(s): Employer-sponsored deferred compensation plans sponsored
by non-governmental tax-exempt organizations for deferrals that are subject to
Code Section 457 for their employees and or independent contractors.

Separate Account: Variable Annuity Account B, a separate account established by
the Company for the purpose of funding variable annuity contracts issued by the
Company.

Subaccount(s): The portion of the assets of the Separate Account that is
allocated to a particular Fund. Each Subaccount invests in the shares of only
one corresponding Fund.

Valuation Date: The date and time at which the Accumulation Unit Value and
Annuity Unit Value of a Subaccount is calculated. Currently, this calculation
occurs after the close of business of the New York Stock Exchange on any normal
business day, Monday through Friday, that the New York Stock Exchange is open.


- --------------------------------------------------------------------------------
                                DEFINITIONS - 2

<PAGE>

                              PROSPECTUS SUMMARY
===============================================================================

CONTRACTS OFFERED

     The Contracts offered in connection with this Prospectus are group
deferred variable annuity contracts issued by Aetna Life Insurance and Annuity
Company (the "Company"). The purpose of the Contract is to accumulate values
and to provide benefits upon retirement to Participants under:

     (1) Employer-sponsored deferred compensation plans sponsored by tax-exempt
organizations for deferrals not subject to Code Section 457 and by taxable
organizations for their employees and/or independent contractors ("Non-Section
457 Plans"), and

     (2) Employer-sponsored deferred compensation plans sponsored by
non-governmental tax-exempt organizations for deferrals that are subject to
Code Section 457 for their employees and/or independent contractors ("Section
457 Plans").

CONTRACT PURCHASE

     The Contract may be purchased by eligible organizations on behalf of a
group made up of their employees and/or independent contractors. An Account is
established for eligible employees by completing the enrollment form (and any
other required forms) and submitting them to the Company. Purchase Payments can
be applied to the Contract either through a lump-sum transfer from a
pre-existing plan or through periodic salary reductions or employer
contributions. (See "Purchase.")

FREE LOOK PERIOD

     Contract Holders have the right to cancel their Contract within 10 days
after receiving it (or as otherwise allowed by state law) by returning it to us
along with a written notice of cancellation. Unless state law requires
otherwise, the amount received upon cancellation under this provision will
reflect the investment performance of the Purchase Payments deposited in the
Separate Account while invested. In certain cases, this may be less than the
amount of the Purchase Payments. (See "Purchase--Right to Cancel.")

INVESTMENT OPTIONS

   
     The Company has established Variable Annuity Account B, a registered unit
investment trust, for the purpose of funding the variable portion of the
Contracts. The Separate Account is divided into Subaccounts which invest
directly in shares of the Funds described herein. The Contract allows
investment in any or all of the Subaccounts, as well as in the Credited
Interest Options described below. The total number of investment options that
may be selected at any one time is limited. For a complete list of the Funds
available under the Contracts, a description of the investment objectives of
each of the Funds and their investment advisers, and a description of the
limitations on the number of investment options, see "Investment Options--The
Funds" in this Prospectus, as well as the prospectuses for each of the Funds.
    

     The Contract also provides for investment in Credited Interest Options,
which earn fixed rates of interest. The fixed options available under the
Contract are the Guaranteed Accumulation Account ("GAA"), the Fixed Account,
and the Fixed Plus Account. (See the Appendices to this Prospectus.)

CHARGES AND DEDUCTIONS

     Certain charges are associated with these Contracts. These charges include
daily deductions from the Separate Account (the mortality and expense risk
charge and an administrative charge) and premium and other taxes. The Funds
also incur certain fees and expenses which are deducted directly from the
Funds. A deferred sales charge may apply upon a full or partial withdrawal of
the Account Value. (See the Fee Table and "Charges and Deductions.")


- --------------------------------------------------------------------------------
                                  SUMMARY - 1

<PAGE>

TRANSFERS

     Prior to the Annuity Date, and subject to certain limitations, Account
Values may be transferred among the Subaccounts and the Credited Interest
Options without charge. Transfers can be requested in writing or by telephone
in accordance with the Company's transfer procedures. (See the Appendices for a
full description of the restrictions applicable to transfers made from the
Credited Interest Options.) (See "Transfers.")

WITHDRAWALS

     The Contract Holder may withdraw all or a part of the Account Value prior
to the Annuity Date by properly completing a disbursement form and sending it
to the Company. Limitations apply to withdrawals from the Fixed Plus Account.
Certain charges may be assessed upon withdrawal. The withdrawals may also be
subject to income tax. (See "Withdrawals.")

   
     The Contract also offers certain Systematic Distribution Options during
the Accumulation Period to persons meeting certain criteria. Systematic
Distribution Options are not available in all states and may not be suitable in
every situation. (See "Systematic Distribution Options.")
    

DEATH BENEFIT

     The Contract provides that a death benefit is payable to the Contract
Beneficiary upon the death of the Participant before the Annuity Date. The
Contract Holder may direct that we make such payment to the Plan Beneficiary.
The amount of the death benefit will be equal to the Account Value. Until the
election of a method of payment, the Account Value will remain invested under
the Contract. The Contract Holder on behalf of a Plan Beneficiary may elect to
receive the proceeds in a lump sum or under any of the payment options
available under the Contract. However, the Code requires that distributions
begin within a certain time period. (See "Death Benefit During Accumulation
Period.")

     After Annuity Payments have commenced, a death benefit may be payable to
the Contract Beneficiary depending upon the terms of the Contract and the
Annuity Option selected. (See "Annuity Period--Death Benefit Payable During the
Annuity Period.")

THE ANNUITY PERIOD

     On the Annuity Date, the Contract Holder, on your behalf, may elect to
begin receiving Annuity Payments on either a fixed, variable or combination of
fixed and variable basis. If a variable payout is selected, the payments will
vary with the investment performance of the Subaccount(s) selected. The Company
reserves the right to limit the number of Subaccounts that may be available
during the Annuity Period. (See "Annuity Period.")

TAXES

     Contributions and earnings are not generally taxed until paid or made
available under the employer's Plan. Withholding for income tax may be imposed
on certain withdrawals. (See "Tax Status.")

INQUIRIES

     Questions, inquiries or requests for additional information can be
directed to your agent or local representative, or you may contact the Company
as follows:

[bullet] Write to:                 Aetna Life Insurance and Annuity Company
                                   151 Farmington Avenue
                                   Hartford, Connecticut 06156-1277
                                   Attention: Customer Service

[bullet] Call Customer Service:    1-800-525-4225 (for automated transfers or
                                   changes in the allocation of Account Values,
                                   call: 1-800-262-3862)

- --------------------------------------------------------------------------------
                                  SUMMARY - 2

<PAGE>

                                   FEE TABLE
===============================================================================

This Fee Table describes the various charges and expenses associated with the
Contract during the Accumulation Period. For amounts deducted during the
Annuity Period, see "Annuity Period--Charges Deducted During the Annuity
Period". No sales charge is paid when the Contract is purchased. Some expenses
may vary as explained under "Charges and Deductions." The charges and expenses
shown below do not include premium taxes that may be applicable. For more
information regarding expenses paid out of assets of a particular Fund, see the
Fund's prospectus.

CONTRACT HOLDER TRANSACTION EXPENSES
     Deferred Sales Charge (as a percentage of the amount withdrawn)*

  INSTALLMENT PURCHASE PAYMENT ACCOUNTS:

          Purchase Payment
         Periods Completed*             Deduction
- ------------------------------------    ---------
     Less than 5                           5%
     5 or more but less than 7             4%
     7 or more but less than 9             3%
     9 or more but less than 10            2%
     More than 10                          0%
                                        
SINGLE PURCHASE PAYMENT ACCOUNTS:

Account Years Completed                 Deduction
- ------------------------------------    ---------
     Less than 5                           5%
     5 or more but less than 6             4%
     6 or more but less than 7             3%
     7 or more but less than 8             2%
     8 or more but less than 9             1%
     9 or more                             0%

   *The total amount deducted for the deferred sales charge will not exceed
    8.5% of the total Purchase Payments applied to the Account.

SEPARATE ACCOUNT ANNUAL EXPENSES (Daily deductions, equal to the percentage
shown on an annual basis, made from amounts allocated to the variable options
under each Contract.)

DURING THE ACCUMULATION PERIOD:

   Mortality and Expense Risk Charge ....................   0.75%
   Administrative Expense Charge ........................   0.00%**
                                                            ----
    Total Separate Account Annual Expenses ..............   0.75%
                                                            ====

DURING THE ANNUITY PERIOD:

   Mortality and Expense Risk Charge ....................   1.25%
   Administrative Expense Charge ........................   0.00%**
                                                            ----
    Total Separate Account Annual Expenses ..............   1.25%
                                                            ====

   **We currently do not impose an Administrative Expense Charge. However, we
     reserve the right to deduct a daily charge from the Subaccounts equivalent
     on an annual basis to not more than 0.25%.


- --------------------------------------------------------------------------------
                                 FEE TABLE - 1
<PAGE>

   
ANNUAL EXPENSES OF THE FUNDS

The following table illustrates the advisory fees and other expenses applicable
to the Funds. Except as noted, the following figures are a percentage of
average net assets and, except where otherwise indicated, are based on figures
for the year ended December 31, 1997. 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 Account Value under the Contract.

<TABLE>
<CAPTION>
                                                                     Investment
                                                                  Advisory Fees(1)     Other Expenses
                                                                   (after expense      (after expense       Total Fund
                                                                   reimbursement)      reimbursement)     Annual Expenses
                                                                 ------------------   ----------------   ----------------
<S>                                                                      <C>                 <C>                <C>
Aetna Ascent VP(2)(3)                                                    0.57%               0.23%              0.80%
Aetna Balanced VP, Inc. (3)                                              0.50%               0.10%              0.60%
Aetna Bond VP(3)                                                         0.40%               0.10%              0.50%
Aetna Crossroads VP(2)(3)                                                0.55%               0.25%              0.80%
Aetna Growth VP(2)(3)                                                    0.16%               0.64%              0.80%
Aetna Growth and Income VP(3)                                            0.50%               0.09%              0.59%
Aetna High Yield VP(2)(3)                                                0.47%               0.33%              0.80%
Aetna Index Plus Large Cap VP(2)(3)                                      0.32%               0.23%              0.55%
Aetna Index Plus Mid Cap VP(2)(3)                                        0.27%               0.33%              0.60%
Aetna Index Plus Small Cap VP(2)(3)                                      0.27%               0.33%              0.60%
Aetna International VP(2)(3)                                             0.77%               0.38%              1.15%
Aetna Legacy VP(2)(3)                                                    0.49%               0.31%              0.80%
Aetna Money Market VP(3)                                                 0.25%               0.10%              0.35%
Aetna Real Estate Securities VP(2)(3)                                    0.62%               0.33%              0.95%
Aetna Small Company VP(2)(3)                                             0.35%               0.60%              0.95%
Aetna Value Opportunity VP(2)(3)                                         0.20%               0.60%              0.80%
Calvert Social Balanced Portfolio(4)                                     0.69%               0.12%              0.81%
Fidelity VIP Equity-Income Portfolio(5)                                  0.50%               0.08%              0.58%
Fidelity VIP Growth Portfolio(5)                                         0.60%               0.09%              0.69%
Fidelity VIP Overseas Portfolio(5)                                       0.75%               0.17%              0.92%
Fidelity VIP II Contrafund Portfolio(5)                                  0.60%               0.11%              0.71%
Janus Aspen Aggressive Growth Portfolio(6)                               0.73%               0.03%              0.76%
Janus Aspen Balanced Portfolio(6)                                        0.76%               0.07%              0.83%
Janus Aspen Flexible Income Portfolio                                    0.65%               0.10%              0.75%
Janus Aspen Growth Portfolio(6)                                          0.65%               0.05%              0.70%
Janus Aspen Worldwide Growth Portfolio(6)                                0.66%               0.08%              0.74%
Lexington Natural Resources Trust                                        1.00%               0.25%              1.25%
Oppenheimer Global Securities Fund                                       0.70%               0.06%              0.76%
Oppenheimer Strategic Bond Fund                                          0.75%               0.08%              0.83%
Portfolio Partners MFS Emerging Equities Portfolio(7)(8)                 0.68%               0.13%              0.81%
Portfolio Partners MFS Research Growth Portfolio(7)(8)                   0.70%               0.15%              0.85%
Portfolio Partners MFS Value Equity Portfolio(7)                         0.65%               0.25%              0.90%
Portfolio Partners Scudder International Growth Portfolio(7)             0.80%               0.20%              1.00%
Portfolio Partners T. Rowe Price Growth Equity Portfolio(7)              0.60%               0.15%              0.75%
</TABLE>

- ------------------
(1) Certain of the 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) Effective May 1, 1998, the Portfolios' adviser has agreed to waive a
    portion of its fee or to reimburse certain expenses so that aggregate
    expenses do not exceed the total expenses shown above. These fee
    waiver/expense reimbursement arrangements will increase total return and
    may be modified or terminated at any time.
    Without these fee waiver/expense reimbursement arrangements Management Fees
    and Total Expenses for the Portfolio would be higher. Management Fees and
    Total Expenses would be as follows: 0.60% and 0.83% for Ascent VP; 0.60% and
    0.85% for Crossroads VP; 0.60% and 1.24% for Growth VP; 0.65% and 0.98% for
    High Yield VP; 0.35% and 0.58% for Index Plus Large Cap VP; 0.40% and 0.73%
    for Index Plus Mid Cap VP; 0.40% and 0.73% for Index Plus Small Cap VP;
    0.85% and 1.23% for International VP; 0.60% and 0.91% for Legacy VP; 0.75%
    and 1.08% for Real Estate Securities VP; 0.75% and 1.35% for Small Company
    VP; and 0.60% and 1.20% for Value Opportunity VP, respectively.
(3) Prior to May 1, 1998, the investment adviser provided administrative
    services to the Fund and assumed the Fund's ordinary
    

- --------------------------------------------------------------------------------
                                 FEE TABLE - 2
<PAGE>

   
    recurring direct costs under an Administrative Services Agreement. Effective
    May 1, 1998, the investment adviser will continue to provide administrative
    services to the Fund but will no longer assume all of the Fund's ordinary
    recurring direct costs underthe Administrative Services Agreement. The
    Administrative Fee is 0.075% on the first $5 billion in assets and 0.050% on
    all assets over $5 billion. The "Other Expenses" shown are not based on
    actual figures for the year ended December 31, 1997, but reflect the fee
    payable under the new Administrative Services Agreement and estimates of the
    Fund's ordinary recurring direct costs.

    High Yield VP, Index Plus Mid Cap VP, Index Plus Small Cap VP, International
    VP and Real Estate Securities VP commenced operations in December 1997,
    therefore, estimates are based on expenses incurred for similar funds.
    Actual expenses incurred may be more or less than the amounts shown above.

(4) The figures above are based on expenses for the fiscal year 1997, and have
    been restated to reflect an increase in transfer agency expenses of 0.01%
    for the Portfolio expected to be incurred in 1998. "Management Fees"
    includes a performance adjustment, which depending on performance, could
    cause the fee to be as high as 0.85% or as low as 0.55%. "Other Expenses"
    reflect an indirect fee of 0.03% (relating to an expense offset
    arrangement with the Portfolio's custodian). Net fund operating expenses
    after reductions for fees paid indirectly (again, restated) would be
    0.78%.
(5) A portion of the brokerage commissions that certain funds pay was used to
    reduce fund expenses. In addition, certain funds have entered into
    arrangements with their custodian whereby credits realized, as a result of
    uninvested cash balances were used to reduce custodian expenses. Including
    these reductions, the total operating expenses would have been 0.57% for
    Equity-Income Portfolio; 0.67% for Growth Portfolio; 0.90% for Overseas
    Portfolio; and 0.68% for Contrafund Portfolio.
(6) Management fees for Aggressive Growth, Balanced, Growth and Worldwide
    Growth Portfolios reflect a reduced fee schedule effective July 1, 1997.
    The management fees shown above are based on the new rate applied to net
    assets as of December 31, 1997. Other expenses are based on gross expenses
    of the Shares before expense offset arrangements for the fiscal year ended
    December 31, 1997. The information for each Portfolio is net of fee
    waivers or reductions from Janus Capital. Fee reductions for the
    Aggressive Growth, Balanced, Growth and Worldwide Growth Portfolios 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 Operating Expenses for the Shares
    would have been 0.74%, 0.04%, and 0.78% for Aggressive Growth Portfolio;
    0.77%, 0.06%, and 0.83% for Balanced Portfolio; 0.74%, 0.04%, and 0.78%
    for Growth Portfolio; and 0.72%, 0.09%, and 0.81% for Worldwide Growth
    Portfolio, respectively. Janus Capital may modify or terminate the waivers
    or reductions at any time upon at least 90 days' notice to the Trustees.
(7) Each Portfolio's aggregate expenses are contractually limited to the
    advisory and administrative fees disclosed above. The investment adviser
    will not seek an increase in its advisory or administrative fee at any
    time prior to May 1, 1999.
(8) The advisory fee is 0.70% of the first $500 million in assets and 0.65% on
    the excess.
    

- --------------------------------------------------------------------------------
                                 FEE TABLE - 3
<PAGE>

   
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.

The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets.

<TABLE>
<CAPTION>
                                                                  EXAMPLE A                              EXAMPLE B
                                                   --------------------------------------- --------------------------------------
                                                   If you withdraw your entire             If you do not withdraw your
                                                   Account Value at the end of the         Account Value, or if you annuitize at
                                                   periods shown,you would pay the         the end of the periods shown, you
                                                   following expenses, including any       would pay the following expenses (no
                                                   applicable deferred sales charge:       deferred sales charge is reflected):*
                                                   1 year   3 years   5 years   10 years   1 year   3 years   5 years   10 years
                                                   -------- --------- --------- ---------- -------- --------- --------- ---------
<S>                                                   <C>      <C>       <C>       <C>        <C>      <C>       <C>       <C>
Aetna Ascent VP                                       $67      $104      $144      $185       $16      $49       $ 84      $185
Aetna Balanced VP, Inc.                               $66      $ 98      $134      $162       $14      $43       $ 74      $162
Aetna Bond VP                                         $65      $ 95      $129      $151       $13      $40       $ 69      $151
Aetna Crossroads VP                                   $67      $104      $144      $185       $16      $49       $ 84      $185
Aetna Growth VP                                       $67      $104      $144      $185       $16      $49       $ 84      $185
Aetna Growth and Income VP                            $65      $ 98      $133      $161       $14      $42       $ 73      $161
Aetna High Yield VP                                   $67      $104      $144      $185       $16      $49       $ 84      $185
Aetna Index Plus Large Cap VP                         $65      $ 97      $131      $157       $13      $41       $ 71      $157
Aetna Index Plus Mid Cap VP                           $66      $ 98      $134      $162       $14      $43       $ 74      $162
Aetna Index Plus Small Cap VP                         $66      $ 98      $134      $162       $14      $43       $ 74      $162
Aetna International VP                                $71      $114      $161      $222       $19      $60       $103      $222
Aetna Legacy VP                                       $67      $104      $144      $185       $16      $49       $ 84      $185
Aetna Money Market VP                                 $63      $ 91      $121      $134       $11      $35       $ 61      $134
Aetna Real Estate Securities VP                       $69      $109      $151      $201       $17      $54       $ 92      $201
Aetna Small Company VP                                $69      $109      $151      $201       $17      $54       $ 92      $201
Aetna Value Opportunity VP                            $67      $104      $144      $185       $16      $49       $ 84      $185
Calvert Social Balanced Portfolio                     $68      $105      $144      $186       $16      $49       $ 85      $186
Fidelity VIP Equity-Income Portfolio                  $65      $ 98      $133      $160       $14      $42       $ 73      $160
Fidelity VIP Growth Portfolio                         $66      $101      $138      $172       $15      $46       $ 79      $172
Fidelity VIP Overseas Portfolio                       $69      $108      $150      $198       $17      $53       $ 91      $198
Fidelity VIP II Contrafund Portfolio                  $67      $102      $139      $175       $15      $46       $ 80      $175
Janus Aspen Aggressive Growth Portfolio               $67      $103      $142      $180       $15      $48       $ 82      $180
Janus Aspen Balanced Portfolio                        $68      $105      $145      $188       $16      $50       $ 86      $188
Janus Aspen Flexible Income Portfolio                 $67      $103      $141      $179       $15      $47       $ 82      $179
Janus Aspen Growth Portfolio                          $67      $101      $139      $174       $15      $46       $ 79      $174
Janus Aspen Worldwide Growth Portfolio                $67      $103      $141      $178       $15      $47       $ 81      $178
Lexington Natural Resources Trust                     $72      $117      $166      $233       $20      $63       $108      $233
Oppenheimer Global Securities Fund                    $67      $103      $142      $180       $15      $48       $ 82      $180
Oppenheimer Strategic Bond Fund                       $68      $105      $145      $188       $16      $50       $ 86      $188
Portfolio Partners MFS Emerging Equities
 Portfolio                                            $68      $105      $144      $186       $16      $49       $ 85      $186
Portfolio Partners MFS Research Growth Portfolio      $68      $106      $146      $190       $16      $50       $ 87      $190
Portfolio Partners MFS Value Equity Portfolio         $68      $107      $149      $195       $17      $52       $ 90      $195
Portfolio Partners Scudder International Growth
 Portfolio                                            $69      $110      $154      $206       $18      $55       $ 95      $206
Portfolio Partners T. Rowe Price Growth Equity
 Portfolio                                            $67      $103      $141      $179       $15      $47       $ 82      $179
</TABLE>

- ------------------
* This Example would not apply if a nonlifetime variable annuity option is
  selected, and a lump-sum settlement is requested before three years of
  payments have been completed, since the lump-sum payment will be treated as
  a withdrawal during the Accumulation Period and will be subject to any
  deferred sales charge that would then apply. (Refer to Example A.)
    

- --------------------------------------------------------------------------------
                                 FEE TABLE - 4
<PAGE>

   
                        CONDENSED FINANCIAL INFORMATION
===============================================================================

     Condensed Financial Information for the Separate Account is shown in
Appendix IV.
    
                                  THE COMPANY
===============================================================================

      Aetna Life Insurance and Annuity Company (the "Company") is the issuer of
the Contract, and as such, it is responsible for providing the insurance and
annuity benefits under the Contract. The Company is a stock life insurance
company 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), an
Arkansas life insurance company organized in 1954. The Company is engaged in
the business of issuing life insurance policies and variable annuity contracts
in all states of the United States. The Company's principal executive offices
are located at 151 Farmington Avenue, Hartford, Connecticut 06156.
      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.

                          VARIABLE ANNUITY ACCOUNT B
===============================================================================

      The Company established Variable Annuity Account B (the "Separate
Account") in 1976 as a segregated asset account for the purpose of funding its
variable annuity contracts. The Separate Account is registered as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act"), and
meets the definition of "separate account" under federal securities laws. The
Separate Account is divided into "subaccounts" which do not invest directly in
stocks, bonds or other investments. Instead, each Subaccount buys and sells
shares of a corresponding Fund.

      Although the Company holds title to the assets of the Separate Account,
such assets are not chargeable with liabilities arising out of any other
business conducted by the Company. Income, gains or losses of the Separate
Account are credited to or charged against the assets of the Separate Account
without regard to other income, gains, or losses of the Company. All
obligations arising under the Contracts are obligations of the Company.

                               INVESTMENT OPTIONS
===============================================================================

THE FUNDS
   
      The Contract Holder (or you, if allowed by the Contract Holder) may
allocate Purchase Payments to one or more of the Subaccounts as designated on
the enrollment form. In turn, the Subaccounts invest in the corresponding Funds
at net asset value. No more than 18 different investment options may be
selected at any one time. For the purpose of this limit, each Fund, the Fixed
Account, the Fixed Plus Account, and each classification of GAA counts as one
option.

      The Contract Holder may decide to offer only a select number of Funds as
funding options under its Plan, or may decide to change which Funds it offers.
In addition, the Company may add, withdraw or substitute Funds, subject to the
conditions in the Contract and to compliance with regulatory requirements. The
availability of the Funds may also be subject to applicable regulatory
authorization. Not all Funds may be available in all jurisdictions, under all
Contracts, or in all Plans.

      The investment results of the Funds described below are likely to differ
significantly and there is no assurance that any of the Funds will achieve
their respective investment objectives. Except where otherwise noted, all of
the Funds are diversified, as defined in the 1940 Act.

[bullet] Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers Fund,
         Inc.) seeks to maximize investment return, consistent with reasonable
         safety of principal by investing in a diversified portfolio of one or
         more of the following asset classes: stocks, bonds and cash
    

- --------------------------------------------------------------------------------
                                       1
<PAGE>

   
         equivalents, based on the investment adviser's judgment of which of
         those sectors or mix thereof offers the best investment prospects.(1)

[bullet] Aetna Income Shares d/b/a Aetna Bond VP seeks to maximize total
         return, consistent with reasonable risk, through investments in a
         diversified portfolio consisting primarily of debt securities.(1)

[bullet] Aetna Variable Fund d/b/a Aetna Growth and Income VP seeks to maximize
         total return through investments in a diversified portfolio of common
         stocks and securities convertible into common stock.(1)

[bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP seeks to
         provide high current return, consistent with preservation of capital
         and liquidity, through investment in high-quality money market
         instruments. An investment in the Fund is neither insured nor
         guaranteed by the U.S. Government.(1)

[bullet] Aetna Generation Portfolios, Inc.--Aetna Ascent VP (formerly Aetna
         Ascent Variable Portfolio) seeks to provide capital appreciation. The
         Portfolio is designed for investors who have an investment horizon
         exceeding 15 years and who have a high level of risk tolerance.(1)

[bullet] Aetna Generation Portfolios, Inc.--Aetna Crossroads VP (formerly Aetna
         Crossroads Variable Portfolio) seeks to provide total return (i.e.,
         income and capital appreciation, both realized and unrealized). The
         Portfolio is designed for investors who have an investment horizon
         exceeding 10 years and who have a moderate level of risk tolerance.(1)
          

[bullet] Aetna Generation Portfolios, Inc.--Aetna Legacy VP (formerly Aetna
         Legacy Variable Portfolio) seeks to provide total return consistent
         with preservation of capital. The Portfolio is designed for investors
         who have an investment horizon exceeding five years and who have a low
         level of risk tolerance.(1)

[bullet] Aetna Variable Portfolios, Inc.--Aetna Growth VP (formerly Aetna
         Variable Growth Portfolio) seeks growth of capital through investment
         in a diversified portfolio of common stocks and securities convertible
         into common stocks believed to offer growth potential.(1)

[bullet] Aetna Variable Portfolios, Inc.--Aetna High Yield VP seeks high
         current income and growth of capital primarily through investment in a
         diversified portfolio of fixed income securities rated lower than BBB-
         by Standard and Poor's Corporation or lower than Baa3 by Moody's
         Investor Service, Inc.

[bullet] Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP
         (formerly Aetna Variable Index Plus Portfolio) seeks to outperform the
         total return performance of publicly traded common stocks represented
         by the S&P 500 Composite Stock Price Index.(1)

[bullet] Aetna Variable Portfolios, Inc.--Aetna Index Plus Mid Cap VP seeks to
         outperform the total return performance of publicly traded common
         stocks represented in the S&P 400.(1)

[bullet] Aetna Variable Portfolios, Inc.--Aetna Index Plus Small Cap VP seeks
         to outperform the total return performance of publicly traded common
         stocks represented by the S&P Small Cap 600 Index, a stock market
         index composed of 600 common stocks selected by Standard and Poor's
         Corporation.(1)

[bullet] Aetna Variable Portfolios, Inc.--Aetna International VP seeks
         long-term capital growth primarily through investment in a diversified
         portfolio of common stocks principally traded in countries outside of
         the United States. Aetna International VP will not target any given
         level of current income.(1)

[bullet] Aetna Variable Portfolios, Inc.--Aetna Real Estate Securities VP seeks
         maximum total return primarily through investment in a diversified
         portfolio of equity securities issued by real estate companies, the
         majority of which are real estate investment trusts (REITs).(1)

[bullet] Aetna Variable Portfolios, Inc.--Aetna Small Company VP (formerly
         Aetna Variable Small Company Portfolio) seeks growth of capital
         primarily through investment in a diversified portfolio of common
         stocks and securities convertible into common stocks of companies with
         smaller market capitalizations.(1)

[bullet] Aetna Variable Portfolios, Inc.--Aetna Value Opportunity VP (formerly
         Aetna Variable Capital Appreciation Portfolio) seeks growth of capital
         primarily through investment in a diversified portfolio of common
         stocks and securities convertible into common stock.(1)

[bullet] Calvert Social Balanced Portfolio (formerly Calvert Responsibly
         Invested Portfolio) is a nondiversified portfolio that seeks to
         achieve a total return above the rate of inflation through an actively
         managed,
    

- --------------------------------------------------------------------------------
                                       2
<PAGE>

   
         nondiversified portfolio of common and preferred stocks, bonds and
         money market instruments which offer income and capital growth
         opportunity and which satisfy the social criteria established for the
         Portfolio.(2)

[bullet] Fidelity Investments Variable Insurance Products Fund--Equity-Income
         Portfolio seeks reasonable income by investing primarily in
         income-producing equity securities. In selecting investments, the Fund
         also considers the potential for capital appreciation.(3)

[bullet] Fidelity Investments Variable Insurance Products Fund--Growth
         Portfolio seeks capital appreciation by investing mainly in common
         stocks, although its investments are not restricted to any one type of
         security.(3)

[bullet] Fidelity Investments Variable Insurance Products Fund--Overseas
         Portfolio seeks long-term growth by investing in foreign securities
         (at least 65% of the Fund's total assets in securities of foreign
         issuers). Foreign investments involve greater risks than U.S.
         investments, including political and economic risks and the risk of
         currency fluctuation.(3)

[bullet] Fidelity Investments Variable Insurance Products Fund II--Contrafund
         Portfolio seeks maximum total return over the long term by investing
         mainly in securities of companies whose value the investment adviser
         believes is not fully recognized by the public.(3)

[bullet] Janus Aspen Series--Aggressive Growth Portfolio is a nondiversified
         portfolio that seeks long-term growth of capital. The Portfolio
         pursues its investment objective by normally investing at least 50% of
         its equity assets in securities issued by medium-sized companies.
         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 31, 1997 included companies with capitalizations between
         approximately $213 million and $13.7 billion, but which is expected to
         change on a regular basis.(4)

[bullet] Janus Aspen Series--Balanced Portfolio seeks long-term capital growth,
         consistent with preservation of capital and balanced by current income.
         The Portfolio pursues its investment objective by, under normal
         circumstances, investing 40%-60% of its assets in equity securities
         selected primarily for their growth potential and 40%-60% of its assets
         in securities selected primarily for their income potential.(4)

[bullet] Janus Aspen Series--Flexible Income Portfolio seeks to obtain maximum
         total return, consistent with preservation of capital. The Portfolio
         pursues its investment objective primarily through investments in
         income-producing securities. Total return is expected to result from a
         combination of current income and capital appreciation. The Portfolio
         invests in all types of income producing securities and may have
         substantial holdings of debt securities rated below investment grade
         (e.g. junk bonds).(4)

[bullet] Janus Aspen Series--Growth Portfolio seeks long-term growth of capital
         in a manner consistent with the preservation of capital. The Portfolio
         pursues its investment objective by investing primarily in common
         stocks of issuers of any size. This Portfolio generally invests in
         larger, more established issuers.(4)

[bullet] Janus Aspen Series--Worldwide Growth Portfolio seeks long-term growth
         of capital in a manner consistent with the preservation of capital.
         The Portfolio pursues its investment objective primarily through
         investments in common stocks of foreign and domestic issuers.(4)

[bullet] Lexington Natural Resources Trust is a nondiversified portfolio that
         seeks long-term growth of capital through investment primarily in
         common stocks of companies which own or develop natural resources and
         other basic commodities or supply goods and services to such
         companies.

         This Fund is only available for investment by Participants who
         established an Account under the Contract before May 1, 1998. As soon
         as all such Participants have redirected their allocations to other
         investment (except reinvested dividends and capital gains earned on
         amounts already invested in the Fund through the Separate Account and
         loan repayments automatically deposited into the Fund pursuant to the
         Company's loan repayment procedures).(5)

[bullet] Oppenheimer Global Securities Fund seeks long-term capital
         appreciation by investing a substantial portion of its assets in
         securities of foreign issuers, "growth-type" companies, cyclical
         industries and special situations which are considered to have
         appreciation possibilities but which may be considered to be
         speculative.(6)

[bullet] Oppenheimer Strategic Bond Fund seeks a high level of current income
         principally derived from interest on debt securities and seeks to
         enhance such income by
    

- --------------------------------------------------------------------------------
                                       3
<PAGE>

   
         writing covered call options on debt securities. The Fund intends to
         invest principally in (i) foreign government and corporate debt
         securities, (ii) securities of the U.S. Government and its agencies and
         instrumentalities ("U.S. Government Securities"), and (iii) lower-rated
         high yield domestic debt securities, commonly known as "junk bonds,"
         which are subject to a greater risk of loss of principal and nonpayment
         of interest than higher-rated securities. These securities may be
         considered to be speculative. Current income is not an objective.(6)

[bullet] Portfolio Partners, Inc.--MFS Emerging Equities Portfolio seeks to
         provide long-term growth of capital. Dividend and interest income from
         portfolio securities, if any, is incidental to the Portfolio's
         investment objective.(7a)

[bullet] Portfolio Partners, Inc.--MFS Research Growth Portfolio seeks
         long-term growth of capital and future income.(7a)

[bullet] Portfolio Partners, Inc.--MFS Value Equity Portfolio seeks capital
         appreciation. Dividend income, if any, is a consideration incidental
         to the Portfolio's objective of capital appreciation.(7a)

[bullet] Portfolio Partners, Inc.--Scudder International Growth Portfolio seeks
         long-term growth of capital primarily through a diversified portfolio
         of marketable foreign equity securities.(7b)

[bullet] Portfolio Partners, Inc.--T. Rowe Price Growth Equity Portfolio seeks
         long-term growth of capital and, secondarily, to increase dividend
         income by investing primarily in common stocks of well established
         growth companies.(7c)

  Investment Advisers for each of the Funds:
  (1) Aeltus Investment Management, Inc.
  (2) Calvert Asset Management Company, Inc.
  (3) Fidelity Management & Research Company
  (4) Janus Capital Corporation
  (5) Lexington Management Corporation (adviser); Market Systems Research
      Advisors, Inc. (subadviser)
  (6) OppenheimerFunds, Inc.
  (7) Aetna Life Insurance and Annuity Company (adviser);
      (a) Massachusetts Financial Services Company (subadviser)
      (b) Scudder Kemper Investments, Inc. (subadviser)
      (c) T. Rowe Price Associates, Inc. (subadviser)
    
      Risks Associated with Investment in the Funds. Some of the Funds may use
instruments known as derivatives as part of their investment strategies. The
use of certain derivatives may involve high risk of volatility to a Fund, and
the use of leverage in connection with such derivatives can also increase risk
of losses. Some of the Funds may also invest in foreign or international
securities which involve greater risks than U.S. investments.

      More comprehensive information, including a discussion of potential
risks, is found in the current prospectus for each Fund which is distributed
with and accompanies this Prospectus. You should read the Fund prospectuses and
consider carefully, and on a continuing basis, which Fund or combination of
Funds is best suited to your long-term investment objectives. 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 under the "Inquiries" section of the
Prospectus Summary.

      Conflicts of Interest (Mixed and Shared Funding). Shares of the Funds are
sold to each of the Subaccounts for funding the variable annuity contracts
issued by the Company. Shares of the Funds may also be sold to other insurance
companies for the same purpose. This is referred to as "shared funding." Shares
of the Funds may also be used for funding variable life insurance contracts
issued by the Company or by third parties. This is referred to as "mixed
funding."

      Because the Funds available under the Contract are sold to fund variable
annuity contracts and variable life insurance policies issued by us or by other
companies, certain conflicts of interest could arise. If a conflict of interest
were to occur, one of the separate accounts might withdraw its investment in a
Fund, which might force that Fund to sell portfolio securities at
disadvantageous prices, causing its per share value to decrease. Each Fund's
Board of Directors or Trustees has agreed to monitor events in order to
identify any material irreconcilable conflicts which might arise and to
determine what action, if any, should be taken to address such conflict.

CREDITED INTEREST OPTIONS

      Purchase Payments may be allocated to one or more of the Credited
Interest Options available under the Contract, as described below. The Contract
Holder may elect not to offer all Credited Interest Options under its Plan.


- --------------------------------------------------------------------------------
                                       4
<PAGE>

      The Guaranteed Accumulation Account (GAA) is a credited interest option
through which we guarantee stipulated rates of interest for stated periods of
time. Amounts must remain in the GAA for the full guaranteed term to receive
the quoted interest rates, or a market value adjustment (which may be positive
or negative) will be applied. (See Appendix I.)

      The Fixed Account is a part of the Company's general account. The Fixed
Account guarantees a minimum interest rate, as specified in the Contract. The
Company may credit higher interest rates from time to time. Transfers from the
Fixed Account are limited. (See Appendix II.)

      The Fixed Plus Account is also a part of the Company's general account
and guarantees a minimum interest rate, as specified in the Contract. The
Company may credit higher interest rates in its discretion. Withdrawals and
transfers from the Fixed Plus Account are limited. (See Appendix III.)

                                    PURCHASE
===============================================================================

CONTRACT AVAILABILITY

The Contracts are designed for (1) employer-sponsored deferred compensation
plans sponsored by tax-exempt organizations for deferrals not subject to
Section 457 of the Internal Revenue Code of 1986, as amended ("Code") or by
taxable organizations for their employees and/or independent contractors
("Non-Section 457 Plans"); or (2) employer-sponsored deferred compensation
plans sponsored by non-governmental tax-exempt organizations for deferrals that
are subject to Code Section 457 for their employees and/or independent
contractors ("Section 457 Plans"). The Contract is generally owned by the
employer, and an Account is established for each Participant, as directed by
the Contract Holder, to identify contract values during the Accumulation
Period. A Participant's record under the Contract is known as his or her
"Account."

      The Contract is available to Plans subject to Code Section 457 only if
the Plan is not sponsored by a governmental employer. For such Section 457
Plans and for all Non-Section 457 Plans, all amounts of compensation deferred,
all property and rights purchased with such amounts, and all income
attributable to such amounts, property or rights remains solely the property
and rights of the employer, and is subject to the claims of the employer's
general creditors. The Contract will therefore be part of the employer's
general assets, subject to the claims of its general creditors. Benefits
available to you are governed exclusively by the provisions of the Plan and are
backed only by the general assets of the employer. Some of the options and
elections available under the Contract may not be available to you under the
provisions of your Plan. Contact your employer for information regarding your
Plan.

CONTRACT PURCHASE

      Eligible organizations may acquire a Contract by submitting an
application to the Company. Once we approve the application, a Contract is
issued to the employer as the Contract Holder. You may participate in the Plan
by submitting an enrollment form to the Company.

   
      The Company must accept or reject the application or enrollment form
within two business days of receipt. If the form is incomplete, the Company may
hold any forms and accompanying Purchase Payments for five days. Purchase
Payments may be held for longer periods pending acceptance of the forms only
with the consent of the Participant, or under certain circumstances described
below, with the consent of the Contract Holder. Under limited circumstances the
Company may agree, with respect to a particular Plan, to hold Purchase Payments
for longer than the five business days, based on the consent of the group
Contract Holder, in which case these Purchase Payments will be deposited in the
Aetna Money Market VP Subaccount until the forms are completed.
    

PURCHASE PAYMENTS

      Generally, two types of Purchase Payments may be made under the Contract,
and depending upon which type of payment is made, different Accounts may be
established for each payment type. Continuing, periodic payments will be placed
in "Installment Purchase Payment Accounts." Installment Purchase Payments must
be at least $100 per month ($1,200 annually) per Participant. No payment may be
less than $25. Lump-sum transfers of amounts accumulated under a pre-existing
plan may be placed in "Single Purchase Payment Accounts" in accordance with the
Company's procedures in effect at the time of purchase.


- --------------------------------------------------------------------------------
                                       5

<PAGE>

   
      The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from a Participant's gross income for Section 457 Plan Participants.
Such limit is generally the lesser of $8,000 as adjusted to reflect changes in
the cost of living, or 33% of your includible compensation (25% of gross
compensation).
    

      For Contracts sold to taxable organizations, this Contract may be
aggregated with other annuity contracts purchased by the Contract Holder from
us (and our affiliates) on or after October 21, 1988 for purposes of
determining the taxable portion of payments from this Contract. (See "Tax
Status.")

ALLOCATION OF PURCHASE PAYMENTS

      Purchase Payments will initially be allocated to the Subaccounts or
Credited Interest Options as specified by the Contract Holder (or you, if
authorized by the Contract Holder) on the enrollment form. Changes in such
allocation may be made in writing or by telephone transfer. Allocations must be
in whole percentages, and there may be limitations on the number of investment
options that can be selected during the Accumulation Period. (See "Investment
Options--The Funds.")

RIGHT TO CANCEL

      The Contract Holder may cancel participation under the Contract without
penalty by returning it to the Company with a written notice of cancellation.
In most states, Contract Holders have ten days to exercise this right; some
states allow a longer free-look period. When we receive the request for
cancellation, we will return the Account Value, unless the laws of the state in
which the Contract was issued require that we return the initial Purchase
Payment (if greater than the Account Value). In states that do not require a
return of Purchase Payments, the purchaser bears the entire investment risk for
amounts allocated among the Subaccounts during the free look period. Account
Values will be determined as of the Valuation Date on which we receive the
request for cancellation at our Home Office.

TRANSFER CREDITS

      The Company may provide a transfer credit on "transferred assets,"
subject to certain conditions and state approvals. Transferred assets are the
value of contributions made on your behalf under this Plan or a prior plan
before such amounts are applied to this Contract. The transfer credit will
equal a percentage of the transferred assets applied to the Contract that
remain in the Contract after a specified period of time. Once a transfer credit
is applied to the Contract, all provisions of the Contract apply. This benefit
is provided on a nondiscriminatory basis. If a transfer credit is due under the
Contract, you will be provided with additional information specific to the
Contract.

                             CHARGES AND DEDUCTIONS
===============================================================================

DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT

      Mortality and Expense Risk Charge. The Company makes a daily deduction
from each of the Subaccounts for the mortality and expense risk charge. The
charge is equal, on an annual basis, to 0.75% of the daily net assets of the
Subaccounts and compensates the Company for the assumption of mortality and
expense risks under the Contract. During the Annuity Period, the deduction for
mortality and expense risks is equivalent to 1.25% on an annual basis. The
mortality risks are those assumed for our promise to make lifetime payments
according to annuity rates specified in the Contract. The expense risk is the
risk that the actual expenses for costs incurred under the Contract will exceed
the maximum costs that can be charged under the Contract.

      If the amount deducted for mortality and expense risks is not sufficient
to cover the mortality costs and expense shortfalls, the loss is borne by the
Company. If the deduction is more than sufficient, the excess may be used to
recover distribution expense relating to the Contracts and as a source of
profit for the Company. The Company expects to make a profit from the mortality
and expense risk charge.

      Administrative Expense Charge. The Company reserves the right to make a
deduction from each of the Subaccounts for an administrative charge. The
administrative expense charge compensates the Company for administrative
expenses incurred in administering the Contract. The charge is set at a level
which does not exceed the average expected cost of the administrative services
to be provided while the Contract is in force. The Company does not expect to
make a profit from this charge.


- --------------------------------------------------------------------------------
                                       6

<PAGE>

      Under the Contract, the amount of the administrative expense charge may
be of an amount equal, on an annual basis, to a maximum of 0.25% of the daily
net assets of the Subaccounts. There is currently no administrative expense
charge during the Accumulation Period or Annuity Period. Once an Annuity Option
is elected, the charge will be established and will be effective during the
entire Annuity Period.

DEFERRED SALES CHARGE

      Withdrawals of all or a portion of the Account Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of the amount
withdrawn from the Subaccounts, the Fixed Account or the Guaranteed
Accumulation Account. No deferred sales charge is deducted from amounts
withdrawn from the Fixed Plus Account.

      For Installment Purchase Payment Accounts, the deferred sales charge is
based on the number of completed Purchase Payment Periods. For Single Purchase
Payment Accounts, it is based on the number of Account Years that have elapsed
since the Account's effective date. The amount of the deferred sales charge is
determined in accordance with the schedule set forth in the following tables:

    INSTALLMENT PURCHASE PAYMENT ACCOUNTS

 Purchase Payment                     Deferred Sales
Periods Completed                    Charge Deduction
- -----------------                    ----------------
  Less than 5                              5%
  5 or more but less than 7                4%
  7 or more but less than 9                3%
  9 or or more but less than 10            2%
  More than 10                             0%

    SINGLE PURCHASE PAYMENT ACCOUNTS

Account Years                         Deferred Sales
 Completed                           Charge Deduction
- -------------                        ----------------
  Less than 5                              5%
  5 or more but less than 6                4%
  6 or more but less than 7                3%
  7 or more but less than 8                2%
  8 or more but less than 9                1%
  9 or more                                0%
                               
      If you transfer the total account value under another deferred
compensation annuity contract issued by the Company to an Account under this
Contract, the effective date of the new Account will be the same effective date
as your former contract for purposes of calculating the applicable deferred
sales charge under this Contract.

      A deferred sales charge will not be deducted from any portion of the
Account Value which is:

[bullet] applied to provide Annuity benefits;

[bullet] withdrawn on or after the tenth anniversary of the effective date of
         the Account or Plan Account;

[bullet] paid due to the death of the Participant;
   
[bullet] withdrawn due to the election of a Systematic Distribution Option (see
         "Systematic Distribution Options");
    
[bullet] paid where the Account Value is $3,500 or less and no amount has been
         withdrawn or used to purchase Annuity benefits during the prior 12
         months. If more than one Account is being fully withdrawn on behalf of
         a Participant, all Account Values will be added together to determine
         eligibility for the $3,500 exemption. This provision is not available
         under Plan Accounts (where Accounts are not maintained by the Company)
         or applicable to the withdrawal of all Accounts under one Contract
         established with the Company;
   
[bullet] withdrawn from an Installment Purchase Payment Account by a
         Participant who is at least age 59-1/2 and who has completed nine
         Purchase Payment Periods;
    
[bullet] paid due to the Participant's separation from service with the
         employer; or

[bullet] for Section 457 Plans only, withdrawn due to a hardship resulting from
         an unforeseeable emergency, as specified in the Code.

      The deduction for the deferred sales charge will not exceed 8.5% of the
total Purchase Payments actually made to the Account. The Company does not
anticipate that the deferred sales charge will cover all sales and
administrative expenses which it incurs in connection with the Contract; the
difference will be covered by the general assets of the Company which are
attributable, in part, to the mortality and expense risk charge described
above.

Reduction or Elimination of the Deferred Sales Charge.
      For a particular Plan, we may reduce, waive or eliminate the deferred
sales charge. Any reduction, waiver or elimination of such charges will reflect
differences or expected differences in the amounts of unrecovered distribution
costs or services of the types


- --------------------------------------------------------------------------------
                                       7

<PAGE>

that the charge is intended to defray. When considering whether to reduce or
eliminate such charges or to grant such a waiver, we will take into account
factors which may include the following:

[bullet] the number of participants under the Plan;

[bullet] the expected level of assets or cash flow under the Plan;

[bullet] the level of agent involvement in sales activities;

[bullet] the level of our sales-related expenses;

[bullet] the specific distribution provisions under the Plan;

[bullet] the Plan's purchase of one or more other variable annuity contracts
         from us and the features of those contracts;

[bullet] the level of employer involvement in determining eligibility for
         distributions under the Contract; and

[bullet] our assessment of financial risk to the Company relating to
         surrenders.

      Any reduction, waiver or elimination of deferred sales charges will not
be unfairly discriminatory against any person.

      We may also negotiate provisions regarding the deferred sales charge with
respect to Contracts issued to certain employer groups or associations which
have negotiated on behalf of its employees. All variations in, or elimination
of, provisions regarding the deferred sales charge resulting from such
negotiations will be offered uniformly to all employees within the group. For
specific information on fees applicable to your Account, please call the number
listed under the "Inquiries" section of the Prospectus Summary.

      We will make any reduction in deferred sales charge according to our own
rules in effect at the time an application for a Contract is approved. We
reserve the right to change these rules from time to time.

FUND EXPENSES

      Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are illustrated in the Fee Table in
this Prospectus and described more fully in the accompanying Fund prospectuses.
 

PREMIUM AND OTHER TAXES

      Several states and municipalities impose a premium tax on Annuities.
These taxes currently range from 0% to 4%. The Company reserves the right to
deduct premium tax against Purchase Payments or Account Values at any time, but
no earlier than when we have a tax liability under state law. The Company's
current practice is to deduct for premium taxes at the time of complete
withdrawal or annuitization. In addition to the premium tax, the Company
reserves the right to assess a charge for any state or federal taxes due
against the Contract or the Separate Account assets.

                               CONTRACT VALUATION
===============================================================================

ACCOUNT VALUE

      Until the Annuity Date, the Account Value is the total dollar value of
amounts held in the Account as of any Valuation Date. The Account Value at any
given time is based on the value of the units held in each Subaccount, plus the
value of amounts held in any of the Credited Interest Options.

ACCUMULATION UNITS

      The value of your interests in a Subaccount is expressed as the number of
"Accumulation Units" that you hold multiplied by an "Accumulation Unit Value"
(or "AUV") for each unit. The AUV on any Valuation Date is determined by
multiplying the value on the immediately preceding Valuation Date by the net
investment factor of that Subaccount for the period between the immediately
preceding Valuation Date and the current Valuation Date. (See "Net Investment
Factor" below.) The Accumulation Unit Value will be affected by the investment
performance, expenses and charges of the applicable Fund and is reduced each
day by a percentage that accounts for the daily assessment of mortality and
expense risk charges and the administrative expense charge (if any).

   
      Initial Purchase Payments will be credited to your Account at the AUV
next computed following our acceptance of the application or enrollment form,
as described under "Purchase--Contract Purchase." Each subsequent Purchase
Payment (or amount transferred) received by the Company by the close of
business of the New York Stock Exchange will be credited to your Account at the
AUV next computed following our
    


- --------------------------------------------------------------------------------
                                       8

<PAGE>

receipt of your payment or transfer request. The value of an Accumulation Unit
may increase or decrease.

NET INVESTMENT FACTOR

      The net investment factor is used to measure the investment performance
of a Subaccount from one Valuation Date to the next. The net investment factor
for a Subaccount for any valuation period is equal to the sum of 1.0000 plus
the net investment rate. The net investment rate equals:

      (a) the net assets of the Fund held by the Subaccount on the current
           Valuation Date, minus

      (b) the net assets of the Fund held by the Subaccount on the preceding
           Valuation Date, plus or minus

      (c) taxes or provisions for taxes, if any, attributable to the operation
           of the Subaccount;

      (d) divided by the total value of the Subaccount's Accumulation and
            Annuity Units as of the preceding Valuation Date;

      (e) minus, a daily charge at the annual effective rate of 0.75% for
           mortality and expense risks during the Accumulation Period and 1.25%
           for mortality and expense risks during the Annuity Period, and up to
           0.25% as an administrative expense charge (currently 0%).

      The net investment rate may be either positive or negative.

                                   TRANSFERS
===============================================================================

   
      At any time prior to the Annuity Date, the Contract Holder, or you (if
permitted by the Contract Holder), can transfer amounts held under the Contract
from one Subaccount to another. Transfers between the Credited Interest Options
and the Subaccounts are subject to certain restrictions. (See Appendices I, II
and III.) A request for transfer can be made either in writing or by telephone.
(See "Telephone Transfers" below.) All transfers must be in accordance with the
terms of the Contract and your Plan, as applicable.
      The Company currently allows unlimited transfers of accumulated amounts
to available investment options without charge. The transfer amount may not be
less than $500. The total number of investment options in which you may invest
at any one time is limited. (See "Investment Options--The Funds.") Any transfer
will be based on the Accumulation Unit Value next determined after the Company
receives a valid transfer request at its Home Office. Transfers are not
available during the Annuity Period.

TELEPHONE TRANSFERS

      Subject to the Contract Holder's approval, you automatically have the
right to make transfers among Funds by telephone. We have enacted procedures to
prevent abuses of Account transactions by telephone, including requiring the
use of a personal identification number (PIN) to execute transactions. You are
responsible for safeguarding your PIN, and for keeping Account information
confidential. Although the Company's failure to follow reasonable procedures
may result in the Company's liability for any losses due to unauthorized or
fraudulent telephone transfers, the Company will not be liable for following
instructions communicated by telephone which it reasonably believes to be
genuine. Any losses incurred pursuant to actions taken by the Company in
reliance on telephone instructions reasonably believed to be genuine shall be
borne by you. To ensure authenticity, we record all calls on the 800 line.
Note: All Account information and transactions permitted are subject to the
terms of the Plan(s).

DOLLAR COST AVERAGING PROGRAM

      You may establish automated transfers of Account Values on a monthly or
quarterly basis through the Company's Dollar Cost Averaging Program, if
available under your Plan. There is no additional charge for the Program.
Dollar Cost Averaging is a system for investing a fixed amount of money at
regular intervals over a period of time. Dollar Cost Averaging does not ensure
a profit nor guarantee against loss in a declining market. You should consider
your financial ability to continue purchases through periods of low price
levels. For additional information, please refer to the "Inquiries" section of
the Prospectus Summary. Effective May 1, 1998, dollar cost averaging is not
permitted into Lexington Natural Resources Trust Subaccount.
    

- --------------------------------------------------------------------------------
                                       9

<PAGE>

                                  WITHDRAWALS
===============================================================================

      Subject to the limitations on withdrawals from the Fixed Plus Account,
the Contract Holder may withdraw all or a portion of the Account Value at any
time during the Accumulation Period. To request a withdrawal, the Contract
Holder, on your behalf, must properly complete a disbursement form and send it
to our Home Office. Payments for withdrawal requests will be made in accordance
with SEC requirements, but normally not later than seven calendar days
following our receipt of a disbursement form. Under a 457 Plan, pay-out
elections may not be changed once payments have commenced.

      Withdrawals may be requested in one of the following forms:

[bullet] Full Withdrawal of the Contract or an Account: The amount paid for a
         full withdrawal will be the Account Value(s) allocated to the
         Subaccounts, the Guaranteed Accumulation Account (plus or minus a
         market value adjustment) (see Appendix I), and the Fixed Account,
         minus any applicable deferred sales charge, plus the amount available
         for withdrawal from the Fixed Plus Account (see Appendix III).

[bullet] Partial Withdrawals (Percentage): The amount paid will be the
         percentage of the Account Value(s) requested minus any applicable
         deferred sales charge; however, the amount available for withdrawal
         from the Fixed Plus Account is limited (see Appendix III).

[bullet] Partial Withdrawal (Specified Dollar Amount): The amount paid will be
         the dollar amount requested. However, the amount withdrawn from the
         Account will equal the amount requested plus any applicable deferred
         sales charge. The amount available for withdrawal from the Fixed Plus
         Account is limited (see Appendix III).

      For any partial withdrawal, amounts will be withdrawn proportionately
from each Subaccount or Credited Interest Option in which the Account is
invested, unless requested otherwise in writing by the Contract Holder. All
amounts paid will be based on Account Values as of the next Valuation Date
after we receive a request for withdrawal at our Home Office, or on such later
date as the disbursement form may specify.

                        SYSTEMATIC DISTRIBUTION OPTIONS
===============================================================================

   
      The Company offers certain withdrawal options under the Contract that are
not considered annuity options ("Systematic Distribution Options"). To exercise
these options, the Account Value must meet the minimum dollar amounts and age
criteria applicable to that option.
      The Systematic Distribution Options currently available under the
Contract include the following:
    

[bullet] SWO--Systematic Withdrawal Option. SWO is a series of partial
         withdrawals from the Account based on a payment method you select. It
         is designed for those who want a periodic income while retaining
         investment flexibility for amounts accumulated under a Contract.

[bullet] ECO--Estate Conservation Option. ECO is available to Section 457 Plan
         Participants only. It offers the same investment flexibility as SWO
         but is designed for those who want to receive only the minimum
         distribution that the Code requires each year. Under ECO, the Company
         calculates the minimum distribution amount required by law at age
         70-1/2 (or retirement, if later), and pays you that amount once a year.
         (See "Tax Status.")

   
      Other Systematic Distribution Options may be added from time to time.
Additional information relating to any of the Systematic Distribution Options
may be obtained from your local representative or from the Company at its Home
Office.

      If you select one of the Systematic Distribution Options, the Account
will retain all of the rights and flexibility permitted under the Contract
during the Accumulation Period. The Account Value will continue to be subject
to the charges and deductions described in this Prospectus. Taking a withdrawal
under one of these Systematic Distribution Options may have tax consequences.
Any person concerned about tax implications should consult a competent tax
advisor prior to electing an option.
    

- --------------------------------------------------------------------------------
                                       10

<PAGE>

   
      Once elected, an Systematic Distribution Option may be revoked by the
Contract Holder at any time by submitting a written request to our Home Office.
Any revocation will apply only to the amount not yet paid. Once an option is
revoked, it may not be elected again, nor may any other Systematic Distribution
Options be elected. The Company reserves the right to discontinue the
availability of one or all of these Systematic Distribution Options at any
time, and/or to change the terms of future elections. To determine whether the
Systematic Distribution Options are available under your Plan, and to assess
the terms and conditions that may apply, you should check with your employer.
    

                   DEATH BENEFIT DURING ACCUMULATION PERIOD
===============================================================================

      The Contract provides that a death benefit is payable to the Contract
Beneficiary(ies) upon the death of the Participant before the Annuity Date. The
Contract Holder may direct that we make such payment to the Plan Beneficiary.
The amount of the death benefit will be equal to the Account Value. Death
benefit proceeds may be paid to the beneficiary:

[bullet] in a lump sum;

[bullet] in accordance with any of the Annuity Options available under the
         Contract; or

   
[bullet] under any Systematic Distribution Options available under the Contract
         (if the Plan Beneficiary is your spouse).
    

      The Contract Holder on behalf of a Plan Beneficiary may instead elect to
leave the Account Value invested in the Contract. However, the Code limits how
long the death benefit proceeds may be left in this option (see below).

      When paying the Contract Beneficiary, we will determine the Account Value
on the Valuation Date following the date on which we receive proof of death
acceptable to the Company. Interest, if any, will be paid from the date of
death at a rate no less than required by law. We will mail payment to the
Contract Beneficiary within seven days after we receive proof of death.

      The Code requires that distribution of death proceeds begin within a
certain period of time. For Non-Section 457 Plans, if required by the Code, the
entire value must be distributed within five years after the date of death
unless an Annuity option is elected within one year.

      For Section 457 Plans, generally, either payments must begin by December
31 of the year following the year of your death, or the entire value of your
benefits must be distributed by December 31 of the fifth year following the
year of your death. If your beneficiary is your spouse, he or she is not
required to begin distributions until the year you would have attained age
70-1/2. In no event may payments extend beyond the life expectancy (not to
exceed 15 years for a non-spousal beneficiary) of the beneficiary or any period
certain greater than the beneficiary's life expectancy.

      If no elections are made, no distributions will be made. Failure to
commence distributions within the above time periods can result in tax
penalties.

      Regardless of the method of payment, death benefit proceeds will
generally be taxed to the beneficiary in the same manner as if you had received
those payments. (See "Tax Status.")

                                 ANNUITY PERIOD
===============================================================================

ANNUITY PERIOD ELECTIONS

   
      For Section 457 Plans, the Code requires that minimum annual
distributions of the Account Value must begin by April 1st of the calendar year
following the calendar year in which a Participant attains age 70-1/2 or
retires, if later. In addition, distributions must be in a form and amount
sufficient to satisfy the Code requirements. These requirements may be
satisfied by the election of certain Annuity Options or Systematic Distribution
Options. (See "Tax Status.")
    

      At least 30 days prior to the Annuity Date, the Contract Holder must
notify us in writing of the following:

[bullet] the date on which you would like to start receiving annuity payments;


- --------------------------------------------------------------------------------
                                       11

<PAGE>

[bullet] the Annuity Option under which you want your payments to be calculated
         and paid;

[bullet] whether the payments are to be made monthly, quarterly, semi-annually
         or annually; and

   
[bullet] the investment option(s) used to provide annuity payments (i.e., a
         fixed annuity using the general account or any of the Subaccounts
         available at the time of annuitization). As of the date of this
         Prospectus, Aetna Growth and Income VP, Aetna Bond VP and Aetna
         Balanced VP, Inc. are the only Subaccounts available.
    

      Annuity payments will not begin until an Annuity Option has been
selected. Until a date and option are elected, the Account or Plan Account will
continue in the Accumulation Period. Once Annuity Payments begin, the Annuity
Option may not be changed, nor may transfers currently be made among the
investment options(s) selected.

ANNUITY OPTIONS

      The Contract Holder may choose one of the following Annuity Options:

Lifetime Annuity Options:

[bullet] Option 1--Life Annuity--An annuity with payments ending on the
         Annuitant's death.

[bullet] Option 2--Life Annuity with Guaranteed Payments--
         An annuity with payments guaranteed for 5, 10, 15 or 20 years, or such
         other periods as the Company may offer at the time of annuitization.

[bullet] Option 3--Life Income based Upon the Lives of Two Payees--An annuity
         will be paid during the lives of the Annuitant and a second Annuitant,
         with 100%, 66-2/3% or 50% of the payment to continue after the first
         death, or 100% of the payment to continue at the death of the second
         Annuitant and 50% of the payment to continue at the death of the
         Annuitant.

[bullet] Option 4--Life Income based Upon the Lives of Two Payees--An annuity
         with payments for a minimum of 120 months, with 100% of the payment to
         continue after the first death.

   
      If Option 1 or 3 is elected, it is possible that only one Annuity Payment
will be made if the Annuitant under Option 1, or the surviving Annuitant under
Option 3, should die prior to the due date of the second Annuity Payment. Once
lifetime Annuity payments begin, the Annuitant cannot elect to receive another
form of benefit.
    

Nonlifetime Annuity Options:

[bullet] Option 1--Payments for a Specified Period--
   payments will continue for a specified period of time, as provided for
   under your Contract.

   
      Under the nonlifetime option, the type of annuity (fixed or variable) and
the number of years that may be selected are determined by the investment
options used prior to annuitization. For amounts held in the Fixed Plus
Account, the annuity must be paid on a fixed basis and payments may be made for
5-30 years. For amounts held in the Subaccounts, the Guaranteed Accumulation
Account or the Fixed Account, an annuity may be selected on a fixed or variable
basis and payments may be made for 3-30 years. If this option is elected on a
variable basis, the Contract Holder may request at any time during the payment
period that the present value of all or any portion of the remaining variable
payments be paid in one sum. However, any lump-sum elected before three years
of payments have been completed will be treated as a withdrawal during the
Accumulation Period and any applicable deferred sales charge will be assessed.
(See "Charges and Deductions--Deferred Sales Charge.")
    

      We may also offer additional Annuity Options under the Contract from time
to time.

ANNUITY PAYMENTS

      Date Payouts Start. When payments start, the age of the Annuitant plus
the number of years for which payments are guaranteed must not exceed 95.
Annuity payments may not extend beyond (a) the life of the Annuitant, (b) the
joint lives of the Annuitant and beneficiary, (c) a period certain greater than
the Annuitant's life expectancy, or (d) a period certain greater than the joint
life expectancies of the Annuitant and beneficiary.

      Amount of Each Annuity Payment. The amount of each payment depends on the
Account Value, how it is allocated between fixed and variable payouts, and the
Annuity Option chosen. No election may be made that would result in the first
Annuity payment of less than $20, or total yearly Annuity payments of less than
$100. If the Account or Plan Account Value on the Annuity Date is insufficient
to elect an option for the minimum amount specified, a lump-sum payment must be
elected.


- --------------------------------------------------------------------------------
                                       12

<PAGE>

      If Annuity Payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate
selected (3-1/2% 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 exceeds 5% on an annualized basis. Annuity payments
would decline if the rate were below 5%. Use of the 3-1/2% 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. (See the
Statement of Additional Information for further discussion on the impact of
selecting an assumed net investment rate.)

CHARGES DEDUCTED DURING THE ANNUITY PERIOD

      We make a daily deduction for mortality and expense risks from any
amounts held on a variable basis. Therefore, electing the nonlifetime option on
a variable basis will result in a deduction being made even though we assume no
mortality risk. We may also deduct a daily administrative charge from amounts
held under the variable options. (See "Charges and Deductions.")

DEATH BENEFIT PAYABLE DURING THE ANNUITY PERIOD

      If a Participant dies after Annuity payments have begun, any death
benefit payable will depend on the terms of the Contract and the Annuity Option
selected. If Option 1 or Option 3 was elected, Annuity payments will cease on
the death of the Annuitant under Option 1 or the death of the surviving
Annuitant under Option 3.

      If Lifetime Option 2 or Option 4 was elected and the death of the
Annuitant under Option 2, or the surviving Annuitant under Option 4, occurs
prior to the end of the guaranteed minimum payment period, we will pay to the
Contract Beneficiary in a lump sum, unless otherwise requested, the present
value of the guaranteed annuity payments remaining.

      If the nonlifetime option was elected, and the Annuitant dies before all
payments are made, the value of any remaining payments may be paid in a
lump-sum to the Plan Beneficiary (unless otherwise requested), and no deferred
sales charge will be imposed.

      For Non-Section 457 Plans, if required by the Code, and there is a death
benefit payable under the Annuity Option elected, the remaining values must be
distributed at least as rapidly as under the original method of distribution.

      For Section 457 Plans, if there is a death benefit payable under the
Annuity Option elected, Annuity Payments must be distributed to your
beneficiary at least as rapidly as under the original method of distribution
and in substantially nonincreasing amounts.

      Any lump-sum payment paid under the applicable lifetime or nonlifetime
Annuity options will be made within seven calendar days after proof of death
acceptable to us, and a request for payment are received at our Home Office.

      The value of any death benefit proceeds will be determined as of the next
Valuation Date after we receive acceptable proof of death and a request for
payment. Under Options 2 and 4, such value will be reduced by any payments made
after the date of death.

                                   TAX STATUS
===============================================================================

   
INTRODUCTION

      The following provides a general discussion and is not intended as tax
advice. This discussion reflects the Company's understanding of current federal
income tax law. Such laws may change in the future, and it is possible that any
change could be retroactive (i.e., effective prior to the date of the change).
The Company makes no guarantee regarding the tax treatment of any Contract or
transaction involving a Contract. The ultimate effect of federal income taxes
on the amounts held under a Contract, on Annuity Payments, and on the economic
benefit to the Contract Holder, Participant or Beneficiary may depend upon the
tax status of the individual concerned. Moreover, no attempt has been made to
consider any applicable state or other tax laws. Any person concerned about
these tax implications should consult a competent tax advisor before initiating
any transaction.
    

TAXATION OF THE COMPANY

      The Company is taxed as a life insurance company under the Code. Since
the Separate Account is not an entity separate from the Company, it will not be
taxed separately as a "regulated investment company" under


- --------------------------------------------------------------------------------
                                       13

<PAGE>

the Code. Investment income and realized capital gains are automatically
applied to increase reserves under the Contracts. Under existing federal income
tax law, the Company believes that the Separate Accounts investment income and
realized net capital gains will not be taxed to the extent that such income and
gains are applied to increase the reserves under the Contracts.

      The Company does not anticipate that it will incur any federal income tax
liability attributable to the Separate Account and, therefore, the Company does
not intend to make provisions for any such taxes. However, if changes in the
federal tax laws or interpretations thereof result in the Company being taxed
on income or gains attributable to the Separate Account, then the Company may
impose a charge against the Separate Account (with respect to some or all
Contracts) in order to set aside provisions to pay such taxes.

TAX STATUS OF THE CONTRACT

      With respect to contracts sold to taxable organizations, Section 817(h)
of the Code requires that the investments of the Funds be "adequately
diversified" in accordance with Treasury Regulations in order for the Contracts
to qualify as annuity contracts with federal tax law. The Separate Account,
through the Funds, intends to comply with the diversification requirements
prescribed by the Treasury in Reg. Sec. 1.817-5, which affect how the Fund's
assets may be invested.

      In certain circumstances, owners of variable annuity contracts that are
taxable organizations may be considered the owners, for federal income tax
purposes, of the assets of the separate accounts used to support their
contracts. In these circumstances, income and gains from the separate account
assets would be includible in the variable contract owner's gross income. One
of the circumstances that has raised this issue is the number of funding
options available under the Contract. The Company reserves the right to modify
the Contract as necessary to attempt to prevent a Contract Holder from being
considered the owner of a pro rata share of the assets of the Separate Account.
 

CONTRACTS USED WITH CERTAIN RETIREMENT PLANS

      In General: The Contract may be purchased and used in connection with:

(1) Employer-sponsored deferred compensation plans sponsored by tax-exempt
    organizations for deferrals not subject to Code Section 457 and by taxable
    organizations for their employees and/or independent contractors; and

(2) Employer-sponsored deferred compensation plans sponsored by
    non-governmental tax-exempt organizations for deferrals that are subject
    to Code Section 457 for their employees and/or independent contractors.

   
      The Company makes no attempt to provide more than general information
about use of the Contracts with the various types of retirement plans.
Participants as well as beneficiaries are cautioned that the rights of any
person to any benefits under the Contracts may be subject to the terms and
conditions of the plans themselves, in addition to the terms and conditions of
the Contract issued in connection with such plans. Some retirement plans are
subject to distribution and other requirements that are not incorporated in the
provisions of the Contracts. Purchasers are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts satisfy applicable laws and should consult their legal counsel and
tax advisor regarding the suitability of the Contract.
    

SECTION 457 PLANS

      Section 457 provides for certain deferred compensation plans. These plans
may be offered with respect to service for state governments, local
governments, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and non-governmental tax exempt organizations.
These plans are subject to various restrictions on contributions and
distributions. The plans may permit participants to specify the form of
investment for their deferred compensation account. The Contract is made
available to plans subject to Code Section 457 only if the plan is sponsored by
a non-governmental tax exempt employer. Under such plans, all amounts of
compensation deferred, all property and rights purchased with such amounts and
all income attributable to such amounts, property and rights remains solely the
property and rights of the employer and is subject to the claims of the
employer's general creditors. Depending on the terms of the particular plan,
the employer may be entitled to draw on deferred amounts for purposes unrelated
to its Section 457 plan obligations. In general, all amounts received under a
Section 457 plan are taxable and reportable to the IRS as taxable income. This
includes payments for death benefits, periodic and nonperiodic distributions.
Also, all amounts except death benefit


- --------------------------------------------------------------------------------
                                       14

<PAGE>

proceeds are subject to federal income tax withholding as wages. If we make
payments directly to a Participant on behalf of the employer as Contract
Holder, we will withhold federal taxes (state taxes, if applicable).

   
      The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from your gross income. For Section 457 Plan Participants, such limit
is generally the lesser of $8,000, as adjusted to reflect changes in the cost
of living, or 33-1/3% of your includible compensation (25% of gross
compensation).
    

      Minimum Distribution Requirements: The Code has required distribution
rules for Section 457 Plans. Distributions must generally begin by April 1 of
the calendar year following the calendar year in which you attain age 70-1/2 or
retire, whichever is later.

   
      In general, annuity payments must be distributed over your life or the
joint lives of you and your Beneficiary, or over a period not greater than your
life expectancy or the joint life expectancies of you and your Beneficiary.
Also, any distribution payable over a period of more than one year must be made
in substantially non-increasing amounts.

      If you die after the required minimum distribution has commenced,
distributions to your Beneficiary must be made at least as rapidly as under the
method of distribution in effect at the time of your death. However, if the
minimum required distribution is calculated each year based on your single life
expectancy or the joint life expectancies of you and your Beneficiary, the
regulations for Code Section 401(a)(9) provide specific rules for calculating
the minimum required distributions at your death. For example, if you have
elected ECO with the calculation based on your single life expectancy, and the
life expectancy is recalculated each year, your recalculated life expectancy
becomes zero in the calendar year following your death and the entire remaining
interest must be distributed to your Beneficiary by December 31 of the year
following your death. The rules are complex and you should consult your tax
advisor before electing the method of calculation to satisfy the minimum
distribution requirements.

      If you die before the required minimum distribution has commenced, your
entire interest must be distributed by December 31 of the calendar year
containing the fifth anniversary of the date of your death. Alternatively,
payments may be made over the life of the Beneficiary or over a period not
extending beyond the life expectancy of the Beneficiary (not to exceed 15 years
for a non-spousal beneficiary) provided the distribution begins by December 31
of the calendar year following the calendar year of your death. If the
Beneficiary is your spouse, distribution must begin by the later of December 31
of the calendar year following the calendar year of your death or December 31
of the calendar year in which you would have attained age 70-1/2.
    

      If you fail to receive the minimum required distribution for any tax
year, a 50% excise tax is imposed on the required amount that was not
distributed.

PLANS OF NON-SECTION 457 TAX-EXEMPT
ORGANIZATIONS AND TAXABLE ORGANIZATIONS

   
      Effective January 1, 1987, certain rules applicable to deferred
compensation plans of state and local governments (Section 457 of the Code)
were extended to deferred compensation plans sponsored by tax-exempt employers.
While no limitation is imposed on deferrals under deferred compensation plans
of taxable employers, each Participant in a plan subject to Section 457 has a
maximum allowable annual deferral of $8,000, as adjusted to reflect changes in
the cost of living, or 33-1/3% of the Participant's includible compensation (25%
of gross compensation). However, the Code does allow the following
"grandfathering" provisions for those who were Participants in tax-exempt
employer deferred compensation plans, as of August 16, 1986.
    

(1) Section 457 shall not apply to amounts deferred from taxable years
     beginning before January 1, 1987.

(2) Section 457 shall not apply to amounts deferred from taxable years
     beginning after December 31, 1986 provided (a) a deferral agreement was in
     writing on August 16, 1986, and (b) as of August 16, 1986, the agreement
     provided for a deferral of a fixed amount or of an amount determined
     pursuant to a fixed formula, and (c) the agreement has not been modified
     as to amount or formula after August 16, 1986.

      Only individuals may participate under a Section 457 Plan subject to the
Section 457 rules. Therefore, corporations may not participate in tax-exempt
employer deferred compensation plans unless they qualify under the
"grandfathering" provisions.


- --------------------------------------------------------------------------------
                                       15

<PAGE>

      Any reference in this prospectus to Section 457 Plans relates only to
contributions subject to Section 457 of the Code and these references do not
apply to "grandfathered" contributions.

      In general, all amounts received under these Plans are taxable and,
except for death benefit payments, are subject to federal income tax
withholding as wages. This includes payments for periodic and nonperiodic
distributions. Under Plans sponsored by taxable organizations, such payments
made to a Participant are generally deductible by the Contract Holder as
compensation paid to the Participant. If we make payments directly to a
Participant or beneficiary on behalf of the employer as Contract Holder, we
will report to the IRS the taxable income and we will withhold federal taxes
(and state taxes, if applicable) for payments to Participants.

      The owner of a Contract who is not a natural person must generally
include in income any increase in the excess of the Account Value over the
"investment in the contract" during the taxable year. There are some exceptions
to this rule and prospective owners that are not natural persons may wish to
discuss this with a competent tax advisor.

   
      For Contracts sold to taxable organizations, Section 72(e)(11) of the
Code provides that annuity contracts issued by the same insurer (and its
affiliates) to the same contract holder during a calendar year shall be treated
as a single Annuity Contract. This means that any amount received under this
Contract, or any other contract subject to this provision, prior to the
contract's Annuity starting date will be taxable (and possibly subject to the
10% penalty tax) to the extent of the combined income in all such contracts.
For purposes of this section, immediate annuity contracts, and contracts used
to fund qualified pension and profit-sharing plans under Section 401(a) of the
Code, annuity plans under Sections 403(a) or 403(b) of the Code, and individual
retirement annuities and accounts under Section 408 of the Code are not
aggregated.
    

                                 MISCELLANEOUS
===============================================================================

VOTING RIGHTS

      Each Contract Holder may direct us in the voting of shares at meetings of
shareholders of the appropriate Fund(s). The number of votes to which each
Contract Holder may give direction will be determined as of the record date.

      The number of votes each Contract Holder is entitled to direct with
respect to a particular Fund during the Accumulation Period is equal to the
portion of the current value of the Contract attributable to that Fund, divided
by the net asset value of one share of that Fund. During the Annuity Period,
the number of votes is equal to the valuation reserve applicable to the portion
of the Contract attributable to that Fund, divided by the net asset value of
one share of that Fund. In determining the number of votes, fractional votes
will be recognized. Where the value of the Contract or valuation reserve
relates to more than one Fund, the calculation of votes will be performed
separately for each Fund.

      Each Contract Holder will receive a notice of each meeting of
shareholders of that Fund, together with any proxy solicitation materials, and
a statement of the number of votes attributable to the Contract. Votes
attributable to Contract Holders who do not direct us will be cast by us in the
same proportion as the votes for which we have received directions.

MODIFICATION OF THE CONTRACT

      The Company may change the Contract as required by federal or state law.
In addition, the Company may, upon 30 days written notice to the Contract
Holder, make other changes to the Contracts that would apply only to
individuals who become Participants under that Contract after the effective
date of such changes. If the Contract Holder does not agree to a change, no new
Participants will be covered under the Contract. Certain changes will require
the approval of appropriate state or federal regulatory authorities.

DISTRIBUTION

      The Company will serve as Underwriter for the securities sold by this
Prospectus. The Company is registered as a broker-dealer with the Securities
and Exchange Commission and is a member of the National Association of
Securities Dealers, Inc. (NASD). As Underwriter, the Company will contract with
one or more registered broker-dealers ("Distributors"), including at least one
affiliate of the Company, to offer and sell the Contracts. All persons offering
and selling the Contracts must be registered representatives of the
Distributors and must also be licensed as insurance


- --------------------------------------------------------------------------------
                                       16

<PAGE>

agents to sell variable annuity contracts. These registered representatives may
also provide services to Participants in connection with establishing their
Accounts under the Contract.

      Persons offering and selling the Contracts may receive commissions in
connection with the sale of the Contracts. The maximum percentage amount that
the Company will ever pay as commission with respect to any given Purchase
Payment is with respect to those made during the first year of Purchase
Payments under an Account. That percentage amount will range from 1% to 6% of
those Purchase Payments. The Company may also pay renewal commissions on
Purchase Payments made after the first year and asset-based service fees. The
average of all payments made by the Company is estimated to equal approximately
3% of the total Purchase Payments made over the life of an average Contract. In
addition, some sales personnel may receive various types of non-cash
compensation as special sales incentives, including trips and educational
and/or business seminars. Supervisory and other management personnel of the
Company may receive compensation that will vary based on the relative
profitability to the Company of the funding options you select. Funding options
that invest in Funds advised by the Company or its affiliates are generally
more profitable to the Company. The Company may also reimburse the Distributor
for certain actual expenses. The name of the Distributor and the registered
representative responsible for your Account are set forth on your enrollment
form. Commissions and sales related expenses are paid by the Company and are
not deducted from Purchase Payments. See "Charges and Deductions--
Deferred Sales Charge."

      Occasionally, we may pay commissions and fees to Distributors which are
affiliated or associated with the Contract Holder or the Participants. We may
also enter into agreements with some entities associated with the Contract
Holder or Participants in which we would agree to pay the entity for certain
services in connection with administering the Contracts. In both these
circumstances there may be an understanding that the Distributor or entity
would endorse the Company as a provider of the Contract. You will be notified
if you are purchasing a Contract that is subject to these arrangements.

PERFORMANCE REPORTING

   
      From time to time, the Company may advertise different types of
historical performance for the Subaccounts of the Separate Account. The Company
may advertise the "standardized average annual total returns" of the
Subaccounts, calculated in a manner prescribed by the SEC, as well as the
"non-standardized returns." "Standardized average annual total returns" are
computed according to a formula in which a hypothetical investment of $1,000 is
applied to the Subaccount and then related to the ending redeemable values over
the most recent one, five and ten-year periods (or since the date contributions
were first received in the Fund under the Separate Account, if less than the
full period). Standardized returns will reflect the reduction of all recurring
charges during each period (e.g., mortality and expense risk charges, annual
maintenance fees, administrative expense charge (if any) and any applicable
deferred sales charge). "Non-standardized returns" will be calculated in a
similar manner, except that non-standardized figures will not reflect the
deduction of any applicable deferred sales charge (which would decrease the
level of performance shown if reflected in these calculations). The
non-standardized figures may also include monthly, quarterly, year-to-date and
three-year periods, and may include performance from the Fund's inception date.
    

      The Company may also advertise certain ratings, rankings or other
information related to the Company, the Subaccounts or the Funds. Further
details regarding performance reporting and advertising are described in the
Statement of Additional Information.

TRANSFER OF OWNERSHIP; ASSIGNMENT

      No assignment of a Contract will be binding on us unless made in writing
and sent to us at our Home Office. The Company will use reasonable procedures to
confirm that the assignment is authentic, including verification of signature.
If the Company fails to follow its procedures, it would be liable for any losses
to you directly resulting from the failure. Otherwise, we are not responsible
for the validity of any assignment. The rights of the Owner and the interest of
the Annuitant and any Beneficiary will be subject to the rights of any assignee
of record.

DELAY OR SUSPENSION OF PAYMENTS

      The Company reserves the right to suspend or postpone the date of payment
for any benefit or values (a) on any Valuation Date on which the New York Stock
Exchange ("Exchange") is closed (other than customary weekend and holiday
closings) or when trading on the Exchange is restricted; (b) when an emergency
exists, as determined by the SEC, so that disposal of securities held


- --------------------------------------------------------------------------------
                                       17

<PAGE>

in the Subaccounts is not reasonably practicable or it is not reasonably
practicable for the Company fairly to determine the value of the Subaccount's
assets; or (c) during such other periods as the SEC may by order permit for the
protection of investors. The conditions under which restricted trading or an
emergency exists shall be determined by the rules and regulations of the SEC.

LEGAL MATTERS AND PROCEEDINGS
      The Company knows of no material legal proceedings pending to which the
Separate Account or the Company is a party or which would materially affect the
Separate Account. The validity of the securities offered by this Prospectus has
been passed upon by Counsel to the Company.

   
YEAR 2000
      As a healthcare and financial services enterprise, Aetna Inc. (referred
to collectively with its affiliates and subsidiaries as Aetna), is dependent on
computer systems and applications to conduct its business. Aetna has dveloped
and is currently executing a comprehensive risk-based plan designed to make its
computer systems, applications and facilities Year 2000 ready. The plan covers
four stages including (i) inventory, (ii) assessment, (iii) remediation and
(iv) testing and certification. At year end 1997, Aetna, including the Company,
had substantially completed the inventory and assessment stages. The
remediation process is currently underway and targeted for completion by
December 31, 1998. Testing and certification of these systems and applications
are targeted for completion by mid-1999. The costs of these efforts will not
affect the Separate Account.

      The Company, its affiliates and the mutual funds that serve as investment
options for the Separate Account also have relationships with investment
advisers, broker dealers, transfer agents, custodians or other securities
industry participants or other service providers that are not affiliated with
Aetna. Aetna, including the Company, is initiating communication with its
critical external relationships to determine the extent to which Aetna may be
vulnerable to such parties' failure to resolve their own Year 2000 issues.
Where practicable Aetna and the Company will assess and attempt to mitigate
their risks with respect to the failure of these parties to be Year 2000 ready.
There can be no assurance that failure of third parties to complete adequate
preparations in a timely manner, and any resulting systems interruptions or
other consequences, would not have an adverse effect, directly or indirectly,
on the Separate Account, including, without limitation, its operation or the
valuation of its assets and units.
    

- --------------------------------------------------------------------------------
                                       18

<PAGE>

                                CONTENTS OF THE
                      STATEMENT OF ADDITIONAL INFORMATION
===============================================================================

     The Statement of Additional Information contains more specific information
on the Separate Account and the Contract, as well as the financial statements
of the Separate Account and the Company. A list of the contents of the SAI is
set forth below:

       General Information and History
       Variable Annuity Account B
       Offering and Purchase of Contracts
       Performance Data
          General
          Average Annual Total Return Quotations
       Annuity Payments
       Sales Material and Advertising
       Independent Auditors
       Financial Statements of the Separate Account
       Financial Statements of the Company

- --------------------------------------------------------------------------------
                                       19

<PAGE>

                                  APPENDIX I

                        GUARANTEED ACCUMULATION ACCOUNT
===============================================================================
   
     This Appendix is a summary of GAA and is not intended to replace the GAA
prospectus. You should read the accompanying GAA prospectus carefully before
investing.

     The Guaranteed Accumulation Account ("GAA") is a credited interest option
available during the Accumulation Period. Amounts allocated to GAA are held by
the Company as described in the GAA prospectus.
    
     GAA is a credited interest option in which we guarantee stipulated rates
of interest for stated periods of time on amounts directed to GAA. The interest
rate stipulated is an annual effective yield; that is, it reflects a full
year's interest. Interest is credited daily at a rate that will provide the
guaranteed annual effective yield over the period of one year. This option
guarantees the minimum interest rate specified in the Contract.

     During a specified period of time (the "deposit period"), amounts may be
applied to any or all available Guaranteed Terms within the Short-Term and
Long-Term Classifications. Short-Term GAA has Guaranteed Terms from one to
three years, and Long-Term GAA has Guaranteed Terms from three to ten years.

     Purchase Payments must remain in GAA for the full Guaranteed Term to
receive the quoted interest rates. Withdrawals or transfers from a Guaranteed
Term before the end of that Guaranteed Term may be subject to a market value
adjustment ("MVA"). An MVA reflects the change in the value of the investment
due to changes in interest rates since the date of deposit. When interest rates
increase after the date of deposit, the value of the investment decreases, and
the MVA is negative. Conversely, when interest rates decrease after the date of
deposit, the value of the investment increases, and the MVA is positive. It is
possible that a negative MVA could result in you receiving an amount that is
less than the amount paid into GAA.

     As a Guaranteed Term matures, assets accumulating under GAA may be (a)
transferred to a new Guaranteed Term, (b) transferred to the other available
investment options, or (c) withdrawn. Amounts withdrawn may be subject to a
deferred sales charge and/or federal tax liabilities.

     By notifying us at our Home Office at least 30 days prior to the Annuity
Date, you may elect a variable annuity and have amounts that have been
accumulating under GAA transferred to one or more of the Subaccounts available
during the Annuity Period. GAA cannot be used as an investment option during
the Annuity Period.

MORTALITY AND EXPENSE RISK CHARGES
     We make no deductions from the credited interest rate for mortality and
expense risks; these risks are considered in determining the credited rate.

TRANSFERS
     Amounts applied to a Guaranteed Term during a deposit period may not be
transferred to any other funding option or to another Guaranteed Term during
that deposit period or for 90 days after the close of that deposit period.
Transfers are permitted from Guaranteed Terms of one classification to
available Guaranteed Terms of another classification. We will apply an MVA to
GAA transfers made before the end of a Guaranteed Term. Transfers of GAA values
due to a maturity are not subject to an MVA.


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                                       20

<PAGE>

                                  APPENDIX II

                                 FIXED ACCOUNT
===============================================================================

     The following summarizes material information concerning the Fixed
Account. Amounts allocated to the Fixed Account are held in the Company's
general account that supports general insurance and annuity obligations.
Interests in the Fixed Account have not been registered with the SEC in
reliance on exemptions under the Securities Act of 1933, as amended. Disclosure
in the Prospectus regarding the Fixed Account, may, however, be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of such statements. Disclosure in this
Appendix regarding the Fixed Account has not been reviewed by the SEC.

     The Fixed Account guarantees the minimum interest rate specified in the
Contract. The Company may credit a higher interest rate from time to time. The
current rate is subject to change at any time, but will never fall below the
guaranteed minimum. The Company's determination of interest rates reflects the
investment income earned on invested assets and the amortization of any capital
gains and/or losses realized on the sale of invested assets. Under the Fixed
Account, the Company assumes the risk of investment gain or loss by
guaranteeing Account Values and promising a minimum interest rate and Annuity
Payment.

     Under certain emergency conditions, we may defer payment of a Fixed
Account withdrawal value (a) for a period of up to six months, or (b) as
provided by federal law.

     In addition, if allowed by state law, the Company may pay any Fixed
Account withdrawal value in equal payments, with interest, over a period not to
exceed 60 months, when:

   (a) the Fixed Account withdrawal value for the Contract or for the total of
       the Accounts under the Contract exceeds $250,000 on the day prior to the
       withdrawal; and

   (b) the sum of the current Fixed Account withdrawal and the total of all
       Fixed Account withdrawals from the Contract or any Account under the
       Contract within the past 12 calendar months exceeds 20% of the amount in
       the Fixed Account on the day prior to the current withdrawal.

     Interest, as used above, will not be more than two percentage points below
any rate determined prospectively by the Board of Directors for this class of
Contract. In no event will the interest rate be less than the minimum stated in
the Contract.

     Amounts applied to the Fixed Account will earn the interest rate in effect
when actually applied to the Fixed Account.

     The Fixed Account will reflect a compound interest rate credited by us.
The interest rate quoted is an annual effective yield. We make no deductions
from the credited interest rate for mortality and expense risks; these risks
are considered in determining the credited rate.

     If a withdrawal is made from the Fixed Account, a deferred sales charge
may apply. (See "Charges and Deductions--Deferred Sales Charge.")

TRANSFERS AMONG INVESTMENT OPTIONS

     Transfers from the Fixed Account to any other available investment
option(s) are allowed in each calendar year during the Accumulation Period. The
amount which may be transferred may vary at our discretion; however, it will
never be less than 10% of the amount held under the Fixed Account. Transfers to
the Fixed Plus Account (if available under the Contract) will be permitted
without regard to this limitation.

     By notifying us at our Home Office at least 30 days before Annuity
payments begin, you may elect to have amounts which have been accumulating
under the Fixed Account transferred to one or more of the Subaccounts available
during the Annuity Period to provide variable Annuity Payments.


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                                       21

<PAGE>

                                 APPENDIX III

                               FIXED PLUS ACCOUNT
===============================================================================

     The following summarizes material information concerning the Fixed Plus
Account. Amounts allocated to the Fixed Plus Account are held in the Company's
general account that supports insurance and annuity obligations. Interests in
the Fixed Plus Account have not been registered with the SEC in reliance on
exemptions under the Securities Act of 1933, as amended. Disclosure in this
Prospectus regarding the Fixed Plus Account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of the statements. Disclosure in this Appendix
regarding the Fixed Plus Account has not been reviewed by the SEC.

FIXED PLUS ACCOUNT

     The Fixed Plus Account guarantees that amounts allocated to this option
will earn the minimum Fixed Plus interest rate specified in the Contract. We
may credit a higher interest rate from time to time. Our determination of
interest rates reflects the investment income earned on invested assets and the
amortization of any capital gains and/or losses realized on the sale of
invested assets. Under this option, we assume the risk of investment gain or
loss by guaranteeing Net Purchase Payment values and promising a minimum
interest rate and Annuity payment.

     The Fixed Plus Account will reflect a compound interest rate credited by
us. The interest rate quoted is an annual effective yield. Amounts applied to
the Fixed Plus Account will earn the Fixed Plus interest rate in effect when
actually applied to the Fixed Plus Account. We make no deductions from the
credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.

     Beginning on the tenth Account Year, we will credit amounts held in the
Fixed Plus Account with an interest rate that is at least 0.25% higher than the
then-declared interest rate for the Fixed Plus Accounts for Accounts that have
not reached their tenth anniversary.

     We reserve the right to limit Net Purchase Payment(s) and/or transfers to
the Fixed Plus Account.

FIXED PLUS ACCOUNT WITHDRAWALS

   
     The amount eligible for partial withdrawal is 20% of the amount held in
the Fixed Plus Account on the day we receive a written request in our Home
Office, reduced by any Fixed Plus Account withdrawals, transfers or
annuitizations made in the prior 12 months. In calculating the 20% limit, we
reserve the right to include payments made due to the election of any
Systematic Distribution Option.
    

     The 20% limit is waived if the partial withdrawal is due to annuitization
under a fixed lifetime or nonlifetime Annuity Option or a variable lifetime
Annuity Option, or due to death. The waiver upon death will only be exercised
once and must occur within six months after the Participant's date of death.
Any such partial withdrawal or annuitization must also be made pro rata from
all funding options used under the Account.

     If a full withdrawal is requested, we will pay any amounts held in the
Fixed Plus Account, with interest, in five annual payments that will be equal
to:

1. One-fifth of the Fixed Plus Account value on the day the request is
 received, reduced by any Fixed Plus Account withdrawals, transfers or
 annuitizations made in the prior 12 months;

2. One-fourth of the remaining Fixed Plus Account value twelve months later;

3. One-third of the remaining Fixed Plus Account value twelve months later;

4. One-half of the remaining Fixed Plus Account value twelve months later; and

5. The balance of the Fixed Plus Account value twelve months later.

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                                       22

<PAGE>

     Once we receive a request for a full withdrawal from an Account, no
further withdrawals or transfers will be permitted from the Fixed Plus Account.
 

     A full withdrawal from the Fixed Plus Account may be canceled at any time
before the end of the five-payment period.

     We will waive the Fixed Plus Account full withdrawal provision, if the
withdrawal is made:

(a) due to your death, before Annuity payments begin, within 6 months of the
date of death;

(b) due to the election of a fixed lifetime or nonlifetime Annuity Option or a
variable lifetime Annuity option;

(c) when the Fixed Plus Account value is $3,500 or less (and no withdrawals,
  transfers or annuitizations have been made from the Account within the prior
  12 months).

TRANSFERS AMONG INVESTMENT OPTIONS

   
     The amount eligible for transfer from the Fixed Plus Account is 20% of the
amount held in the Fixed Plus Account on the day we receive a written request
in our Home Office, reduced by any Fixed Plus Account withdrawals, transfers or
annuitizations made in the prior 12 months. In calculating the 20% limit, we
reserve the right to include payments made due to the election of a Systematic
Distribution Option. We will waive the 20% transfer limit when the value in the
Fixed Plus Account is $1,000 or less.
    

     By notifying us at our Home Office at least 30 days before Annuity
payments begin, the Contract Holder may elect to have amounts which have been
accumulating under the Fixed Plus Account transferred to one or more of the
Subaccounts available during the Annuity Period, to provide lifetime variable
Annuity payments.

SWO
     The Systematic Withdrawal Option may not be elected if you have requested
a Fixed Plus Account transfer or withdrawal within the prior 12-month period.


- --------------------------------------------------------------------------------
                                       23

<PAGE>

   
                                  APPENDIX IV

                        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, 1997 (as applicable), is derived from the
financial statements of the Separate Account, which 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. The Accumulation Unit Values and the percentage change in the value
of an accumulation unit reflect a mortality and expense risk charge of 1.25%
until February 23, 1996, when the mortality and expense risk charge was reduced
to 0.75% during the Accumulation Period. It will increase to 1.25% for the year
ended December 31, 1997 during the Annuity Period.


<TABLE>
<CAPTION>
                                        1997               1996                1995                 1994
<S>                                <C>                <C>                 <C>                  <C>
AETNA ASCENT VP
Value at beginning of period          $13.055            $10.652             $10.000(2)
Value at end of period                $15.535            $13.055             $10.652
Increase (decrease) in value of
 accumulation unit(1)                   19.00%             22.56%               6.52%
Number of accumulation units
 outstanding at end of period          90,134             35,959              16,791
AETNA BALANCED VP, INC.
Value at beginning of period          $15.765            $13.803             $10.971              $11.164
Value at end of period                $19.166            $15.765             $13.803              $10.971
Increase (decrease) in value of
 accumulation unit(1)                   21.57%             14.22%              25.81%               (1.73)%
Number of accumulation units
 outstanding at end of period       1,970,116          2,141,189           6,430,772            3,541,703
AETNA BOND VP
Value at beginning of period          $12.546            $12.212             $10.457              $11.006
Value at end of period                $13.486            $12.546             $12.212              $10.457
Increase (decrease) in value of
 accumulation unit(1)                    7.49%              2.74%              16.78%              ( 4.99)%
Number of accumulation units
 outstanding at end of period       1,921,538          2,206,334           4,853,662            1,988,960
AETNA CROSSROADS VP
Value at beginning of period          $12.483            $10.594             $10.000(2)
Value at end of period                $14.566            $12.483             $10.594
Increase(decrease) in value of
 accumulation unit(1)                   16.69%             17.83%               5.94%
Number of accumulation units
 outstanding at end of period         100,256             26,260              16,953
AETNA GROWTH AND INCOME VP
Value at beginning of period          $17.246            $13.972             $10.698              $10.940
Value at end of period                $22.233            $17.246             $13.972              $10.698
Increase (decrease) in value of
 accumulation unit(1)                   28.92%             23.43%              30.61%               (2.21)%
Number of accumulation units
 outstanding at end of period      14,879,862         14,930,380          30,554,957           11,117,383
AETNA INDEX PLUS LARGE CAP VP
Value at beginning of period          $10.940            $10.000(7)
Value at end of period                $14.538            $10.940
Increase (decrease) in value of
 accumulation unit(1)                   32.89%              9.40%(9)
Number of accumulation units
 outstanding at end of period         485,417             72,973
AETNA LEGACY VP
Value at beginning of period          $11.826            $10.443             $10.000(8)
Value at end of period                $13.441            $11.826             $10.443
Increase (decrease) in value of
 accumulation unit(1)                   13.65%             13.25%               4.43%
Number of accumulation units
 outstanding at end of period          54,849              7,510               2,222
AETNA MONEY MARKET VP
Value at beginning of period          $11.502            $11.007             $10.509              $10.223
Value at end of period                $12.041            $11.502             $11.007              $10.509
Increase (decrease) in value of
 accumulation unit(1)                    4.69%              4.50%               4.75%                2.79%
Number of accumulation units
 outstanding at end of period       2,066,545          2,421,519           4,354,272            1,822,449



<CAPTION>
                                      1993           1992             1991            1990           1989           1988
<S>                                 <C>            <C>            <C>            <C>               <C>             <C>
AETNA ASCENT VP
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
AETNA BALANCED VP, INC.
Value at beginning of period        $10.286        $12.717          $10.882      $10.423           $10.000(4)
Value at end of period              $11.164        $10.286(3)       $12.717      $10.882           $10.423
Increase (decrease) in value of
 accumulation unit(1)                  8.54%              (3)         16.86%        4.40%             4.23%
Number of accumulation units
 outstanding at end of period       318,711          6,537        1,324,822      984,798           639,219
AETNA BOND VP
Value at beginning of period        $10.160        $37.815          $32.066      $29.752           $26.291         $24.734
Value at end of period              $11.006        $10.160(5)       $37.815      $32.066           $29.752         $26.291
Increase (decrease) in value of
 accumulation unit(1)                  8.33%              (5)         17.93%        7.78%            13.16%           6.29%
Number of accumulation units
 outstanding at end of period       166,913          4,196          427,893      358,454           366,176         383,856
AETNA CROSSROADS VP
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
AETNA GROWTH AND INCOME VP
Value at beginning of period        $10.378        $84.249          $67.496      $66.174           $51.900         $45.839
Value at end of period              $10.940        $10.378(6)       $84.249      $67.496           $66.174         $51.900
Increase (decrease) in value of
 accumulation unit(1)                  5.41%              (6)         24.82%        2.00%            27.50%          13.22%
Number of accumulation units
 outstanding at end of period       879,670          3,107          908,777      810,126           831,547         887,039
AETNA INDEX PLUS LARGE CAP VP
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
AETNA LEGACY VP
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
AETNA MONEY MARKET VP
Value at beginning of period        $10.031        $34.122          $32.431      $30.285           $28.029         $26.401
Value at end of period              $10.223        $10.031(9)       $34.122      $32.431           $30.285         $28.029
Increase (decrease) in value of
 accumulation unit(1)                  1.91%              (9)          5.21%        7.09%             8.05%           6.17%
Number of accumulation units
 outstanding at end of period        90,782          2,808           548,425     722,438           653,619         720,726
</TABLE>
    

- --------------------------------------------------------------------------------
                                       24
<PAGE>

   
                  CONDENSED FINANCIAL INFORMATION (continued)
===============================================================================


<TABLE>
<CAPTION>
                                          1997              1996           1995
<S>                                     <C>               <C>            <C>
AETNA SMALL COMPANY VP
Value at beginning of period            $13.211
Value at end of period                  $13.704
Increase (decrease) in value of
 accumulation unit(1)                      3.73%(10)
Number of accumulation units
 outstanding at end of period             2,408
CALVERT SOCIAL BALANCED PORTFOLIO
Value at beginning of period            $15.056           $13.480        $10.518
Value at end of period                  $17.944           $15.056        $13.480
Increase (decrease) in value of
 accumulation unit(1)                     19.18%            11.69%         28.17%
Number of accumulation units
 outstanding at end of period            31,512            33,352         25,730
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period            $12.529           $11.054        $10.000(2)
Value at end of period                  $15.930           $12.529        $11.054
Increase (decrease) in value of
 accumulation unit(1)                     27.15%            13.34%         10.54%
Number of accumulation units
 outstanding at end of period           744,774           544,657        294,244
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period            $11.451           $10.066        $10.000(2)
Value at end of period                  $14.034           $11.451        $10.066
Increase (decrease) in value of
 accumulation unit(1)                     22.56%            13.76%          0.66%
Number of accumulation units
 outstanding at end of period           444,057           379,385        288,576
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period            $11.286           $10.052        $10.000(2)
Value at end of period                  $12.496           $11.286        $10.052
Increase (decrease) in value of
 accumulation unit(1)                     10.72%            12.28%          0.52%
Number of accumulation units
 outstanding at end of period           102,509            70,271         33,813
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period            $12.593           $10.468        $10.000(2)
Value at end of period                  $15.517           $12.593        $10.468
Increase (decrease) in value of
 accumulation unit(1)                     23.21%            20.31%          4.68%
Number of accumulation units
 outstanding at end of period           710,711           569,561        379,862
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period            $13.909           $12.992        $10.319
Value at end of period                  $15.554           $13.909        $12.992
Increase (decrease) in value of
 accumulation unit(1)                     11.82%             7.06%         25.91%
Number of accumulation units
 outstanding at end of period           427,692           433,363        723,839
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period            $12.484           $10.835        $10.000(2)
Value at end of period                  $15.130           $12.484        $10.835
Increase (decrease) in value of
 accumulation unit(1)                     21.19%            15.22%          8.35%
Number of accumulation units
 outstanding at end of period           152,646           111,525          7,772
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period            $13.096           $12.094         $9.886
Value at end of period                  $14.527           $13.096        $12.094
Increase (decrease) in value of
 accumulation unit(1)                     10.93%             8.29%         22.33%
Number of accumulation units
 outstanding at end of period            97,715            73,340         84,048



<CAPTION>
                                         1994             1993            1992         1991   1990   1989   1988
<S>                                     <C>                  <C>          <C>                <C>    <C>    <C>    <C>
AETNA SMALL COMPANY VP
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
CALVERT SOCIAL BALANCED
 PORTFOLIO
Value at beginning of period            $11.010           $10.296        $10.000(11)
Value at end of period                  $10.518           $11.010        $10.296
Increase (decrease) in value of
 accumulation unit(1)                     (4.47)%            6.93%          2.96%
Number of accumulation units
 outstanding at end of period               752             1,383             82
FIDELITY VIP EQUITY-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
FIDELITY VIP 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
FIDELITY VIP OVERSEAS 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
FIDELITY VIP II CONTRAFUND 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 AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period            $10.000(12)
Value at end of period                  $10.319
Increase (decrease) in value of
 accumulation unit(1)                      3.19%
Number of accumulation units
 outstanding at end of period           131,702
JANUS ASPEN BALANCED 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            $10.000(12)
Value at end of period                   $9.886
Increase (decrease) in value of
 accumulation unit(1)                     (1.14)%
Number of accumulation units
 outstanding at end of period            15,893
</TABLE>
    

- --------------------------------------------------------------------------------
                                       25
<PAGE>

   
                  CONDENSED FINANCIAL INFORMATION (continued)
===============================================================================


<TABLE>
<CAPTION>
                                         1997              1996           1995
<S>                                  <C>                 <C>             <C>
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period           $12.770           $10.870         $10.000(2)
Value at end of period                 $15.558           $12.770         $10.870
Increase (decrease) in value of
 accumulation unit(1)                    21.83%            17.47%           8.70%
Number of accumulation units
 outstanding at end of period           197,548          144,443          26,022
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period           $13.940           $10.893         $10.000(2)
Value at end of period                 $16.901           $13.940         $10.893
Increase (decrease) in value of
 accumulation unit(1)                    21.24%            27.97%           8.93%
Number of accumulation units
 outstanding at end of period        1,273,110           803,488         227,582
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period           $13.188           $10.479          $9.079
Value at end of period                 $14.025           $13.188         $10.479
Increase (decrease) in value of
 accumulation unit(1)                     6.35%            25.84%          15.42%
Number of accumulation units
 outstanding at end of period          106,926            73,699         162,462
PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period           $15.547
Value at end of period                 $15.361
Increase (decrease) in value of
 accumulation unit(1)                    (1.20)%(10)
Number of accumulation units
 outstanding at end of period          598,078
PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period           $13.110
Value at end of period                 $12.863
Increase (decrease) in value of
 accumulation unit(1)                    (1.89)%(10)
Number of accumulation units
 outstanding at end of period          462,383
PORTFOLIO PARTNERS MFS VALUE EQUITY PORTFOLIO
Value at beginning of period           $21.225
Value at end of period                 $21.541
Increase (decrease) in value of
 accumulation unit(1)                     1.49%(10)
Number of accumulation units
 outstanding at end of period          164,474
PORTFOLIO PARTNERS SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period           $17.838
Value at end of period                 $18.070
Increase (decrease) in value of
 accumulation unit(1)                     1.30%(10)
Number of accumulation units
 outstanding at end of period          280,633
PORTFOLIO PARTNERS T. ROWE PRICE GROWTH EQUITY PORTFOLIO
Value at beginning of period           $14.237
Value at end of period                 $14.534
Increase (decrease) in value of
 accumulation unit(1)                     2.09%(10)
Number of accumulation units
 outstanding at end of period          360,615



<CAPTION>
                                     1994           1993         1992   1991   1990   1989   1988
<S>                                <C>            <C>            <C>    <C>    <C>    <C>    <C>
JANUS ASPEN 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 WORLDWIDE 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
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period        $9.716        $10.000(13)
Value at end of period              $9.079         $9.716
Increase (decrease) in value of
 accumulation unit(1)                (6.56)%        (2.84)%
Number of accumulation units
 outstanding at end of period      141,076         27,908
PORTFOLIO PARTNERS MFS EMERGING EQUITIES 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
PORTFOLIO PARTNERS MFS RESEARCH 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
PORTFOLIO PARTNERS MFS VALUE EQUITY 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
PORTFOLIO PARTNERS SCUDDER INTERNATIONAL 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
PORTFOLIO PARTNERS T. ROWE PRICE GROWTH EQUITY 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
</TABLE>

- --------------
 (1) The above figures are calculated by subtracting the beginning
     Accumulation Unit value from the ending Accumulation Unit value, 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) Reflects less than a full year of performance activity. The initial
     Accumulation Unit value was established at $10.000 during August 1995, when
     the Fund became available under the Contract.
    

- --------------------------------------------------------------------------------
                                       26
<PAGE>

   
 (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 $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%.

 (4) The initial Accumulation Unit value was established at $10.000 on June 23,
     1989, the date on which the Fund commenced operations.

 (5) 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%.

 (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 $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%.

 (7) Reflects less than a full year of performance activity. The initial
     Accumulation Unit value was established at $10,000 during September 1996
     when the Portfolio became available under the Contract.

 (8) Reflects less than a full year of performance activity. The initial
     Accumulation Unit value was established at $10.000 during September 1995,
     when the Fund became available under the Contract.

 (9) 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%.

(10) Reflects less than a full year of performance activity. Funds were first
     received in this option during November 1997.

(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.

(12) The initial Accumulation Unit value was established at $10.000 during
     October 1994, when the funds were first received in this option.

(13) 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.
    

- --------------------------------------------------------------------------------
                                       27
<PAGE>

                         For Master Applications Only
   
I hereby acknowledge receipt of an Account B Group Deferred Variable Annuity
prospectus dated May 1, 1998 for Employer-Sponsored Deferred Compensation
Plans, as well as all current prospectuses pertaining to the variable
investment options available under the Contracts.


___   Please send an Account B Statement of Additional Information (Form No.
SAI 88722-98) dated May 1, 1998
    




- --------------------------------------------------------------------------------
                          CONTRACT HOLDER'S SIGNATURE





- --------------------------------------------------------------------------------
                                     DATE








   
PROS.88722-98 (5/98)
    

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


<PAGE>

- --------------------------------------------------------------------------------
                           VARIABLE ANNUITY ACCOUNT B
                                       OF
                    AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------

   
              Statement of Additional Information dated May 1, 1998
    


   Group Variable Annuity Contracts for Healthcare Deferred Compensation Plans

   
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, 1998.
    

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
                                 1-800-525-4225

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......................................................        8
Sales Material and Advertising........................................        9
Independent Auditors..................................................        9
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, 1997, the Company
(ALIAC) had $40.7 billion invested through its products, including $22.3 billion
in its separate accounts (of which the Company or an affiliate oversees the
management of $17.6 billion) and $1.3 billion in its mutual funds offered
outside of its separate accounts. The Company is ranked among the top 2% of all
U.S. life insurance companies based on assets as of December 31, 1996. 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 advisers 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 Subaccounts. Each Subaccount invests in the
shares of only one of the Funds listed below. 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, under all Contracts, or under all Plans.

                                       1

<PAGE>



The Funds currently available under the Contract are as follows:


   
[bullet] Aetna Ascent VP (formerly Aetna Ascent Variable Portfolio)
[bullet] Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers Fund, Inc.)
[bullet] Aetna Income Shares d/b/a Aetna Bond VP
[bullet] Aetna Crossroads VP (formerly Aetna Crossroads Variable Portfolio)
[bullet] Aetna Growth VP (formerly Aetna Variable Growth Portfolio)
[bullet] Aetna Variable Fund d/b/a Aetna Growth and Income VP
[bullet] Aetna High Yield VP
[bullet] Aetna Index Plus Large Cap VP (formerly Aetna Variable Index Plus
         Portfolio)
[bullet] Aetna Index Plus Mid Cap VP
[bullet] Aetna Index Plus Small Cap VP
[bullet] Aetna International VP
[bullet] Aetna Legacy VP (formerly Aetna Legacy Variable Portfolio)
[bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP
[bullet] Aetna Real Estate Securities VP
[bullet] Aetna Small Company VP (formerly Aetna Variable Small Company
         Portfolio)
[bullet] Aetna Value Opportunity VP (formerly Aetna Variable Capital
         Appreciation Portfolio)
[bullet] Calvert Social Balanced Portfolio (formerly Calvert Responsibly
         Invested Portfolio)
[bullet] Fidelity VIP Equity-Income Portfolio
[bullet] Fidelity VIP Growth Portfolio
[bullet] Fidelity VIP Overseas Portfolio
[bullet] Fidelity VIP II Contrafund Portfolio
[bullet] Janus Aspen Aggressive Growth Portfolio
[bullet] Janus Aspen Balanced Portfolio
[bullet] Janus Aspen Flexible Income Portfolio
[bullet] Janus Aspen Growth Portfolio
[bullet] Janus Aspen Worldwide Growth Portfolio
[bullet] Lexington Natural Resources Trust*
[bullet] Oppenheimer Global Securities Fund
[bullet] Oppenheimer Strategic Bond Fund
[bullet] Portfolio Partners MFS  Emerging Equities Portfolio
[bullet] Portfolio Partners MFS Research Growth Portfolio
[bullet] Portfolio Partners MFS Value Equity Portfolio
[bullet] Portfolio Partners Scudder International Growth Portfolio
[bullet] Portfolio Partners T. Rowe Price Growth Equity Portfolio

* This Fund is only available for investment by Participants who established an
Account under the Contract before May 1, 1998. As soon as all such Participants
have redirected their allocations to other investment options, the Fund will be
closed to all new investment (except reinvested dividends and capital gains
earned on amounts already invested in the Fund through the Separate Account and
loan repayments automatically deposited into the Fund pursuant to the Company's
loan repayment procedures).
    

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.

                       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 sections titled "Purchase" and "Contract Valuation."

                                PERFORMANCE DATA
GENERAL

From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account available under the
Contracts issued by the Company in connection with Plans described in the
prospectus. 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 various Subaccounts under the Contract, and then
related to the ending redeemable values over one, five and ten year periods (or
fractional periods thereof).
    


                                       2
<PAGE>

   
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 the date contributions were first received in
the Fund under the Separate Account 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 as if the charge had been 0.75% during all
periods shown, administrative expense charges, if applicable, and deferred sales
charges). These charges will be deducted on a pro rata basis in the case of
fractional periods. (The mortality and expense risk charge will increase to
1.25% during the Annuity Period.) If you had invested in the Contract prior to
February 23, 1996, your actual performance would have been lower than the
figures shown since the mortality and expense risk charge prior to that date was
1.25%. See the Condensed Financial Information table in the prospectus for the
actual increase or decrease in the value of an Accumulation Unit for those
periods. 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 Subaccount's investment performance was based on the performance of the
underlying Fund plus any cash held by the Subaccount.

The non-standardized figures will be calculated in a similar manner, except that
they will not reflect the deduction of any applicable deferred sales charge
(which would decrease the level of performance shown if reflected in these
calculations). The non-standardized figures may also include monthly, quarterly,
year-to-date and three year periods, and may include returns calculated from the
Funds inception date and/or the date contributions were first received in the
Fund under the Separate Account.
    

Investment results of the Subaccounts will fluctuate over time, and any
presentation of the Subaccounts' total return quotations for any prior period
should not be considered as a representation of how the Subaccounts will perform
in any future period. Additionally, the Account Value upon redemption may be
more or less than your original cost.

AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized

   
The table shown below represents the variations in contract payment type under
different plans. It reflects the average annual standardized and
non-standardized total return quotation figures for the periods ended December
31, 1997 for the Subaccounts. For those Subaccounts where results are not
available for the full calendar period indicated, performance for such partial
periods is shown in the column labeled "Since Inception." For standardized
performance, the "Since Inception" column shows average annual return since the
date contributions were first received in the Fund under the Separate Account.
For nonstandardized performance, the "Since Inception" column shows average
annual total return since the Fund's inception date.

For the Subaccounts funded by the Portfolio Partners portfolios, two sets of
performance returns are shown for each Subaccount : one showing performance
based solely on the performance of the Portfolio Partners portfolio from
November 28, 1997, the date the Portfolio commenced operations; and one
quotation based on (a) performance through November 26, 1997 of the fund it
replaced under many Company contracts and; (b) after November 26, 1997, based on
the Performance of the Portfolio Partners portfolio.
    


                                       3
<PAGE>

   
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
                                                                                                        Date
                                                                                                   Contributions
                                                                                                       First
                                                                                                      Received
                                                                                                     Under the
                       Single Payment Account                                                         Separate
                        ($0 Maintenance Fee)                      STANDARDIZED                        Account
- ------------------------------------------------------------------------------------------------------------------
                             SUBACCOUNT           1 Year      5 Years      10 Years    Inception*
- ------------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>          <C>          <C>          <C>
Aetna Ascent VP                                   13.05%                                 17.70%       08/31/95
Aetna Balanced VP, Inc.                           15.49%       12.66%                    11.67%       06/30/89
Aetna Bond VP(1)                                   2.12%        5.27%        8.41%
Aetna Crossroads VP                               10.86%                                 14.54%       08/31/95
Aetna Growth VP                                                                          13.38%       05/30/97
Aetna Growth and Income VP(1)                     22.47%       15.88%       15.76%
Aetna Index Plus Large Cap VP                     26.24%                                 27.01%       10/31/96
Aetna Legacy VP                                    7.97%                                 11.27%       08/31/95
Aetna Money Market VP(1)(2)                       (0.55%)       3.19%        5.16%
Aetna Small Company VP                                                                   14.97%       05/30/97
Aetna Value Opportunity VP                                                               15.10%       05/30/97
Calvert Social Balanced Portfolio                 13.22%       11.14%                    11.34%       11/30/92
Fidelity VIP Equity-Income Portfolio              20.79%                                 22.45%       12/30/94
Fidelity VIP Growth Portfolio                     16.43%                                 21.19%       12/30/94
Fidelity VIP Overseas Portfolio                    5.19%                                 10.65%       01/31/95
Fidelity VIP II Contrafund Portfolio              17.05%                                 19.72%       06/30/95
Janus Aspen Aggressive Growth Portfolio            6.23%                                 11.70%       10/31/94
Janus Aspen Balanced Portfolio                    15.13%                                 17.91%       01/31/95
Janus Aspen Flexible Income Portfolio              5.38%                                 10.95%       10/31/94
Janus Aspen Growth Portfolio                      15.74%                                 18.26%       07/29/94
Janus Aspen Worldwide Growth Portfolio            15.18%                                 25.29%       04/28/95
Lexington Natural Resources Trust                  1.03%                                  6.91%       05/26/93

Portfolio Partners
  MFS Emerging Equities Portfolio                                                        (6.14%)      11/28/97
Alger American Small Cap/
  Portfolio Partners MFS Emerging Equities(3)      2.99%                                  9.64%       09/30/93

Portfolio Partners
  MFS Research Growth Portfolio                                                          (6.79%)      11/28/97
American Century VP Capital Appreciation/
  Portfolio Partners MFS Research Growth(3)       (8.50%)       4.18%                     5.79%       08/31/92

Portfolio Partners
  MFS Value Equity Portfolio                                                             (3.58%)      11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners MFS Value Equity(3)          19.13%       11.25%                    11.44%       11/30/92

Portfolio Partners
  Scudder International Growth Portfolio                                                 (3.77%)      11/28/97
Scudder International Portfolio Class A/
  Portfolio Partners Scudder
  International Growth(3)                          2.77%       11.93%                    10.07%       08/31/92

Portfolio Partners
  T. Rowe Price Growth Equity Portfolio                                                  (3.02%)      11/28/97
Alger American Growth/Portfolio Partners
  T. Rowe Price Growth Equity(3)                  20.93%                                 22.20%       02/28/95
</TABLE>

Please refer to the discussion preceding the tables for an explanation of the
charges included and methodology used in the standardized and non-standardized
figures. These figures represent historical performance and should not be
considered a projection of future performance.

*   Reflects performance from the date contributions were first received in the
    Fund under the Separate Account.

(1) These Funds have been available through the Separate Account for more than
    ten years.

(2) The current yield for the Subaccount for the 7-day period ended December 31,
    1997 (on an annualized basis) was 4.73%. The current yield reflects the
    deduction of all charges under the Contract that are deducted from the total
    return quotations shown above except the maximum 5% deferred sales charge.

(3) The Fund first listed was replaced with the applicable Portfolio Partners
    Portfolio after the close of business on November 26, 1997. The performance
    shown is based on the performance of the replaced Fund until November 26,
    1997, and the performance of the applicable Portfolio Partners Portfolio
    after that date. The replaced Fund may not have been available under all
    Contracts. The "Date Contributions First Received Under Separate Account"
    refers to the applicable date for the replaced Fund.
    

                                       4
<PAGE>

   
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
                                                                                                        Fund
                       Single Payment Account                                                        Inception
                        ($0 Maintenance Fee)                    NON-STANDARDIZED                        Date
- ----------------------------------------------------------------------------------------------------------------
                             SUBACCOUNT        1 Year    3 Years    5 Years   10 Years  Inception**
- ----------------------------------------------------------------------------------------------------------------
<S>                                            <C>        <C>       <C>        <C>         <C>        <C>
Aetna Ascent VP                                19.00%                                      20.93%     07/05/95
Aetna Balanced VP, Inc.                        21.57%     20.62%    13.59%                 11.68%     04/03/89
Aetna Bond VP(1)                                7.49%      9.06%     6.14%      8.41%
Aetna Crossroads VP                            16.69%                                      17.61%     07/05/95
Aetna Growth VP                                32.01%                                      31.98%     12/13/96
Aetna Growth and Income VP(1)                  28.92%     27.86%    16.83%     15.76%
Aetna Index Plus Large Cap VP                  32.89%                                      33.58%     09/16/96
Aetna Legacy VP                                13.65%                                      14.10%     07/05/95
Aetna Money Market VP(1)(2)                     4.69%      4.84%     4.04%      5.16%
Aetna Small Company VP                         33.48%                                      34.43%     12/27/96
Aetna Value Opportunity VP                     38.32%                                      38.85%     12/13/96
Calvert Social Balanced Portfolio(1)           19.18%     19.72%    12.06%     11.58%
Fidelity VIP Equity-Income Portfolio(1)        27.15%     24.59%    19.27%     15.86%
Fidelity VIP Growth Portfolio(1)               22.56%     23.31%    17.13%     16.32%
Fidelity VIP Overseas Portfolio(1)             10.72%     10.64%    13.27%      8.81%
Fidelity VIP II Contrafund Portfolio           23.21%                                      27.25%     01/03/95
Janus Aspen Aggressive Growth Portfolio        11.82%     14.88%                           18.33%     09/13/93
Janus Aspen Balanced Portfolio                 21.19%     20.07%                           15.43%     09/13/93
Janus Aspen Flexible Income Portfolio          10.93%     13.91%                            9.21%     09/13/93
Janus Aspen Growth Portfolio                   21.83%     22.77%                           16.80%     09/13/93
Janus Aspen Worldwide Growth Portfolio         21.24%     25.21%                           22.00%     09/13/93
Lexington Natural Resources Trust               6.35%     15.83%     9.95%                  8.74%     10/14/91
Oppenheimer Global Securities Fund             21.51%     12.97%    17.92%                 11.43%     11/12/90
Oppenheimer Strategic Bond Fund                 7.89%     11.16%                            6.83%     05/03/93

Portfolio Partners
  MFS Emerging Equities Portfolio                                                          (1.20%)    11/28/97
Alger American Small Cap/
  Portfolio Partners
  MFS Emerging Equities(3)                      8.41%     17.10%    11.37%                 18.10%     09/21/88

Portfolio Partners
  MFS Research Growth Portfolio                                                            (1.89%)    11/28/97
American Century VP Capital Appreciation/
  Portfolio Partners MFS Research Growth(3)    (3.68%)      5.98%    5.03%      7.91%

Portfolio Partners
  MFS Value Equity Portfolio                                                                1.35%     11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners MFS Value Equity(3)       25.40%     21.10%    12.16%     13.79%

Portfolio Partners
  Scudder International
  Growth Portfolio                                                                          1.51%     11/28/97
Scudder International Portfolio Class A/
  Portfolio Partners
  Scudder International Growth(3)               8.18%     10.77%    12.85%     10.96%

Portfolio Partners
  T. Rowe Price Growth Equity Portfolio                                                     1.96%     11/28/97
Alger American Growth/Portfolio Partners
  T. Rowe Price Growth Equity(3)               27.29%     24.69%    18.86%                 18.81%     01/09/89
</TABLE>

Please refer to the discussion preceding the tables for an explanation of the
charges included and methodology used in the standardized and non-standardized
figures. These figures represent historical performance and should not be
considered a projection of future performance.

**  Reflects performance from the Fund's inception date.

(1) These Funds have been in operation for more than ten years.

(2) The current yield for the Subaccount for the 7-day period ended December 31,
    1997 (on an annualized basis) was 4.73%. The current yield reflects the
    deduction of all charges under the Contract that are deducted from the total
    return quotations shown above. As in the table above, the maximum 5%
    deferred sales charge is not reflected.

(3) The Fund first listed was replaced with the applicable Portfolio Partners
    Portfolio after the close of business on November 26, 1997. The performance
    shown is based on the performance of the replaced Fund until November 26,
    1997, and the performance of the applicable Portfolio Partners Portfolio
    after that date. The replaced Fund may not have been available under all
    Contracts. The "Fund Inception Date" refers to the applicable date for the
    replaced Fund. If no date is shown, the replaced Fund has been in operation
    for more than ten years.
    


                                       5
<PAGE>

   
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
                                                                                                        Date
                                                                                                    Contributions
                                                                                                        First
                                                                                                       Received
                                                                                                      Under the
                    Installment Payment Account                                                        Separate
                        ($0 Maintenance Fee)                       STANDARDIZED                        Account
- -----------------------------------------------------------------------------------------------------------------
                             SUBACCOUNT            1 Year       5 Year      10 Year     Inception*
- -----------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>          <C>          <C>          <C>
Aetna Ascent VP                                    13.05%                                 17.70%       08/31/95
Aetna Balanced VP, Inc.                            15.49%       12.43%                    11.13%       06/30/89
Aetna Bond VP(1)                                    2.12%        5.05%        8.41%
Aetna Crossroads VP                                10.86%                                 14.54%       08/31/95
Aetna Growth VP                                                                           13.38%       05/30/97
Aetna Growth and Income VP(1)                      22.47%       15.63%       15.76%
Aetna Index Plus Large Cap VP                      26.24%                                 27.01%       10/31/96
Aetna Legacy VP                                     7.97%                                 11.27%       08/31/95
Aetna Money Market VP(1)(2)                        (0.55%)       2.98%        5.16%
Aetna Small Company VP                                                                    14.97%       05/30/97
Aetna Value Opportunity VP                                                                15.10%       05/30/97
Calvert Social Balanced Portfolio                  13.22%       10.91%                    11.11%       11/30/92
Fidelity VIP Equity-Income Portfolio               20.79%                                 22.45%       12/30/94
Fidelity VIP Growth Portfolio                      16.43%                                 21.19%       12/30/94
Fidelity VIP Overseas Portfolio                     5.19%                                 10.65%       01/31/95
Fidelity VIP II Contrafund Portfolio               17.05%                                 19.72%       06/30/95
Janus Aspen Aggressive Growth Portfolio             6.23%                                 11.70%       10/31/94
Janus Aspen Balanced Portfolio                     15.13%                                 17.91%       01/31/95
Janus Aspen Flexible Income Portfolio               5.38%                                 10.95%       10/31/94
Janus Aspen Growth Portfolio                       15.74%                                 18.26%       07/29/94
Janus Aspen Worldwide Growth Portfolio             15.18%                                 25.29%       04/28/95
Lexington Natural Resources Trust                   1.03%                                  6.91%       05/26/93

Portfolio Partners
  MFS Emerging Equities Portfolio                                                         (6.14%)      11/28/97
Alger American Small Cap/Portfolio Partners
  MFS Emerging Equities(3)                          2.99%                                  9.64%       09/30/93

Portfolio Partners
  MFS Research Growth Portfolio                                                           (6.79%)      11/28/97
American Century VP Capital Appreciation/
  Portfolio Partners MFS Research Growth(3)        (8.50%)       3.96%                     5.58%       08/31/92

Portfolio Partners
  MFS Value Equity Portfolio                                                              (3.58%)      11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners MFS Value Equity(3)           19.13%       11.02%                    11.21%       11/30/92

Portfolio Partners Scudder International
  Growth Portfolio                                                                        (3.77%)      11/28/97

Scudder International Portfolio Class A/
  Portfolio Partners
  Scudder International Growth(3)                   2.77%       11.69%                     9.85%       08/31/92

Portfolio Partners
  T. Rowe Price Growth Equity Portfolio                                                   (3.02%)      11/28/97
Alger American Growth/Portfolio Partners
  T. Rowe Price Growth Equity(3)                   20.93%                                 22.20%       02/28/95
</TABLE>

Please refer to the discussion preceding the tables for an explanation of the
charges included and methodology used in the standardized and non-standardized
figures. These figures represent historical performance and should not be
considered a projection of future performance. 

*   Reflects performance from the date contributions were first received in the
    Fund under the Separate Account.

(1) These Funds have been available through the Separate Account for more than
    ten years.

(2) The current yield for the Subaccount for the 7-day period ended December 31,
    1997 (on an annualized basis) was 4.73%. The current yield reflects the
    deduction of all charges under the Contract that are deducted from the total
    return quotations shown above except the maximum 5% deferred sales charge.

(3) The Fund first listed was replaced with the applicable Portfolio Partners
    Portfolio after the close of business on November 26, 1997. The performance
    shown is based on the performance of the replaced Fund until November 26,
    1997, and the performance of the applicable Porfolio Partners Portfolio
    after that date. The replaced Fund may not have been available under all
    Contracts. The "Date Contributions First Received Under Separate Account"
    refers to the applicable date for the replaced Fund.
    

                                       6
<PAGE>

   
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
                                                                                                      Fund
                    Installment Payment Account                                                       Inception
                        ($0 Maintenance Fee)                     NON-STANDARDIZED                        Date
- -----------------------------------------------------------------------------------------------------------------
                             SUBACCOUNT         1 Year    3 Years    5 Years   10 Years   Inception
- -----------------------------------------------------------------------------------------------------------------
<S>                                             <C>        <C>       <C>        <C>         <C>        <C>  
Aetna Ascent VP                                 19.00%                                      20.93%     07/05/95
Aetna Balanced VP, Inc.                         21.57%     20.62%    13.59%                 11.68%     04/03/89
Aetna Bond VP(1)                                 7.49%      9.06%     6.14%      8.41%
Aetna Crossroads VP                             16.69%                                      17.61%     07/05/95
Aetna Growth VP                                 32.01%                                      31.98%     12/13/96
Aetna Growth and Income VP(1)                   28.92%     27.86%    16.83%     15.76%
Aetna Index Plus Large Cap VP                   32.89%                                      33.58%     09/16/96
Aetna Legacy VP                                 13.65%                                      14.10%     07/05/95
Aetna Money Market VP(1)(2)                      4.69%      4.84%     4.04%      5.16%
Aetna Small Company VP                          33.48%                                      34.43%     12/27/96
Aetna Value Opportunity VP                      38.32%                                      38.85%     12/13/96
Calvert Social Balanced Portfolio(1)            19.18%     19.72%    12.06%     11.58%
Fidelity VIP Equity-Income Portfolio(1)         27.15%     24.59%    19.27%     15.86%
Fidelity VIP Growth Portfolio(1)                22.56%     23.31%    17.13%     16.32%
Fidelity VIP Overseas Portfolio(1)              10.72%     10.64%    13.27%      8.81%
Fidelity VIP II Contrafund Portfolio            23.21%                                      27.25%     01/03/95
Janus Aspen Aggressive Growth Portfolio         11.82%     14.88%                           18.33%     09/13/93
Janus Aspen Balanced Portfolio                  21.19%     20.07%                           15.43%     09/13/93
Janus Aspen Flexible Income Portfolio           10.93%     13.91%                            9.21%     09/13/93
Janus Aspen Growth Portfolio                    21.83%     22.77%                           16.80%     09/13/93
Janus Aspen Worldwide Growth Portfolio          21.24%     25.21%                           22.00%     09/13/93
Lexington Natural Resources Trust                6.35%     15.83%     9.95%                  8.74%     10/14/91
Oppenheimer Global Securities Fund              21.51%     12.97%    17.92%                 11.43%     11/12/90
Oppenheimer Strategic Bond Fund                  7.89%     11.16%                            6.83%     05/03/93

Portfolio Partners
  MFS Emerging Equities Portfolio                                                           (1.20%)     11/28/97
Alger American Small Cap/
  Portfolio Partners
  MFS Emerging Equities(3)                       8.41%     17.10%    11.37%                 18.10%      09/21/88

Portfolio Partners
  MFS Research Growth Portfolio                                                             (1.89%)     11/28/97
American Century VP Capital Appreciation/
  Portfolio Partners MFS
  Research Growth(3)                            (3.68%)     5.98%     5.03%      7.91%

Portfolio Partners
  MFS Value Equity Portfolio                                                                 1.35%      11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners
  MFS Value Equity(3)                           25.40%     21.10%    12.16%     13.79%

Portfolio Partners
  Scudder International Growth Portfolio                                                     1.51%      11/28/97
Scudder International
  Portfolio Class A/
  Portfolio Partners Scudder
  International Growth(3)                        8.18%     10.77%    12.85%     10.96%

Portfolio Partners T. Rowe Price Growth
  Equity Portfolio                                                                           1.96%      11/28/97
Alger American Growth/Portfolio Partners
  T. Rowe Price Growth Equity(3)                27.29%     24.69%    18.86%                 18.81%      01/09/89
</TABLE>

Please refer to the discussion preceding the tables for an explanation of the
charges included and methodology used in the standardized and non-standardized
figures. These figures represent historical performance and should not be
considered a projection of future performance.

**  Reflects performance from the Fund's inception date.

(1) These Funds have been in operation for more than ten years.

(2) The current yield for the Subaccount for the 7-day period ended December 31,
    1997 (on an annualized basis) was 4.73%. The current yield reflects the
    deduction of all charges under the Contract that are deducted from the total
    return quotations shown above. As in the table above, the maximum 5%
    deferred sales charge is not reflected.

(3) The Fund first listed was replaced with the applicable Portfolio Partners
    Portfolio after the close of business on November 26, 1997. The performance
    shown is based on the performance of the replaced Fund until November 26,
    1997, and the performance of the applicable Portfolio Partners Portfolio
    after that date. The replaced Fund may not have been available under all
    Contracts. The "Fund Inception Date" refers to the applicable date for the
    replaced Fund. If no date is shown, the replaced Fund has been in operation
    for more than ten years.
    

                                       7
<PAGE>


                                ANNUITY PAYMENTS

When Annuity payments are to begin, the value of the Account is determined using
Accumulation Unit values as of the tenth Valuation Date 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 Date to the
next; such fluctuations reflect changes in the net investment factor for the
appropriate Subaccount(s) (with a ten Valuation Date 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 Date 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 Date 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 Subaccount is
1.0015000 as of the tenth Valuation Date 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 Date (assume such value to be
$13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation
Date on which the second payment is due.


                                       8
<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 Subaccounts 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 categorize funds in terms of the asset classes they
represent and use such categories in marketing material for the Contracts. 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.


                                       9
<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-25

                                      S-1

<PAGE>


Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1997

ASSETS:
Investments, at net asset value: (Note 1)
 Aetna Variable Fund; 30,411,094 shares
     (cost $955,207,313) ...............................   $1,022,883,150
 Aetna Income Shares; 5,674,428 shares
     (cost $72,136,754) ................................       72,918,472
 Aetna Variable Encore Fund; 9,348,762 shares
     (cost $123,509,269) ...............................      124,939,137
 Aetna Investment Advisers Fund, Inc.; 10,156,919 shares
     (cost $141,710,363) ...............................      162,842,121
 Aetna GET Fund, Series B; 1,326,295 shares
     (cost $14,665,182) ................................       20,859,924
 Aetna GET Fund, Series C; 866,713 shares
     (cost $8,784,556) .................................       10,929,107
 Aetna Ascent Variable Portfolio; 1,448,001 shares
     (cost $19,409,307) ................................       20,443,736
 Aetna Crossroads Variable Portfolio; 1,552,948 shares
     (cost $19,616,465) ................................       20,320,625
 Aetna Legacy Variable Portfolio; 1,652,443 shares
     (cost $19,438,586) ................................       19,994,608
 Aetna Variable Portfolio, Inc.:
  Capital Appreciation Portfolio; 328,354 shares
     (cost $4,457,675) .................................        3,912,594
  Growth Portfolio; 326,907 shares
     (cost $4,163,981) .................................        3,218,910
  Index Plus Portfolio; 2,014,660 shares
     (cost $26,897,404) ................................       28,239,788
  Small Company Portfolio; 478,249 shares
     (cost $6,406,805) .................................        6,107,129
 Alger American Funds:
  Balanced Portfolio; 525,665 shares
     (cost $4,964,549) .................................        5,656,151
  Income and Growth Portfolio; 1,287,394 shares
     (cost $11,439,405) ................................       14,148,460
  Leveraged AllCap Portfolio; 616,315 shares
     (cost $12,739,767) ................................       14,280,009
 American Century Investments:
  Balanced Fund; 563,499 shares
     (cost $4,180,851) .................................        4,643,230
  International Fund; 855,695 shares
     (cost $5,491,134) .................................        5,852,955
Calvert Social Balanced Portfolio; 490,079 shares
    (cost $912,050) ....................................          971,337
Fidelity Investments Variable Insurance Products Fund:
 Equity-Income Portfolio; 5,712,922 shares
    (cost $118,902,067) ................................      138,709,740
 Growth Portfolio; 2,167,158 shares
    (cost $65,817,036) .................................       80,401,549
 High Income Portfolio; 2,598,408 shares
    (cost $32,563,692) .................................       35,286,379
 Overseas Portfolio; 677,325 shares
    (cost $12,543,713) .................................       13,004,643
Fidelity Investments Variable Insurance Products Fund II:
 Asset Manager Portfolio; 652,031 shares
    (cost $10,605,372) .................................       11,743,075
 Contrafund Portfolio; 5,407,595 shares
    (cost $89,625,610) .................................      107,827,442
 Index 500 Portfolio; 673,020 shares
    (cost $66,103,932) .................................       76,986,772
 Investment Grade Bond Portfolio; 523,741 shares
    (cost $6,191,022) ..................................        6,578,182
Insurance Management Series:
 American Leaders Fund II; 5,952,606 shares
    (cost $86,738,072) .................................      116,849,662
 Equity Income Fund II; 1,619,705 shares
    (cost $19,027,165) .................................       19,938,571
 Growth Strategies Fund II; 1,406,137 shares
    (cost $19,150,654) .................................       22,709,106
 High Income Bond Fund II; 4,859,621 shares
    (cost $49,449,772) .................................       53,212,853
 International Equity Fund II; 1,136,596 shares
    (cost $13,007,527) .................................       13,946,028
 Prime Money Fund II; 7,530,487 shares
    (cost $7,530,487) ..................................        7,530,487
 U.S. Government Securities Fund II; 1,252,067 shares
    (cost 12,683,585) ..................................       13,196,784
 Utility Fund II; 1,840,648 shares
    (cost $20,501,843) .................................       26,302,858
Janus Aspen Series:
  Aggressive Growth Portfolio; 1,867,831 shares
     (cost $33,789,408) ................................       38,383,925
  Balanced Portfolio; 1,782,815 shares
     (cost $27,682,920) ................................       31,145,778
  Flexible Income Portfolio; 894,277 shares
     (cost $10,167,023) ................................       10,534,588
  Growth Portfolio; 2,203,400 shares
     (cost $34,954,619) ................................       40,718,827
  Worldwide Growth Portfolio; 6,953,978 shares
     (cost $144,443,276) ...............................      162,653,541
 Lexington Emerging Markets Fund; 318,004 shares
     (cost $3,542,964) .................................        2,833,416
 Lexington Natural Resources Trust Fund; 464,813 shares
     (cost $6,752,492) .................................        6,930,364


                                      S-2
<PAGE>

Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1997 (continued):

MFS Funds:
 Total Return Series; 1,140,943 shares
     (cost $16,998,729) ....................................... $   18,973,878
 Worldwide Government Series; 129,706 shares
     (cost $1,330,232) ........................................      1,324,295
Oppenheimer Funds:
 Capital Appreciation Fund; 90,044 shares
     (cost $3,554,414) ........................................      3,688,200
 Global Securities Fund; 125,453 shares
     (cost $2,681,784) ........................................      2,680,937
 Growth & Income Fund; 616,565 shares
     (cost $12,222,979) .......................................     12,688,907
 Strategic Bond Fund; 604,043 shares
     (cost $3,113,874) ........................................      3,092,701
Portfolio Partners, Inc. (PPI):
 PPI MFS Emerging Equities Portfolio; 2,221,275 shares
     (cost $96,046,526) .......................................     95,292,694
 PPI MFS Research Growth Portfolio; 6,783,433 shares
     (cost $67,030,057) .......................................     65,867,130
 PPI MFS Value Equity Portfolio; 515,803 shares
     (cost $15,207,018) .......................................     15,427,681
 PPI Scudder International Growth Portfolio; 897,175 shares
     (cost $12,454,736) .......................................     12,650,163
 PPI T. Rowe Price Growth Equity Portfolio; 2,067,651 shares
     (cost $88,372,335) .......................................     90,170,258
                                                                --------------
NET ASSETS (cost $2,666,918,351) .............................. $2,922,442,857
                                                                ==============

Net assets represented by:

Reserves for annuity contracts in accumulation and payment period:
(Notes 1 and 5)

Aetna Variable Fund:
   Annuity contracts in accumulation ...........  $892,006,381
   Annuity contracts in payment period .........   130,876,769
Aetna Income Shares:
   Annuity contracts in accumulation ...........    69,236,488
   Annuity contracts in payment period .........     3,681,984
Aetna Variable Encore Fund:
   Annuity contracts in accumulation ...........   124,939,137
Aetna Investment Advisers Fund, Inc.:
   Annuity contracts in accumulation ...........   150,761,384
   Annuity contracts in payment period .........    12,080,737
Aetna GET Fund, Series B:
   Annuity contracts in accumulation ...........    20,859,924
Aetna GET Fund, Series C:
   Annuity contracts in accumulation ...........    10,929,107
Aetna Ascent Variable Portfolio:
   Annuity contracts in accumulation ...........    20,443,736
Aetna Crossroads Variable Portfolio:
   Annuity contracts in accumulation ...........    20,250,904
   Annuity contracts in payment period .........        69,721
Aetna Legacy Variable Portfolio:
   Annuity contracts in accumulation ...........    18,710,015
   Annuity contracts in payment period .........     1,284,593
Aetna Variable Portfolio, Inc.:
 Capital Appreciation Portfolio:
   Annuity contracts in accumulation ...........     3,912,594
 Growth Portfolio:
   Annuity contracts in accumulation ...........     3,210,344
   Annuity contracts in payment period .........         8,566
 Index Plus Portfolio:
   Annuity contracts in accumulation ...........    28,074,705
   Annuity contracts in payment period .........       165,083


                                      S-3
<PAGE>

Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1997 (continued):

 Small Company Portfolio:
   Annuity contracts in accumulation .................... $ 6,059,783
   Annuity contracts in payment period ..................      47,346
Alger American Funds:
 Balanced Portfolio:
   Annuity contracts in accumulation ....................   5,656,151
 Income and Growth Portfolio:
   Annuity contracts in accumulation ....................  14,148,460
 Leveraged AllCap Portfolio:
   Annuity contracts in accumulation ....................  14,280,009
American Century Investments:
 Balanced Fund:
   Annuity contracts in accumulation ....................   4,643,230
 International Fund:
   Annuity contracts in accumulation ....................   5,852,955
Calvert Social Balanced Portfolio:
   Annuity contracts in accumulation ....................     971,337
Fidelity Investments Variable Insurance Products Fund:
 Equity-Income Portfolio:
   Annuity contracts in accumulation .................... 138,709,740
 Growth Portfolio:
   Annuity contracts in accumulation ....................  80,401,549
 High Income Portfolio:
   Annuity contracts in accumulation ....................  35,217,837
   Annuity contracts in payment period ..................      68,542
 Overseas Portfolio:
   Annuity contracts in accumulation ....................  13,004,643
Fidelity Investments Variable Insurance Products Fund II:
 Asset Manager Portfolio:
   Annuity contracts in accumulation ....................  11,743,075
 Contrafund Portfolio:
   Annuity contracts in accumulation .................... 107,827,442
 Index 500 Portfolio:
   Annuity contracts in accumulation ....................  76,986,772
 Investment Grade Bond Portfolio:
   Annuity contracts in accumulation ....................   6,578,182
Insurance Management Series:
 American Leaders Fund II:
   Annuity contracts in accumulation .................... 116,800,911
   Annuity contracts in payment period ..................      48,751
 Equity Income Fund II:
   Annuity contracts in accumulation ....................  19,938,571
 Growth Strategies Fund II:
   Annuity contracts in accumulation ....................  22,709,106
 High Income Bond Fund II:
   Annuity contracts in accumulation ....................  53,212,853
 International Equity Fund II:
   Annuity contracts in accumulation ....................  13,946,028
 Prime Money Fund II:
   Annuity contracts in accumulation ....................   7,530,487


                                      S-4
<PAGE>

Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1997 (continued):


 U.S. Government Securities Fund II:
   Annuity contracts in accumulation ...........  $   13,196,784
 Utility Fund II:
   Annuity contracts in accumulation ...........      26,302,858
Janus Aspen Series:
 Aggressive Growth Portfolio:
   Annuity contracts in accumulation ...........      38,383,925
 Balanced Portfolio:
   Annuity contracts in accumulation ...........      31,145,778
 Flexible Income Portfolio:
   Annuity contracts in accumulation ...........      10,534,588
 Growth Portfolio:
   Annuity contracts in accumulation ...........      40,072,928
   Annuity contracts in payment period .........         645,899
 Worldwide Growth Portfolio:
   Annuity contracts in accumulation ...........     160,658,096
   Annuity contracts in payment period .........       1,995,445
Lexington Emerging Markets Fund:
   Annuity contracts in accumulation ...........       2,833,416
Lexington Natural Resources Trust Fund:
   Annuity contracts in accumulation ...........       6,930,364
MFS Funds:
 Total Return Series:
   Annuity contracts in accumulation ...........      18,973,878
 Worldwide Government Series:
   Annuity contracts in accumulation ...........       1,324,295
Oppenheimer Funds:
 Capital Appreciation Fund:
   Annuity contracts in accumulation ...........       3,688,200
 Global Securities Fund:
   Annuity contracts in accumulation ...........       2,680,937
 Growth & Income Fund:
   Annuity contracts in accumulation ...........      12,688,907
 Strategic Bond Fund:
   Annuity contracts in accumulation ...........       3,092,701
Portfolio Partners, Inc:
 PPI MFS Emerging Equities Portfolio:
   Annuity contracts in accumulation ...........      94,796,247
   Annuity contracts in payment period .........         496,447
 PPI MFS Research Growth Portfolio:
   Annuity contracts in accumulation ...........      65,867,130
 PPI MFS Value Equity Portfolio:
   Annuity contracts in accumulation ...........      15,049,606
   Annuity contracts in payment period .........         378,075
 PPI Scudder International Growth Portfolio:
   Annuity contracts in accumulation ...........      12,650,163
 PPI T. Rowe Price Growth Equity Portfolio:
   Annuity contracts in accumulation ...........      90,170,258
                                                  --------------
                                                  $2,922,442,857
                                                  ==============

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,
                                                                                  1997                1996
                                                                                  -----               ----
<S>                                                                         <C>                 <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
 Dividends .............................................................    $  278,833,116      $  120,367,178
Expenses: (Notes 2 and 5)
 Valuation period deductions ...........................................       (29,243,851)        (17,483,870)
                                                                            --------------      --------------
Net investment income ..................................................       249,589,265         102,883,308
                                                                            --------------      --------------
NET REALIZED AND UNREALIZED GAIN
 ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
 Proceeds from sales ...................................................     1,004,789,371         365,025,974
 Cost of investments sold ..............................................       933,728,508         347,598,566
                                                                            --------------      --------------
  Net realized gain ....................................................        71,060,863          17,427,408
                                                                            --------------      --------------
Net unrealized gain on investments: (Note 5)
 Beginning of Year .....................................................       122,191,053          28,746,944
 End of Year ...........................................................       255,524,506         122,191,053
                                                                            --------------      --------------
  Net change in unrealized gain ........................................       133,333,453          93,444,109
                                                                            --------------      --------------
Net realized and unrealized gain on investments ........................       204,394,316         110,871,517
                                                                            --------------      --------------
Net increase in net assets resulting from operations ...................       453,983,581         213,754,825
                                                                            --------------      --------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ............................       571,517,770         538,586,667
Sales and administrative charges deducted by the Company ...............           (16,265)            (17,370)
                                                                            --------------      --------------
  Net variable annuity contract purchase payments ......................       571,501,505         538,569,297
Transfers from the Company for mortality guarantee adjustments .........           371,835             690,779
Transfers from the Company's fixed account options .....................       144,526,667          50,549,121
Redemptions by contract holders ........................................       (82,942,177)        (73,738,526)
Annuity Payments .......................................................       (16,137,431)        (12,108,943)
Other ..................................................................         2,327,153             159,467
                                                                            --------------      --------------
  Net increase in net assets from unit transactions (Note 5) ...........       619,647,552         504,121,195
                                                                            --------------      --------------
Change in net assets ...................................................     1,073,631,133         717,876,020
NET ASSETS:
Beginning of Year ......................................................     1,848,811,724       1,130,935,704
                                                                            --------------      --------------
End of Year ............................................................    $2,922,442,857      $1,848,811,724
                                                                            ==============      ==============
</TABLE>

See Notes to Financial Statements


                                      S-6
<PAGE>

Variable Annuity Account B
Notes to Financial Statements - December 31, 1997

1. Summary of Significant Accounting Policies


   Variable Annuity Account B (the "Account") is a separate account established
   by Aetna Life Insurance and Annuity Company (the "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, 1997:

<TABLE>
<CAPTION>
<S>                                                           <C> 
Aetna Variable Fund                                           Insurance Management Series:                        
Aetna Income Shares                                           [bullet] American Leaders Fund II [bullet]          
Aetna Variable Encore Fund                                    [bullet] Equity Income Fund II                      
Aetna Investment Advisers Fund, Inc.                          [bullet] Growth Strategies Fund II                  
Aetna GET Fund, Series B                                      [bullet] High Income Bond Fund II                   
Aetna GET Fund, Series C                                      [bullet] International Equity Fund II               
Aetna Ascent Variable Portfolio                               [bullet] Prime Money Fund II                        
Aetna Crossroads Variable Portfolio                           [bullet] U.S. Government Securities Fund II         
Aetna Legacy Variable Portfolio                               [bullet] Utility Fund II                            
Aetna Variable Portfolio, Inc.:                               Janus Aspen Series:                                 
[bullet] Capital Appreciation Portfolio                       [bullet] Aggressive Growth Portfolio                
[bullet] Growth Portfolio                                     [bullet] Balanced Portfolio                         
[bullet] Index Plus Portfolio                                 [bullet] Flexible Income Portfolio                  
[bullet] Small Company Portfolio                              [bullet] Growth Portfolio                           
Alger American Funds:                                         [bullet] Worldwide Growth Portfolio                 
[bullet] Balanced Portfolio                                   Lexington Emerging Markets Fund                     
[bullet] Income and Growth Portfolio                          Lexington Natural Resources Trust Fund              
[bullet] Leveraged AllCap Portfolio                           MFS Funds:                                          
American Century Investments:                                 [bullet] Total Return Series                        
[bullet] Balanced Fund                                        [bullet] Worldwide Government Series                
[bullet] International Fund                                   Oppenheimer Funds:                                  
Calvert Social Balanced Portfolio                             [bullet] Capital Appreciation Fund                  
Fidelity Investments Variable Insurance Products Fund:        [bullet] Global Securities Fund                     
[bullet] Equity-Income Portfolio                              [bullet] Growth & Income Fund                       
[bullet] Growth Portfolio                                     [bullet] Strategic Bond Fund                        
[bullet] High Income Portfolio                                Portfolio Partners, Inc.:                           
[bullet] Overseas Portfolio                                   [bullet] PPI MFS Emerging Equities Portfolio        
Fidelity Investments Variable Insurance Products Fund II:     [bullet] PPI MFS Research Growth Portfolio          
[bullet] Asset Manager Portfolio                              [bullet] PPI MFS Value Equity Portfolio             
[bullet] Contrafund Portfolio                                 [bullet] PPI Scudder International Growth Portfolio 
[bullet] Index 500 Portfolio                                  [bullet] PPI T. Rowe Price Growth Equity Portfolio  
[bullet] Investment Grade Bond Portfolio                      
</TABLE>

   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.


                                      S-7
<PAGE>

Variable Annuity Account B
Notes to Financial Statements - December 31, 1997 (continued):

   c. Federal Income Taxes

   The operations of the Account form a part of, and are taxed with, the total
   operations of the 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, 1997 and 1996
   aggregated $1,874,026,188 and $1,004,789,371; $972,030,476 and $365,025,974,
   respectively.


                                      S-8
<PAGE>

Variable Annuity Account B

Notes to Financial Statements - December 31, 1997 (continued):

5. Supplemental Information to Statements of Operations and Changes in Net
   Assets

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
                                                               Valuation       Proceeds        Cost of          Net
                                                                Period           from        Investments     Realized
                                              Dividends       Deductions         Sales          Sold        Gain (Loss)
- ----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>              <C>             <C>            <C>           <C>

   Aetna Variable Fund:                     $206,171,606     ($9,508,053)    $64,103,032    $51,274,099   $12,828,933
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ----------------------------------------------------------------------------------------------------------------------
   Aetna Income Shares:                        4,333,850         (737,718)     12,717,950     11,951,670       766,280
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ----------------------------------------------------------------------------------------------------------------------
   Aetna Variable Encore Fund:                 4,149,350       (1,373,114)    187,177,845    187,281,193      (103,348)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------
   Aetna Investment Advisers Fund, Inc.:      20,983,218       (1,660,805)     12,262,658      9,696,803     2,565,855
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ----------------------------------------------------------------------------------------------------------------------
   Aetna GET Fund, Series B:                   3,422,687         (286,592)      1,109,194        713,521       395,673
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------
   Aetna GET Fund, Series C:                     169,021         (119,214)        963,591        833,090       130,501
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------
   Aetna Ascent Variable Portfolio:            1,293,085         (171,542)      2,422,808      2,093,544       329,264
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------
   Aetna Crossroads Variable Portfolio:        1,366,067         (170,121)      1,119,794        921,119       198,675
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ----------------------------------------------------------------------------------------------------------------------
   Aetna Legacy Variable Portfolio:            1,122,530         (176,596)      1,280,095      1,125,823       154,272
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ----------------------------------------------------------------------------------------------------------------------
   Aetna Variable Portfolio, Inc.:
   Capital Appreciation Portfolio:               621,617          (11,486)        125,792        110,176        15,616
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------
   Growth Portfolio:                             848,691           (9,678)        592,546        560,620        31,926
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ----------------------------------------------------------------------------------------------------------------------
   Index Plus Portfolio:                       1,110,445         (154,416)      2,229,246      1,790,247       438,999
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ----------------------------------------------------------------------------------------------------------------------
   Small Company Portfolio:                      366,132          (19,387)        261,692        230,152        31,540
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ----------------------------------------------------------------------------------------------------------------------
  Alger American Funds:
   Balanced Portfolio:                           142,299          (73,798)      1,098,365      1,473,706      (375,341)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      S-9
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
                                                                  Net
            Net Unrealized
              Gain (Loss)                     Net         Increase (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>
        $59,979,314      $67,675,837      $7,696,523         $71,233,894
                                                                                 $644,728,031      $892,006,381
                                                                                   89,732,216       130,876,769
- ---------------------------------------------------------------------------------------------------------------
            379,633          781,718         402,085           (1,964,060)
                                                                                   66,534,546        69,236,488
                                                                                    3,583,489         3,681,984
- ---------------------------------------------------------------------------------------------------------------
           (540,607)       1,429,868       1,970,475           13,513,776
                                                                                  106,781,998       124,939,137
- ---------------------------------------------------------------------------------------------------------------
         15,114,435       21,131,758       6,017,323            7,591,834
                                                                                  119,402,212       150,761,384
                                                                                    7,942,484        12,080,737
- ---------------------------------------------------------------------------------------------------------------
          4,487,610        6,194,743       1,707,133             (712,316)
                                                                                   16,333,339        20,859,924
- ---------------------------------------------------------------------------------------------------------------
            144,834        2,144,550       1,999,716             (532,193)
                                                                                    9,281,276        10,929,107
- ---------------------------------------------------------------------------------------------------------------
            276,453        1,034,430         757,977           12,596,284
                                                                                    5,638,668        20,443,736
- ---------------------------------------------------------------------------------------------------------------
            151,493          704,161         552,668           13,077,636
                                                                                    5,295,700        20,250,904
                                                                                            0            69,721
- ---------------------------------------------------------------------------------------------------------------
             46,576          556,022         509,446           12,197,969
                                                                                    6,186,987        18,710,015
                                                                                            0         1,284,593
- ---------------------------------------------------------------------------------------------------------------
                  0         (545,082)       (545,082)           3,831,929
                                                                                            0         3,912,594
- ---------------------------------------------------------------------------------------------------------------
                  0         (945,071)       (945,071)           3,293,042
                                                                                            0         3,210,344
                                                                                            0             8,566
- ---------------------------------------------------------------------------------------------------------------
             (4,046)       1,342,384       1,346,430           23,512,958
                                                                                    1,985,372        28,074,705
                                                                                            0           165,083
- ---------------------------------------------------------------------------------------------------------------
                  0         (299,676)       (299,676)           6,028,520
                                                                                            0         6,059,783
                                                                                            0            47,346
- ---------------------------------------------------------------------------------------------------------------
           (461,380)         691,602       1,152,982            1,032,718
                                                                                    3,777,291         5,656,151
- ---------------------------------------------------------------------------------------------------------------
</TABLE>


                                      S-10
<PAGE>

Variable Annuity Account B

Notes to Financial Statements - December 31, 1997 (continued):

5.  Supplemental Information to Statements of Operations and Changes in Net
    Assets (continued):

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Year Ended December 31, 1997
                                                                                Valuation
                                                                                  Period
                                                                 Dividends      Deductions
- -------------------------------------------------------------------------------------------
<S>                                                              <C>            <C>

   Alger American Funds (continued):
   Growth Portfolio: (1)                                          $506,477       ($685,927)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   Income and Growth Portfolio:                                    401,543        (156,768)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   Leveraged AllCap Portfolio:                                           0        (196,601)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   MidCap Growth Portfolio: (1)                                    350,028        (308,858)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   Small Capitalization Portfolio: (2)                           2,260,717        (722,118)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   American Century Investments:
   Balanced Fund:                                                  199,265         (58,943)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   Capital Appreciation Fund: (3)                                  725,963        (365,809)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   International Fund:                                             176,899         (85,324)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   Calvert Social Balanced Portfolio:                               67,562          (7,128)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   Fidelity Investments Variable Insurance Products Fund:
   Equity-Income Portfolio:                                      7,870,976      (1,400,361)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   Growth Portfolio:                                             2,159,319        (938,752)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   High Income Portfolio:                                        1,270,071        (337,944)
  Annuity contracts in accumulation
  Annuity contracts in payment period
- -------------------------------------------------------------------------------------------
   Overseas Portfolio:                                             863,493        (164,196)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   Fidelity Investments Variable Insurance Products Fund II:
   Asset Manager Portfolio:                                        761,827        (120,783)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   Contrafund Portfolio:                                         1,931,363      (1,125,088)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   Index 500 Portfolio:                                          1,159,193        (771,581)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------
   Investment Grade Bond Portfolio:                                277,920         (79,205)
  Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------

<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
                                                                  Proceeds        Cost of          Net
                                                                    from        Investments     Realized
                                                                    Sales          Sold        Gain (Loss)
- -----------------------------------------------------------------------------------------------------------
<S>                                                              <C>            <C>            <C>
   Alger American Funds (continued):
   Growth Portfolio: (1)                                         $78,591,434    $64,519,617    $14,071,817
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   Income and Growth Portfolio:                                    2,602,037      3,401,714       (799,677)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   Leveraged AllCap Portfolio:                                     7,570,244      6,461,486      1,108,758
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   MidCap Growth Portfolio: (1)                                   49,795,194     45,404,313      4,390,881
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   Small Capitalization Portfolio: (2)                           118,175,863    114,437,088      3,738,775
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   American Century Investments:
   Balanced Fund:                                                    704,536        619,119         85,417
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   Capital Appreciation Fund: (3)                                 47,909,593     51,060,683     (3,151,090)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   International Fund:                                             4,226,767      3,417,937        808,830
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   Calvert Social Balanced Portfolio:                                212,241        199,799         12,442
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   Fidelity Investments Variable Insurance Products Fund:
   Equity-Income Portfolio:                                       17,887,517     15,251,625      2,635,892
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   Growth Portfolio:                                              10,659,015      9,711,716        947,299
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   High Income Portfolio:                                          4,857,948      4,277,783        580,165
  Annuity contracts in accumulation
  Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------
   Overseas Portfolio:                                             5,725,552      5,116,905        608,647
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   Fidelity Investments Variable Insurance Products Fund II:
   Asset Manager Portfolio:                                        1,009,159        904,890        104,269
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   Contrafund Portfolio:                                          13,933,668     10,543,199      3,390,469
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   Index 500 Portfolio:                                           17,678,295     13,392,232      4,286,063
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
   Investment Grade Bond Portfolio:                                1,100,211      1,085,995         14,216
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------
</TABLE>


                                      S-11
<PAGE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
          Net Unrealized                                      Net
          Gain (Loss)                    Net          Increase (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>
   $2,349,936               $0       ($2,349,936)        ($55,087,434)
                                                                             $43,545,003                $0
- ----------------------------------------------------------------------------------------------------------
     (828,912)       2,709,055         3,537,967            4,693,808
                                                                               6,471,587        14,148,460
- ----------------------------------------------------------------------------------------------------------
      220,810        1,540,243         1,319,433              628,691
                                                                              11,419,728        14,280,009
- ----------------------------------------------------------------------------------------------------------
      682,424                0          (682,424)         (23,592,354)
                                                                              19,842,727                 0
- ----------------------------------------------------------------------------------------------------------
     (495,260)               0           495,260          (64,524,063)
                                                                              58,751,429                 0
- ----------------------------------------------------------------------------------------------------------
      145,325          462,379           317,054            1,109,081
                                                                               2,991,356         4,643,230
- ----------------------------------------------------------------------------------------------------------
   (1,588,390)               0         1,588,390          (43,166,616)
                                                                              44,369,162                 0
- ----------------------------------------------------------------------------------------------------------
      375,835          361,821           (14,014)             259,970
                                                                               4,706,594         5,852,955
- ----------------------------------------------------------------------------------------------------------
         (881)          59,286            60,167              241,657
                                                                                 596,637           971,337
- ----------------------------------------------------------------------------------------------------------
    5,773,475       19,807,673        14,034,198           43,088,538
                                                                              72,480,497       138,709,740
- ----------------------------------------------------------------------------------------------------------
    3,258,300       14,584,513        11,326,213            8,978,986
                                                                              57,928,484        80,401,549
- ----------------------------------------------------------------------------------------------------------
      814,429        2,722,687         1,908,258           17,156,365
                                                                              14,709,464        35,217,837
                                                                                       0            68,542
- ----------------------------------------------------------------------------------------------------------
      743,689          460,930          (282,759)           2,276,187
                                                                               9,703,271        13,004,643
- ----------------------------------------------------------------------------------------------------------
      484,182        1,137,702           653,520            4,412,778
                                                                               5,931,464        11,743,075
- ----------------------------------------------------------------------------------------------------------
    6,210,754       18,201,832        11,991,078           35,101,002
                                                                              56,538,618       107,827,442
- ----------------------------------------------------------------------------------------------------------
    2,241,040       10,882,841         8,641,801           36,290,926
                                                                              27,380,370        76,986,772
- ----------------------------------------------------------------------------------------------------------
      175,829          387,160           211,331            1,392,243
                                                                               4,761,677         6,578,182
- ----------------------------------------------------------------------------------------------------------
</TABLE>


                                      S-12
<PAGE>

Variable Annuity Account B

Notes to Financial Statements - December 31, 1997 (continued):

5. Supplemental Information to Statements of Operations and Changes in Net
   Assets (continued):

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
                                                                   Valuation         Proceeds        Cost of           Net
                                                                    Period             from        Investments      Realized
                                                 Dividends        Deductions          Sales            Sold        Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>               <C>               <C>             <C>             <C>

   Insurance Management Series:
   American Leaders Fund II:                    $2,033,587        ($1,272,645)      $2,239,581      $1,354,167       $885,414
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------
   Equity Income Fund II:                           52,763           (108,244)         188,614         167,057         21,557
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------
   Growth Strategies Fund II:                       63,162           (214,573)         650,403         461,919        188,484
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------
   High Income Bond Fund II:                     2,232,254           (576,880)       5,856,816       5,388,542        468,274
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------
   International Equity Fund II:                     8,680           (138,835)         787,960         678,156        109,804
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------
   Prime Money Fund II:                            365,689           (107,783)       7,931,948       7,931,971            (23)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------
   U.S. Government Securities Fund II:             366,225           (147,271)       3,825,499       3,747,648         77,851
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------
   Utility Fund II:                                838,523           (291,277)       1,512,321       1,157,193        355,128
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------
   Janus Aspen Series:
   Aggressive Growth Portfolio:                          0           (419,040)      19,586,639      19,136,007        450,632
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------
   Balanced Portfolio:                             786,909           (294,871)       2,053,281       1,687,149        366,132
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------
   Flexible Income Portfolio:                      528,359            (93,943)       1,111,581       1,079,357         32,224
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------
   Growth Portfolio:                               967,832           (429,682)       2,254,366       1,752,378        501,988
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------
   Short-Term Bond Portfolio: (4)                   62,602            (36,643)      13,023,397      12,927,175         96,222
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------
   Worldwide Growth Portfolio:                   2,077,847         (1,645,928)      21,615,276      15,329,845      6,285,431
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------
   Lexington Emerging Markets Fund:                  2,717            (53,043)       4,235,697       4,177,632         58,065
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------
   Lexington Natural Resources Trust Fund:         209,099            (85,086)       3,246,699       2,653,024        593,675
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      S-13
<PAGE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------

        Net Unrealized                                      Net
          Gain (Loss)                  Net          Increase (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>
 $8,810,467      $30,111,589       $21,301,122          $32,775,129
                                                                           $61,127,055      $116,800,911
                                                                                     0            48,751
- --------------------------------------------------------------------------------------------------------
          0          911,406           911,406           19,061,089
                                                                                     0        19,938,571
- --------------------------------------------------------------------------------------------------------
    733,393        3,558,451         2,825,058           12,664,797
                                                                             7,182,178        22,709,106
- --------------------------------------------------------------------------------------------------------
  1,022,582        3,763,082         2,740,500           21,197,568
                                                                            27,151,137        53,212,853
- --------------------------------------------------------------------------------------------------------
    307,602          938,501           630,899            7,399,890
                                                                             5,935,590        13,946,028
- --------------------------------------------------------------------------------------------------------
          0                0                 0             (471,714)
                                                                             7,744,318         7,530,487
- --------------------------------------------------------------------------------------------------------
     73,398          513,199           439,801            4,803,969
                                                                             7,656,209        13,196,784
- --------------------------------------------------------------------------------------------------------
  1,730,892        5,801,015         4,070,123            4,555,867
                                                                            16,774,494        26,302,858
- --------------------------------------------------------------------------------------------------------
    534,823        4,594,517         4,059,694            2,750,579
                                                                            31,542,060        38,383,925
- --------------------------------------------------------------------------------------------------------
    373,883        3,462,858         3,088,975           15,424,389
                                                                            11,774,244        31,145,778
- --------------------------------------------------------------------------------------------------------
     73,395          367,565           294,170            4,626,561
                                                                             5,147,217        10,534,588
- --------------------------------------------------------------------------------------------------------
  1,093,423        5,764,208         4,670,785           14,123,750
                                                                            20,884,154        40,072,928
                                                                                     0           645,899
- --------------------------------------------------------------------------------------------------------
    (27,376)               0            27,376           (2,070,168)
                                                                             1,920,611                 0
- --------------------------------------------------------------------------------------------------------
  5,151,123       18,210,266        13,059,143           76,404,357
                                                                            66,472,691       160,658,096
                                                                                     0         1,995,445
- --------------------------------------------------------------------------------------------------------
    (66,591)        (709,548)         (642,957)             952,674
                                                                             2,515,960         2,833,416
- --------------------------------------------------------------------------------------------------------
    538,139          177,872          (360,267)           1,821,159
                                                                             4,751,784         6,930,364
- --------------------------------------------------------------------------------------------------------

</TABLE>


                                      S-14
<PAGE>

Variable Annuity Account B

Notes to Financial Statements - December 31, 1997 (continued):

5.  Supplemental Information to Statements of Operations and Changes in Net
    Assets (continued):

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
                                                                 Valuation      Proceeds       Cost of          Net
                                                                  Period          from       Investments     Realized
                                                   Dividends    Deductions        Sales          Sold       Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>          <C>          <C>            <C>            <C>
   MFS Funds:
   Emerging Growth Series: (2)                           $0      ($232,144)   $37,594,997    $34,076,137    $3,518,860
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
   Research Series: (3)                                   0       (273,185)    37,686,630     34,109,865     3,576,765
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
   Total Return Series:                                   0       (154,993)       689,861        564,440       125,421
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
   Value Series: (5)                                      0        (19,996)     4,332,717      3,942,044       390,673
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
   Worldwide Government Series:                      15,502        (12,983)       124,845        123,607         1,238
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
   Neuberger & Berman Advisers Management Trust:
   Growth Portfolio: (5)                            741,183        (92,357)    17,383,777     16,347,694     1,036,083
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
   Oppenheimer Funds:
   Capital Appreciation Fund:                             0        (13,374)     8,964,190      9,092,515      (128,325)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
   Global Securities Fund:                                0        (12,451)       850,938        802,777        48,161
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
   Growth & Income Fund:                             37,178        (35,759)       188,084        164,087        23,997
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
   Strategic Bond Fund:                              84,234        (10,842)       122,739        121,006         1,733
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
   Portfolio Partners, Inc.:
   PPI MFS Emerging Equities Portfolio:                   0       (120,211)    43,880,815     44,111,392      (230,577)
  Annuity contracts in accumulation
  Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------
   PPI MFS Research Growth Portfolio:                     0        (82,490)    37,923,531     37,983,794       (60,263)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
   PPI MFS Value Equity Portfolio:                        0        (16,913)     4,632,658      4,633,034          (376)
  Annuity contracts in accumulation
  Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------
   PPI Scudder International Growth Portfolio:            0        (12,760)       259,410        255,379         4,031
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
   PPI T. Rowe Price Growth Portfolio:                    0       (115,952)    33,484,569     33,491,822        (7,253)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
   Scudder Variable Life Investment Fund:
   International Portfolio: (6)                     275,557       (123,791)    16,445,650     14,417,831     2,027,819
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      S-15
<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
         Net Unrealized                                     Net
          Gain (Loss)                   Net          Increase (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>
   ($85,796)               $0           $85,796         ($12,370,520)
                                                                             $8,998,008              $0
- -------------------------------------------------------------------------------------------------------
    204,764                 0          (204,764)          (9,875,328)
                                                                              6,776,512               0
- -------------------------------------------------------------------------------------------------------
     72,010         1,975,149         1,903,139           12,883,941
                                                                              4,216,370      18,973,878
- -------------------------------------------------------------------------------------------------------
        935                 0              (935)            (578,583)
                                                                                208,841               0
- -------------------------------------------------------------------------------------------------------
      9,304            (5,937)          (15,241)             927,866
                                                                                407,913       1,324,295
- -------------------------------------------------------------------------------------------------------
     (6,666)                0             6,666           (9,934,149)
                                                                              8,242,574               0
- -------------------------------------------------------------------------------------------------------
          0           133,786           133,786            3,696,113
                                                                                      0       3,688,200
- -------------------------------------------------------------------------------------------------------
          0              (846)             (846)           2,646,073
                                                                                      0       2,680,937
- -------------------------------------------------------------------------------------------------------
          0           465,927           465,927           12,197,564
                                                                                      0      12,688,907
- -------------------------------------------------------------------------------------------------------
          0           (21,173)          (21,173)           3,038,749
                                                                                      0       3,092,701
- -------------------------------------------------------------------------------------------------------
          0          (753,832)         (753,832)          96,397,314
                                                                                      0      94,796,247
                                                                                      0         496,447
- -------------------------------------------------------------------------------------------------------
          0        (1,162,926)       (1,162,926)          67,172,809
                                                                                      0      65,867,130
- -------------------------------------------------------------------------------------------------------
          0           220,662           220,662           15,224,308
                                                                                      0      15,049,606
                                                                                      0         378,075
- -------------------------------------------------------------------------------------------------------
          0           195,427           195,427           12,463,465
                                                                                      0      12,650,163
- -------------------------------------------------------------------------------------------------------
          0         1,797,922         1,797,922           88,495,541
                                                                                      0      90,170,258
- -------------------------------------------------------------------------------------------------------
  1,510,449                 0        (1,510,449)         (12,719,263)
                                                                             12,050,127               0
 -------------------------------------------------------------------------------------------------------
</TABLE>


                                      S-16
<PAGE>

Variable Annuity Account B
Notes to Financial Statements - December 31, 1997 (continued):

5. Supplemental Information to Statements of Operations and Changes in Net
   Assets (continued):

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
                                                          Valuation          Proceeds         Cost of           Net
                                                            Period             from         Investments      Realized
                                         Dividends        Deductions          Sales             Sold        Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------
<S>                                    <C>              <C>             <C>               <C>             <C>

   Total Variable Annuity Account B    $278,833,116     ($29,243,851)   $1,004,789,371    $933,728,508    $71,060,863
=======================================================================================================================
</TABLE>

(1) - Effective November 28, 1997, this funds assets were transferred to the PPI
      T. Rowe Price Growth Equity Portfolio.
(2) - Effective November 28, 1997, this funds assets were transferred to the PPI
      MFS Emerging Equities Portfolio.
(3) - Effective November 28, 1997, this funds assets were transferred to PPI MFS
      Research Growth Fund.
(4) - Effective November 28, 1997, this funds assets were transferred to the
      Aetna Variable Encore Fund.
(5) - Effective November 28, 1997, this funds assets were transferred to the PPI
      MFS Value Equity Portfolio.
(6) - Effective November 28, 1997, this funds assets were transferred to the PPI
      Scudder International Growth Portfolio.


                                      S-17
<PAGE>

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------

             Net Unrealized                                           Net
               Gain (Loss)                       Net          Increase (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>
$122,191,053               $255,524,506      $133,333,453      $619,647,552           $1,848,811,724     $2,922,442,857
=======================================================================================================================
</TABLE>


                                      S-18
<PAGE>

Variable Annuity Account B
Notes to Financial Statements - December 31, 1997 (continued):

5.  Supplemental Information to Statements of Operations and Changes in Net
    Assets (continued):

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Year Ended December 31, 1996
                                                                         Valuation
                                                                          Period
                                                         Dividends      Deductions
- ------------------------------------------------------------------------------------
<S>                                                    <C>              <C>
   Aetna Variable Fund:                                $77,000,986      ($7,148,689)
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ------------------------------------------------------------------------------------
   Aetna Income Shares:                                  4,527,825         (813,024)
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ------------------------------------------------------------------------------------
   Aetna Variable Encore Fund:                           5,358,925       (1,043,955)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------
   Aetna Investment Advisers Fund, Inc.:                11,247,847       (1,372,478)
  Annuity contracts in accumulation
  Annuity contracts in payment period
- ------------------------------------------------------------------------------------
   Aetna GET Fund, Series B:                             1,055,590         (226,340)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------
   Aetna GET Fund, Series C:                                46,499          (14,753)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------
   Aetna Ascent Variable Portfolio:                        235,037          (27,609)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------
   Aetna Crossroads Variable Portfolio:                    257,055          (29,943)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------
   Aetna Legacy Variable Portfolio:                        363,749          (38,623)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------
   Aetna Variable Index Plus Portfolio:                     10,290           (2,403)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------
   Alger American Funds:
   Balanced Portfolio:                                     775,351          (33,904)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------
   Growth Portfolio:                                       758,872         (394,360)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------
   Income and Growth Portfolio:                          2,009,995          (55,929)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------
   Leveraged AllCap Portfolio:                              61,186         (116,503)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------
   MidCap Portfolio:                                       190,158         (166,087)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------
   Small Capitalization Portfolio:                         184,900         (588,663)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------
   Calvert Responsibly Invested Balanced Portfolio:         44,676           (3,984)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------

<CAPTION>
- --------------------------------------------------------------------------------------------------
Year Ended December 31, 1996
                                                         Proceeds       Cost of           Net
                                                           from       Investments      Realized
                                                           Sales          Sold        Gain (Loss)
- --------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>             <C>
   Aetna Variable Fund:                                $96,146,932    $97,318,697     ($1,171,765)
  Annuity contracts in accumulation
  Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------
   Aetna Income Shares:                                 19,585,006     18,826,116         758,890
  Annuity contracts in accumulation
  Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------
   Aetna Variable Encore Fund:                          78,888,315     76,637,102       2,251,213
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
   Aetna Investment Advisers Fund, Inc.:                16,403,009     13,386,571       3,016,438
  Annuity contracts in accumulation
  Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------
   Aetna GET Fund, Series B:                               915,330        681,610         233,720
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
   Aetna GET Fund, Series C:                               361,353        354,510           6,843
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
   Aetna Ascent Variable Portfolio:                        317,740        277,917          39,823
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
   Aetna Crossroads Variable Portfolio:                    362,140        312,870          49,270
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
   Aetna Legacy Variable Portfolio:                        406,948        384,407          22,541
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
   Aetna Variable Index Plus Portfolio:                    139,030        133,438           5,592
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
   Alger American Funds:
   Balanced Portfolio:                                     244,368        332,405         (88,037)
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
   Growth Portfolio:                                     6,990,444      6,528,212         462,232
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
   Income and Growth Portfolio:                            390,051        732,537        (342,486)
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
   Leveraged AllCap Portfolio:                           4,991,495      4,605,949         385,546
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
   MidCap Portfolio:                                     3,198,308      3,039,709         158,599
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
   Small Capitalization Portfolio:                      31,506,275     29,929,826       1,576,449
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
   Calvert Responsibly Invested Balanced Portfolio:        141,022        137,780           3,242
  Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------
</TABLE>


                                      S-19
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
          Net Unrealized                                      Net
           Gain (Loss)                    Net          Increase (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>
   ($8,051,873)     $59,979,314       $68,031,187           $4,966,306
                                                                                $530,231,821       $644,728,031
                                                                                 62,550,401          89,732,216
- ---------------------------------------------------------------------------------------------------------------
     3,224,044          379,633        (2,844,411)          (9,600,618)
                                                                                 74,693,652          66,534,546
                                                                                  3,395,721           3,583,489
- ---------------------------------------------------------------------------------------------------------------
     2,487,618         (540,607)       (3,028,225)          22,111,260
                                                                                 81,132,780         106,781,998
- ---------------------------------------------------------------------------------------------------------------
    12,419,220       15,114,435         2,695,215              602,270
                                                                                104,415,595         119,402,212
                                                                                  6,739,809           7,942,484
- ---------------------------------------------------------------------------------------------------------------
     2,566,580        4,487,610         1,921,030             (650,835)
                                                                                 14,000,174          16,333,339
- ---------------------------------------------------------------------------------------------------------------
             0          144,834           144,834            9,097,853
                                                                                          0           9,281,276
- ---------------------------------------------------------------------------------------------------------------
         5,570          276,453           270,883            4,773,151
                                                                                    347,383           5,638,668
- ---------------------------------------------------------------------------------------------------------------
         8,209          151,493           143,284            4,409,627
                                                                                    466,407           5,295,700
- ---------------------------------------------------------------------------------------------------------------
         1,609           46,576            44,967            5,470,774
                                                                                    323,579           6,186,987
- ---------------------------------------------------------------------------------------------------------------
             0           (4,046)           (4,046)           1,975,940
                                                                                         (1)          1,985,372
- ---------------------------------------------------------------------------------------------------------------
         1,644         (461,380)         (463,024)           2,897,855
                                                                                    689,050           3,777,291
- ---------------------------------------------------------------------------------------------------------------
       (63,817)       2,349,936         2,413,753           29,514,421
                                                                                 10,790,085          43,545,003
- ---------------------------------------------------------------------------------------------------------------
        (6,769)        (828,912)         (822,143)           4,660,630
                                                                                  1,021,520           6,471,587
- ---------------------------------------------------------------------------------------------------------------
        32,561          220,810           188,249            8,946,454
                                                                                  1,954,796          11,419,728
- ---------------------------------------------------------------------------------------------------------------
         7,193          682,424           675,231           15,727,261
                                                                                  3,257,565          19,842,727
- ---------------------------------------------------------------------------------------------------------------
        46,283         (495,260)         (541,543)          32,655,969
                                                                                 25,464,317          58,751,429
- ---------------------------------------------------------------------------------------------------------------
       (13,512)            (881)           12,631              193,226
                                                                                    346,846             596,637
- ---------------------------------------------------------------------------------------------------------------
</TABLE>


                                      S-20
<PAGE>

Variable Annuity Account B
Notes to Financial Statements - December 31, 1997 (continued):

5. Supplemental Information to Statements of Operations and Changes in Net
   Assets (continued):

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year Ended December 31, 1996
                                                                               Valuation
                                                                                Period
                                                                Dividends     Deductions
- -----------------------------------------------------------------------------------------
<S>                                                              <C>           <C>
   Fidelity Investments Variable Insurance Products Fund:
   Equity-Income Portfolio:                                       $940,850     ($608,164)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   Growth Portfolio:                                             1,412,110      (540,670)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   High Income Portfolio:                                          178,909      (112,363)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   Overseas Portfolio:                                              75,181       (91,010)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   Fidelity Investments Variable Insurance Products Fund II:
   Asset Manager Portfolio:                                        119,231       (54,259)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   Contrafund Portfolio:                                           146,164      (428,708)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   Index 500 Portfolio:                                            143,406      (203,362)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   Investment Grade Bond Portfolio:                                 45,797       (42,799)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   Insurance Management Series:
   American Leaders Fund II:                                       857,970      (631,122)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   Growth Strategies Fund II:                                          405       (44,481)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   High Income Bond Fund II:                                     1,647,290      (260,987)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   International Equity Fund II:                                    10,567       (51,003)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   Prime Money Fund II:                                            289,134       (87,958)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   U.S. Government Securities Fund II:                             367,608       (86,361)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   Utility Fund II:                                                547,259      (186,219)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   Janus Aspen Series:
   Aggressive Growth Portfolio:                                    243,931      (266,292)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------
   Balanced Portfolio:                                             181,099       (68,277)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------

<CAPTION>
- ------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996
                                                                 Proceeds      Cost of         Net
                                                                   from      Investments     Realized
                                                                  Sales          Sold      Gain (Loss)
- ------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>            <C>

   Fidelity Investments Variable Insurance Products Fund:
   Equity-Income Portfolio:                                     $4,030,269    $3,343,817      $686,452
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   Growth Portfolio:                                             2,600,136     2,280,711       319,425
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   High Income Portfolio:                                        1,318,057     1,318,142           (85)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   Overseas Portfolio:                                             880,668       813,434        67,234
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   Fidelity Investments Variable Insurance Products Fund II:
   Asset Manager Portfolio:                                        540,553       465,407        75,146
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   Contrafund Portfolio:                                         5,044,449     4,308,117       736,332
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   Index 500 Portfolio:                                          6,086,685     5,356,843       729,842
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   Investment Grade Bond Portfolio:                                882,619       925,636       (43,017)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   Insurance Management Series:
   American Leaders Fund II:                                     6,368,961     4,596,688     1,772,273
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   Growth Strategies Fund II:                                      119,084       103,727        15,357
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   High Income Bond Fund II:                                     5,863,283     5,644,702       218,581
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   International Equity Fund II:                                   250,169       236,027        14,142
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   Prime Money Fund II:                                         12,400,851    12,398,826         2,025
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   U.S. Government Securities Fund II:                           5,011,311     5,085,345       (74,034)
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   Utility Fund II:                                              1,034,753       867,262       167,491
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   Janus Aspen Series:
   Aggressive Growth Portfolio:                                  6,134,481     4,875,603     1,258,878
  Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
   Balanced Portfolio:                                           2,812,822     2,536,688       276,134
   Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------
</TABLE>


                                      S-21
<PAGE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
         Net Unrealized                                  Net
         Gain (Loss)                 Net         Increase (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>
   $966,600      $5,773,475      $4,806,875          $51,230,275
                                                                        $15,424,209      $72,480,497
- ----------------------------------------------------------------------------------------------------
    (34,190)      3,258,300       3,292,490           38,219,867
                                                                         15,225,262       57,928,484
- ----------------------------------------------------------------------------------------------------
     15,029         814,429         799,400           12,636,277
                                                                          1,207,326       14,709,464
- ----------------------------------------------------------------------------------------------------
     51,434         743,689         692,255            6,948,020
                                                                          2,011,591        9,703,271
- ----------------------------------------------------------------------------------------------------
     98,360         484,182         385,822            4,043,035
                                                                          1,362,489        5,931,464
- ----------------------------------------------------------------------------------------------------
    122,841       6,210,754       6,087,913           38,043,675
                                                                         11,953,242       56,538,618
- ----------------------------------------------------------------------------------------------------
     70,864       2,241,040       2,170,176           22,367,490
                                                                          2,172,818       27,380,370
- ----------------------------------------------------------------------------------------------------
     11,466         175,829         164,363            3,931,632
                                                                            705,701        4,761,677
- ----------------------------------------------------------------------------------------------------
  2,916,888       8,810,467       5,893,579           26,548,788
                                                                         26,685,567       61,127,055
- ----------------------------------------------------------------------------------------------------
      3,614         733,393         729,779            6,301,239
                                                                            179,879        7,182,178
- ----------------------------------------------------------------------------------------------------
    229,008       1,022,582         793,574           12,876,189
                                                                         11,876,490       27,151,137
- ----------------------------------------------------------------------------------------------------
     43,172         307,602         264,430            4,073,916
                                                                          1,623,538        5,935,590
- ----------------------------------------------------------------------------------------------------
     (1,182)              0           1,182            1,765,443
                                                                          5,774,492        7,744,318
- ----------------------------------------------------------------------------------------------------
     75,600          73,398          (2,202)           2,942,870
                                                                          4,508,328        7,656,209
- ----------------------------------------------------------------------------------------------------
    799,746       1,730,892         931,146            6,514,735
                                                                          8,800,082       16,774,494
- ----------------------------------------------------------------------------------------------------
  1,164,909         534,823        (630,086)          19,085,222
                                                                         11,850,407       31,542,060
- ----------------------------------------------------------------------------------------------------
     26,040         373,883         347,843           10,311,561
                                                                            725,884       11,774,244
- ----------------------------------------------------------------------------------------------------
</TABLE>


                                      S-22
<PAGE>

Variable Annuity Account B
Notes to Financial Statements - December 31, 1997 (continued):

5.  Supplemental Information to Statements of Operations and Changes in Net
    Assets (continued):

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Year Ended December 31, 1996
                                                                      Valuation
                                                                        Period
                                                     Dividends        Deductions
<S>                                                <C>               <C>
   Flexible Income Portfolio:                      $    304,512          ($43,754)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   Growth Portfolio:                                    324,844          (141,840)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   Short-Term Bond Portfolio:                            79,326           (23,159)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   Worldwide Growth Portfolio:                          642,050          (384,732)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   Lexington Emerging Markets Fund:                           0           (27,131)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   Lexington Natural Resources Trust Fund:               15,653           (38,378)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   MFS Funds:
   Emerging Growth Series:                               73,635           (33,243)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   Research Series:                                      94,710           (22,219)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   Total Return Series:                                  87,973           (13,218)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   Value Series:                                          4,089              (372)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   World Government Series:                                   0            (1,705)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   Neuberger & Berman Advisers Management Trust:
   Growth Portfolio:                                    770,877           (98,063)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   Scudder Variable Life Investment Fund:
   International Portfolio:                             276,128          (136,107)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   TCI Portfolios, Inc.:
   Balanced Fund:                                        67,198           (24,832)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   Growth Fund:                                       6,228,055          (611,968)
  Annuity contracts in accumulation
- ----------------------------------------------------------------------------------
   International Fund:                                   62,276           (41,867)
  Annuity contracts in accumulation
   Total Variable Annuity Account B                $120,367,178      ($17,483,870)
==================================================================================


<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31, 1996
                                                      Proceeds        Cost of           Net
                                                        from        Investments       Realized
                                                       Sales            Sold        Gain (Loss)
- -----------------------------------------------------------------------------------------------
<S>                                                  <C>             <C>              <C>
   Flexible Income Portfolio:                        $1,127,628      $1,090,808         $36,820
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   Growth Portfolio:                                  1,249,735       1,041,911         207,824
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   Short-Term Bond Portfolio:                         2,910,009       2,872,811          37,198
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   Worldwide Growth Portfolio:                        4,899,145       3,899,490         999,655
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   Lexington Emerging Markets Fund:                   1,463,410       1,431,864          31,546
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   Lexington Natural Resources Trust Fund:            2,192,808       1,809,743         383,065
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   MFS Funds:
   Emerging Growth Series:                              190,630         186,959           3,671
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   Research Series:                                     253,406         258,774          (5,368)
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   Total Return Series:                                 140,628         132,113           8,515
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   Value Series:                                            496             486              10
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   World Government Series:                              19,663          19,513             150
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   Neuberger & Berman Advisers Management Trust:
   Growth Portfolio:                                  3,864,131       3,857,033           7,098
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   Scudder Variable Life Investment Fund:
   International Portfolio:                           4,557,311       4,016,790         540,521
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   TCI Portfolios, Inc.:
   Balanced Fund:                                       247,893         231,495          16,398
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   Growth Fund:                                      19,145,021      17,607,144       1,537,877
  Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------
   International Fund:                                  397,143         365,001          32,142
  Annuity contracts in accumulation
   Total Variable Annuity Account B                $365,025,974    $347,598,566     $17,427,408
===============================================================================================
</TABLE>


                                      S-23
<PAGE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
          Net Unrealized                                      Net
           Gain (Loss)                    Net          Increase (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>
     $29,809           $73,395           $43,586           $3,237,811
                                                                                  $1,568,242          $5,147,217
 ----------------------------------------------------------------------------------------------------------------
      84,852         1,093,423         1,008,571           16,916,813
                                                                                   2,567,942          20,884,154
 ----------------------------------------------------------------------------------------------------------------
       1,330           (27,376)          (28,706)           1,106,654
                                                                                     749,298           1,920,611
 ----------------------------------------------------------------------------------------------------------------
     253,639         5,151,123         4,897,484           54,723,321
                                                                                   5,594,913          66,472,691
 ----------------------------------------------------------------------------------------------------------------
      (4,024)          (66,591)          (62,567)           2,232,953
                                                                                     341,159           2,515,960
 ----------------------------------------------------------------------------------------------------------------
     188,717           538,139           349,422            2,162,813
                                                                                   1,879,209           4,751,784
 ----------------------------------------------------------------------------------------------------------------
           0           (85,796)          (85,796)           9,039,741
                                                                                           0           8,998,008
 ----------------------------------------------------------------------------------------------------------------
           0           204,764           204,764            6,504,625
                                                                                           0           6,776,512
 ----------------------------------------------------------------------------------------------------------------
           0            72,010            72,010            4,061,090
                                                                                           0           4,216,370
 ----------------------------------------------------------------------------------------------------------------
           0               935               935              204,179
                                                                                           0             208,841
 ----------------------------------------------------------------------------------------------------------------
           0             9,304             9,304              400,164
                                                                                           0             407,913
 ----------------------------------------------------------------------------------------------------------------
      77,158            (6,666)          (83,824)            (710,088)
                                                                                   8,356,574           8,242,574
 ----------------------------------------------------------------------------------------------------------------
     652,411         1,510,449           858,038              (54,117)
                                                                                  10,565,664          12,050,127
 ----------------------------------------------------------------------------------------------------------------
      16,540           145,325           128,785            2,313,929
                                                                                     489,878           2,991,356
 ----------------------------------------------------------------------------------------------------------------
   8,206,103        (1,588,390)       (9,794,493)          (7,301,710)
                                                                                  54,311,401          44,369,162
 ----------------------------------------------------------------------------------------------------------------
      15,650           375,835           360,185            3,691,239
                                                                                     602,619           4,706,594
 ----------------------------------------------------------------------------------------------------------------
 $28,746,944      $122,191,053       $93,444,109         $504,121,195         $1,130,935,704      $1,848,811,724
 ===========      ============       ===========         ============         ==============      ==============
</TABLE>


                                      S-24
<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, 1997, 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, 1997. 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 and condensed financial information. Our procedures
included confirmation of securities owned as of December 31, 1997, 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, 1997, the results of its operations and 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, 1997 in conformity with
generally accepted accounting principles.

                                     /s/ KPMG Peat Marwick LLP

Hartford, Connecticut
February 27, 1998


                                      S-25

<PAGE>


            AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY

                   Index to Consolidated Financial Statements
                   ------------------------------------------

                                                                      Page

Independent Auditors' Report                                            F-2

Consolidated Financial Statements:

       Consolidated Statements of Income for the Years Ended
         December 31, 1997, 1996 and 1995                               F-3

       Consolidated Balance Sheets as of December 31, 1997
         and 1996                                                       F-4

       Consolidated Statements of Changes in Shareholder's Equity
         for the Years Ended December 31, 1997, 1996 and 1995           F-5

       Consolidated Statements of Cash Flows for the Years
         Ended December 31, 1997, 1996 and 1995                         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 Subsidiary as of December 31, 1997 and 1996,
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, 1997. 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 statements 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 Subsidiary at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.


                                                      /s/ KPMG Peat Marwick LLP



Hartford, Connecticut
February 3, 1998


                                       F-2


<PAGE>

            AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
         (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)

                        Consolidated Statements of Income
                                   (millions)

                                                Years Ended December 31,
                                            --------------------------------
                                              1997         1996       1995
                                            -------       -------    -------
Revenue:
  Premiums                                   $267.1        $133.6     $212.7
  Charges assessed against policyholders      475.0         396.5      318.9
  Net investment income                     1,080.5       1,045.6    1,004.3
  Net realized capital gains                   36.0          19.7       41.3
  Other income                                 39.7          45.4       42.0
                                            -------       -------    -------
        Total revenue                       1,898.3       1,640.8    1,619.2
                                            -------       -------    -------

Benefits and expenses:
  Current and future benefits               1,127.8         968.6      997.2
  Operating expenses                          347.4         342.2      310.8
  Amortization of deferred policy
     acquisition costs                        128.4          69.8       48.0
  Severance and facilities charges               --          61.3         --
                                            -------       -------    -------
       Total benefits and expenses          1,603.6       1,441.9    1,356.0
                                            -------       -------    -------

Income before income taxes                    294.7         198.9      263.2

   Income taxes                                89.4          57.8       87.3
                                            -------       -------    -------

Net income                                   $205.3        $141.1     $175.9
                                            =======       =======    =======

See Notes to Consolidated Financial Statements.


                                       F-3
<PAGE>

            AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
         (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)

                           Consolidated Balance Sheets
                          (millions, except share data)

<TABLE>
<CAPTION>
                                                                               December 31,  December 31,
Assets                                                                           1997           1996
- ------                                                                           ----           ----
<S>                                                                            <C>           <C>
Investments:
  Debt securities available for sale, at fair value
    (amortized cost:  $12,912.2 and $12,539.1)                                 $13,463.8     $12,905.5
  Equity securities, available for sale:
    Nonredeemable preferred stock (cost:  $131.7 and $107.6)                       147.6         119.0
    Investment in affiliated mutual funds (cost:  $78.1 and $77.3)                  83.0          81.1
    Common stock (cost:  $0.2 and $0.0)                                               .6            .3
  Short-term investments                                                            95.6          34.8
  Mortgage loans                                                                    12.8          13.0
  Policy loans                                                                     469.6         399.3
                                                                               ---------      --------
       Total investments                                                        14,273.0      13,553.0

Cash and cash equivalents                                                          565.4         459.1
Accrued investment income                                                          163.0         159.0
Premiums due and other receivables                                                  63.7          26.6
Deferred policy acquisition costs                                                1,654.6       1,515.3
Reinsurance loan to affiliate                                                      397.2         628.3
Other assets                                                                        46.8          33.7
Separate accounts assets                                                        22,982.7      15,318.3
                                                                               ---------      --------

       Total assets                                                            $40,146.4     $31,693.3
                                                                               =========      ========

Liabilities and Shareholder's Equity

Liabilities:
  Future policy benefits                                                        $3,763.7      $3,617.0
  Unpaid claims and claim expenses                                                  38.0          28.9
  Policyholders' funds left with the Company                                    11,143.5      10,663.7
                                                                               ---------      --------
       Total insurance reserve liabilities                                      14,945.2      14,309.6
  Other liabilities                                                                312.8         354.7
  Income taxes:
    Current                                                                         12.4          20.7
    Deferred                                                                        72.0          80.5
  Separate accounts liabilities                                                 22,970.0      15,318.3
                                                                               ---------      --------
       Total liabilities                                                        38,312.4      30,083.8
                                                                               ---------      --------

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         418.0
  Accumulated other comprehensive income                                            92.9          60.5
  Retained earnings                                                              1,320.3       1,128.2
                                                                               ---------      --------
       Total shareholder's equity                                                1,834.0       1,609.5
                                                                               ---------      --------

         Total liabilities and shareholder's equity                            $40,146.4     $31,693.3
                                                                               =========      ========
</TABLE>

See Notes to Consolidated Financial Statements.


                                       F-4
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
         (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)

           Consolidated Statements of Changes in Shareholder's Equity
                                   (millions)

<TABLE>
<CAPTION>
                                                              Years  Ended December 31,
                                                           ---------------------------------
                                                             1997        1996          1995
                                                           --------     --------    --------
<S>                                                        <C>          <C>         <C>
Shareholder's equity, beginning of year                    $1,609.5     $1,583.0    $1,088.5

Comprehensive income
   Net income                                                 205.3        141.1       175.9
   Other comprehensive income, net of tax
      Unrealized gains (losses) on securities ($50.1
      million,  $(110.8) million and $494.6 million,           32.4        (72.0)      321.5
      pretax, respectively)
                                                           --------     --------    --------
Total comprehensive income                                    237.7         69.1       497.4
                                                           --------     --------    --------

Capital contributions                                            --         10.4         0.0

Other changes                                                   4.1        (49.5)        0.0

Common stock dividends                                        (17.3)        (3.5)       (2.9)
                                                           --------     --------    --------

Shareholder's equity, end of year                          $1,834.0     $1,609.5    $1,583.0
                                                           ========     ========    ========
</TABLE>
See Notes to Consolidated Financial Statements.



                                       F-5
<PAGE>

            AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
         (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)

                      Consolidated Statements of Cash Flows
                                   (millions)

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31,
                                                                             ------------------------------
                                                                              1997        1996        1995
                                                                             ------      ------      ------
<S>                                                                          <C>         <C>         <C>
Cash Flows from Operating Activities:
         Net income                                                          $205.3      $141.1      $175.9
         Adjustments to reconcile net income to net cash provided by
         (used for) operating activities:
         (Increase) decrease  in accrued investment income                     (4.0)       16.5       (33.3)
         (Increase) decrease in premiums due and other receivables            (33.3)        1.6        25.4
         Increase in policy loans                                             (70.3)      (60.7)      (89.9)
         Increase in deferred policy acquisition costs                       (139.3)     (174.0)     (177.0)
         Decrease in reinsurance loan to affiliate                            231.1        27.2        34.8
         Net increase in universal life account balances                      286.4       243.2       393.4
         (Decrease) increase in other insurance reserve liabilities          (249.6)     (211.5)       79.0
         Net (decrease) increase in other liabilities and other assets        (41.7)        3.1        13.0
         Decrease in income taxes                                             (31.4)      (26.7)       (4.5)
         Net accretion of discount on investments                             (66.4)      (68.0)      (66.4)
         Net realized capital gains                                           (36.0)      (19.7)      (41.3)
         Other, net                                                              --         1.1          --
                                                                           --------    --------    --------
               Net cash provided by (used for) operating activities            50.8      (126.8)      309.1
                                                                           --------    --------    --------

Cash Flows from Investing Activities:
         Proceeds from sales of:
            Debt securities available for sale                              5,311.3     5,182.2     4,207.2
            Equity securities                                                 103.1       190.5       180.8
            Mortgage loans                                                      0.2         8.7        10.7
            Limited partnership                                                  --          --        26.6
         Investment maturities and collections of:
            Debt securities available for sale                              1,212.7       885.2       583.9
            Short-term investments                                             89.3        35.0       106.1
         Cost of investment purchases in:
            Debt securities available for sale                             (6,732.8)   (6,534.3)   (6,034.0)
            Equity securities                                                (113.3)     (118.1)     (170.9)
            Short-term investments                                           (149.9)      (54.7)      (24.7)
            Mortgage loans                                                       --          --       (21.3)
         Other, net                                                              --       (17.6)         --
                                                                           --------    --------    --------
               Net cash used for investing activities                        (279.4)     (423.1)   (1,135.6)
                                                                           --------    --------    --------

Cash Flows from Financing Activities:
         Deposits and interest credited for investment contracts            1,621.2     1,579.5     1,884.5
         Withdrawals of investment contracts                               (1,256.3)   (1,146.2)   (1,109.6)
         Capital contribution to Separate Account                             (25.0)         --          --
         Return of capital from Separate Account                               12.3          --          --
         Capital contribution from HOLDCO                                        --        10.4          --
         Dividends paid to shareholder                                        (17.3)       (3.5)       (2.9)
                                                                           --------    --------    --------
               Net cash provided by financing activities                      334.9       440.2       772.0
                                                                           --------    --------    --------

Net increase (decrease) in cash and cash equivalents                          106.3      (109.7)      (54.5)
Cash and cash equivalents, beginning of year                                  459.1       568.8       623.3
                                                                           --------    --------    --------

Cash and cash equivalents, end of year                                       $565.4      $459.1      $568.8
                                                                           ========    ========    ========

Supplemental cash flow information:
    Income taxes paid, net                                                   $119.6       $85.5       $92.8
                                                                           ========    ========    ========
</TABLE>

See Notes to Consolidated Financial Statements.


                                       F-6
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (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 subsidiary
     (collectively, the "Company") are providers 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 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 subsidiary, Aetna Insurance Company of
     America. 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 1996 and 1995 financial information to conform to the 1997
     presentation.

     New Accounting Standard
     -----------------------

     As of December 31, 1997 the Company adopted Financial Accounting Standard
     ("FAS") No. 130, Reporting Comprehensive Income. This statement establishes
     standards for the reporting and presentation of comprehensive income and
     its components in a full set of financial statements. Comprehensive income
     encompasses all changes in shareholder's equity (except those arising from
     transactions with shareholders) and includes net income and net unrealized
     capital gains or losses on available-for-sale securities. As this new
     standard only requires additional information in a financial statement, it
     does not affect the Company's financial position or results of operations.

     Future Application of Accounting Standards
     ------------------------------------------

     Accounting for Transfers and Servicing of Financial Assets and
     Extinguishments of Liabilities

     FAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
     Extinguishments of Liabilities, was issued in June 1996 and provides
     accounting and reporting standards for transfers of financial assets and
     extinguishments of liabilities.




                                       F-7
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (A wholly owned subsidiary of Aetna
                           Retirement Holdings, Inc.)

             Notes to Consolidated Financial Statements (Continued)

1.   Summary of Significant Accounting Policies (Continued)

     Future Application of Accounting Standards (Continued)

     FAS No. 125 is effective for 1997 financial statements; however, certain
     provisions relating to accounting for repurchase agreements and securities
     lending are not effective until January 1, 1998. Provisions effective in
     1997 did not have a material effect on the Company's financial position or
     results of operations. The Company does not expect adoption of this
     statement for provisions effective in 1998 to have a material effect on its
     financial position or results of operations.

     Accounting by Insurance and Other Enterprises for Insurance-Related
     Assessments

     In December 1997, the American Institute of Certified Public Accountants
     issued Statement of Position 97-3, Accounting by Insurance and Other
     Enterprises for Insurance-Related Assessments, which provides guidance for
     determining when an insurance or other enterprise should recognize a
     liability for guaranty-fund and other insurance related assessments and
     guidance for measuring the liability. This statement is effective for 1999
     financial statements with early adoption permitted. The Company does not
     expect adoption of this statement to have a material effect on its
     financial position or results of operations.

     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

     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 investments, 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.


                                       F-8
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (A wholly owned subsidiary of Aetna
                           Retirement Holdings, Inc.)

             Notes to Consolidated Financial Statements (Continued)

1.   Summary of Significant Accounting Policies (Continued)

     Investments (Continued)

     The company engages in securities lending whereby certain securities from
     its portfolio are loaned to other institutions for short periods of time.
     Initial collateral, primarily cash, is required at a rate of 102% of the
     market value of a loaned domestic security and 105% of the market value of
     a loaned foreign security. The collateral is deposited by the borrower with
     a lending agent, and retained and invested by the lending agent according
     to the Company's guidelines to generate additional income. The market value
     of the loaned securities is monitored on a daily basis with additional
     collateral obtained or refunded as the market value of the loaned
     securities fluctuates. At December 31, 1997 and 1996, the Company loaned
     securities (which are reflected as invested assets) with a market value of
     approximately $385.1 million and $444.7 million, respectively.

     Purchases and sales of debt and equity securities are recorded on the trade
     date.

     The investment in affiliated mutual funds represents an investment in Aetna
     managed mutual funds which have 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.

     The Company utilizes futures contracts, swap agreements and warrants for
     other than trading purposes in order to manage investment returns and price
     risk and to align maturities, interest rates, and funds availability with
     its obligations. (Refer to Note 3.)

     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.

     Interest rate 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


                                       F-9
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (A wholly owned subsidiary of Aetna
                           Retirement Holdings, Inc.)

             Notes to Consolidated Financial Statements (Continued)

1.   Summary of Significant Accounting Policies (Continued)

     Investments (Continued)

     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.

     Warrants represent the right to purchase specific securities and are
     accounted for as hedges. Upon exercise, the cost of the warrants are added
     to the basis of the securities purchased.

     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% for all
     years presented. 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.

     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 3.50% to 9.50% for all years presented) 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.


                                      F-10
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (A wholly owned subsidiary of Aetna
                           Retirement Holdings, Inc.)

             Notes to Consolidated Financial Statements (Continued)

1.    Summary of Significant Accounting Policies (Continued)

     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 with life contingencies begin under
     contracts that were initially investment contracts, the accumulated balance
     in the account is treated as a single premium for the purchase of an
     annuity and 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 mutual 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 $658.6 million for 1997 (fair value $668.7 million)
     and $515.6 million for 1996 (fair value $523.0 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 both 1997 and in
     1996.

     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 SUBSIDIARY
                       (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, 1997 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                           $1,219.7            $74.0             $0.1           $1,293.6

       States, municipalities and political
          subdivisions                                            0.3               --               --                0.3

       U.S. corporate securities:
            Financial                                         2,370.7             84.6              1.3            2,454.0
            Food & fiber                                        195.4              9.3               --              204.7
            Healthcare & consumer products                      728.5             27.0              2.6              752.9
            Media & broadcast                                   252.9             14.7              0.1              267.5
            Natural resources                                   143.5              5.5                -              149.0
            Transportation & capital goods                      528.2             33.2              0.1              561.3
            Utilities                                           521.3             23.5              0.9              543.9
            Other corporate securities                           96.9              3.2                -              100.1
                                                           ----------         --------         --------        -----------
          Total U.S. corporate securities                     4,837.4            201.0              5.0            5,033.4

       Foreign Securities:
            Government                                          612.5             36.7             23.6              625.6
            Utilities                                           177.5             28.7               --              206.2
            Other                                               857.9             27.7             42.8              842.8
                                                           ----------         --------         --------        -----------
          Total foreign securities                            1,647.9             93.1             66.4            1,674.6

       Residential mortgage-backed securities:
            Pass-throughs                                       784.4             71.3              2.0              853.7
            Collateralized mortgage obligations               2,280.5            137.4              2.0            2,415.9
                                                           ----------         --------         --------        -----------
       Total residential mortgage-
          backed securities                                   3,064.9            208.7              4.0            3,269.6

       Commercial/Multifamily mortgage-
          backed securities                                   1,127.8             34.0              0.4            1,161.4

       Other asset-backed securities                          1,014.2             17.1              0.4            1,030.9
                                                           ----------         --------         --------        -----------

       Total Debt Securities                                $12,912.2           $627.9            $76.3          $13,463.8
                                                           ==========         ========         ========        ===========
</TABLE>


                                      F-12
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (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, 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 corporate securities                          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-13
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (A wholly owned subsidiary of Aetna
                           Retirement Holdings, Inc.)

             Notes to Consolidated Financial Statements (Continued)

2.   Investments (Continued)

     At December 31, 1997 and 1996, net unrealized appreciation of $551.6
     million and $366.4 million, respectively, on available-for-sale debt
     securities included $429.3 million and $288.5 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 carrying and fair value of debt securities for the year ended December
     31, 1997 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                        $367.3                $367.6
        After one year through five years      2,165.1               2,195.4
        After five years through ten years     2,367.3               2,407.0
        After ten years                        2,805.6               3,031.9
        Mortgage-backed securities             4,192.7               4,431.0
        Other asset-backed securities          1,014.2               1,030.9
                                             ---------             ---------

               Total                         $12,912.2             $13,463.8
                                             =========             =========

     At December 31, 1997 and 1996, debt securities carried at $8.2 million and
     $7.6 million, respectively, were on deposit as required by regulatory
     authorities.

     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, 1997.


                                      F-14
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (A wholly owned subsidiary of Aetna
                           Retirement Holdings, Inc.)

             Notes to Consolidated Financial Statements (Continued)

2.   Investments (Continued)

     Included in the Company's debt securities were residential collateralized
     mortgage obligations ("CMOs") supporting the following:

<TABLE>
<CAPTION>
                                                              1997                        1996
                                                     ---------------------       ------------------------
                                                       Fair      Amortized         Fair         Amortized
                                                      Value         Cost           Value           Cost
                                                     --------     --------       --------        --------
                                                                          (millions)
           <S>                                       <C>          <C>            <C>             <C>
           Total residential CMOs(1)                 $2,415.9     $2,280.5       $2,309.0        $2,227.8
                                                     ========     ========       ========        ========

           Percentage of total:
               Supporting experience rated products      81.6%                       84.2%
               Supporting remaining products             18.4%                       15.8%
                                                        -----                       -----
                                                        100.0%                      100.0%
                                                        =====                       =====
</TABLE>

          (1)  At December 31, 1997 and 1996, approximately 73% and 71%,
               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, 1997
     and 1996, approximately 4% and 3%, respectively, of the Company's CMO
     holdings were invested in types of CMOs which are subject to more
     prepayment and extension risk than traditional CMOs (such as interest- or
     principal-only strips).


                                      F-15
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (A wholly owned subsidiary of Aetna
                           Retirement Holdings, Inc.)


             Notes to Consolidated Financial Statements (Continued)

2.   Investments (Continued)

     Investments in equity securities available for sale were as follows:

                                             Gross        Gross
                              Amortized    Unrealized   Unrealized    Fair
                                 Cost        Gains        Losses      Value
                              ---------    ----------   ----------    -----
                                                 (millions)
           1997
           Equity Securities    $210.0        $21.3        $0.1      $231.2
                                ======        =====        ====      ======

           1996
           Equity Securities    $184.9        $16.3        $0.8      $200.4
                                ======        =====        ====      ======

3.   Financial Instruments

     Estimated Fair Value
     --------------------
     The carrying values and estimated fair values of certain of the Company's
     financial instruments at December 31, 1997 and 1996 were as follows:

                                            1997                    1996
                                     --------------------     -----------------
                                      Carrying      Fair      Carrying     Fair
                                        Value      Value       Value      Value
                                     ---------     ------     --------    -----
                                                      (millions)
        Assets:
            Mortgage loans           $    12.8   $   12.4   $   13.0  $   13.2
        Liabilities:
            Investment contract
             liabilities:
              With a fixed maturity  $ 1,030.3   $1,005.4   $1,014.1  $1,028.8
              Without a fixed
               maturity               10,113.2    9,587.5    9,649.6   9,427.6

     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 SUBSIDIARY
                       (A wholly owned subsidiary of Aetna
                           Retirement Holdings, Inc.)


             Notes to Consolidated Financial Statements (Continued)

3.   Financial Instruments (Continued)

     Estimated Fair Value  (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
     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 1997 and 1996,
     Treasury futures contracts were used to manage interest rate risk in the
     Company's bond portfolio; and, in 1996, 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
     securities at a specified future date and at a specified price or yield.
     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, 1997 and 1996.

     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


                                      F-17
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (A wholly owned subsidiary of Aetna
                           Retirement Holdings, Inc.)


             Notes to Consolidated Financial Statements (Continued)

3.   Financial Instruments (Continued)

     Off-Balance-Sheet and Other Financial Instruments (Including Derivative
     Instruments) (Continued)

     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, 1997 and 1996.

     During 1995, the Company received $0.4 million for writing call options on
     underlying securities. The Company did not write any call options in 1997
     and 1996.

     Warrants:

     Warrants are instruments giving the Company the right, but not the
     obligation to buy a security at a given price during a specified period. As
     of December 31, 1997 and 1996, the Company had open warrants to purchase
     equity securities with a fair value of $0.6 million and $0.3 million,
     respectively.

     Debt Instruments with Derivative Characteristics:

     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, 1997 was as follows:

                                                          Amortized       Fair
                                                             Cost         Value
                                                          ---------       ----
                                                               (millions)

           Residential collateralized mortgage
                obligations                               $2,280.5      $2,415.9
                Principal-only strips (included above)        59.0          67.0
                Interest-only strips (included above)         12.8          24.3
           Other structured securities with derivative
                characteristics (1)                          107.4         105.2

          (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 SUBSIDIARY
                       (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:

                                             1997        1996        1995
                                             ----        ----        ----
                                                      (millions)
            Debt securities                  $962.8      $945.3       $891.5
            Nonredeemable preferred stock      13.7         5.9          4.2
            Investment in affiliated
               mutual funds                     4.9        14.3         14.9
            Mortgage loans                      1.3         2.2          1.4
            Policy loans                       19.9        18.4         13.7
            Reinsurance loan to affiliate      37.5        44.1         46.5
            Cash equivalents                   44.2        29.4         38.9
            Other                              10.0         2.1          8.4
                                           --------    --------     --------
            Gross investment income         1,094.3     1,061.7      1,019.5
            Less investment expenses          (13.8)      (16.1)       (15.2)
                                           --------    --------     --------
            Net investment income          $1,080.5    $1,045.6     $1,004.3
                                           ========    ========     ========

     Net investment income includes amounts allocable to experience rated
     contractholders of $823.1 million, $787.6 million and $744.2 million for
     the years ended December 31, 1997, 1996 and 1995, respectively. Interest
     credited to contractholders is included in current and future benefits.

5.   Dividend Restrictions and Shareholder's Equity

     The Company paid $17.3 million and $3.5 million in cash dividends to HOLDCO
     in 1997 and 1996, respectively.

     The amount of dividends that may be paid to the shareholder in 1998 without
     prior approval by the Insurance Commissioner of the State of Connecticut is
     $77.6 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
     $80.5 million, $57.8 million and $70.0 million for the years ended December
     31, 1997, 1996 and 1995, respectively. Statutory capital and surplus was
     $778.7 million and $713.6 million as of December 31, 1997 and 1996,
     respectively.

     As of December 31, 1997 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 SUBSIDIARY
                       (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:

                                                1997      1996        1995
                                                ----      ----        ----
                                                       (millions)

           Debt securities                      $22.5     $11.1      $32.8
           Equity securities                      9.9       8.6        8.3
           Other                                  3.6        --        0.2
                                               ------  --------     ------
           Pretax realized capital gains        $36.0     $19.7      $41.3
                                               ======  ========     ======
           After tax realized capital gains     $23.2     $13.0      $25.8
                                               ======  ========     ======

     Net realized capital gains of $96.1 million, $53.1 million and $61.1
     million for 1997, 1996 and 1995, respectively, allocable to experience
     rated contracts, were deducted from net realized capital gains and an
     offsetting amount was reflected in policyholders' funds left with the
     Company. Net unamortized gains were $138.1 million and $53.3 million at
     December 31, 1997 and 1996, respectively.

     Proceeds from the sale of available-for-sale debt securities and the
     related gross gains and losses were as follows:

                                 1997         1996           1995
                                 -----        -----          ----
                                            (millions)

           Proceeds on Sales    $5,311.3      $5,182.2      $4,207.2
           Gross Gains              25.8          24.3          44.6
           Gross Losses              3.3          13.2          11.8


                                      F-20
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (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 accumulated other
     comprehensive income (unrealized capital gains and losses on securities)
     (excluding those related to experience rated contractholders) were as
     follows:

                                                1997       1996       1995
                                                ----       ----       ----
                                                       (millions)

          Debt securities                      $44.3    $(100.1)      $255.9
          Equity securities                      5.6      (10.5)        27.3
          Limited partnership                     --         --          1.8
                                               -----    -------       ------
                                                49.9     (110.6)       285.0
          Increase (decrease) in deferred
            income taxes (See Note 8)           17.5      (38.6)       (36.5)
                                               -----    -------       ------
          Net changes in accumulated other
          comprehensive income                 $32.4     $(72.0)      $321.5
                                               =====    =======       ======

     Net unrealized capital gains allocable to experience rated contracts of
     $356.7 million and $72.6 million at December 31, 1997 and $245.2 million
     and $43.3 million at December 31, 1996 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 accumulated other comprehensive
     income, which are net of amounts allocable to experience rated
     contractholders, at December 31:

                                                 1997     1996       1995
                                                 ----     ----       ----
                                                      (millions)
          Debt securities
            Gross unrealized capital gains      $140.6    $101.7    $179.3
            Gross unrealized capital losses      (18.4)    (23.8)     (1.3)
                                                 -----     -----     -----
                                                 122.2      77.9     178.0
          Equity securities
            Gross unrealized capital gains        21.2      16.3      27.2
            Gross unrealized capital losses       (0.1)     (0.8)     (1.2)
                                                  ----      ----     -----
                                                  21.1      15.5      26.0

          Deferred income taxes (See Note 8)      50.4      32.9      71.5
                                                  ----      ----     -----
          Net accumulated other
            comprehensive income                 $92.9     $60.5    $132.5
                                                  ====      ====     =====


                                      F-21
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (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 accumulated other comprehensive income related to changes in
     unrealized gains (losses) on securities (excluding those related to
     experience rated contractholders) were as follows:

                                                   1997       1996       1995
                                                   ----       ----       ----
                                                           (millions)
          Unrealized holding gains (losses)
          arising during the period (1)            $98.8    $(14.8)    $390.5
          Less:  reclassification adjustment
             for gains and other items included
             in net  income (2)                     66.4      57.2       69.0
                                                   -----    ------     ------
           Net unrealized gains (losses)
             on securities                         $32.4    $(72.0)    $321.5
                                                   =====    ======     ======

          (1)  Pretax unrealized holding gains (losses) arising during the
               period were $152.0 million, ($22.8) million and $600.8 million
               for 1997, 1996 and 1995, respectively.

          (2)  Pretax reclassification adjustments for gains and other items
               included in net income were $102.4 million, $87.7 million and
               $107.5 million for 1997, 1996 and 1995, respectively.

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.


                                      F-22
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (A wholly owned subsidiary of Aetna
                           Retirement Holdings, Inc.)

             Notes to Consolidated Financial Statements (Continued)

7.   Severance and Facilities Charges (Continued)

     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,
     which were sold in April 1996. The cost allocated to the Company associated
     with this charge was $9.1 million after tax ($14.0 million pretax).

     Activity for 1997 and 1996 within the severance and facilities reserve
     (pretax, in millions) and the number of positions eliminated related to
     such actions were as follows:

       (Millions)                            Reserve      Positions
       -----------------------------------   ----------   ---------

       Balance at December 31, 1995           $   --           --
         Severance and facilities charges       47.3          702
         Corporate Allocation                   14.0           --
         Actions taken (1)                     (13.4)        (178)
                                             ----------   ---------
       Balance at December 31, 1996             47.9          524
         Actions taken (1)                     (27.1)        (163)
                                             ----------   ---------
       Balance at December 31, 1997            $20.8          361
                                             ==========   =========

      (1) Includes $15.9 million and $8.0 million in 1997 and 1996,
          respectively, of severance-related actions and $7.9 million and $4.1
          million in 1997 and 1996, respectively, of corporate
          allocation-related actions.

     The Company's severance actions are expected to be substantially completed
     by September 30, 1998. The corporate allocation actions were substantially
     completed in 1997.


                                      F-23
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (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, the
     Illinois Unitary return and the Connecticut and the New York combined 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 federal income tax return.

     Income taxes for the years ended December 31, consist of:

                                                     1997     1996      1995
                                                     ----     ----      ----
                                                           (millions)
            Current taxes:
              Income Taxes:
                Federal income tax                   $64.5     $50.9     $82.9
                State income tax                       3.7       3.7       3.2
                Net realized capital gains            45.6      25.3      28.5
                                                     -----      ----      ----
                                                     113.8      79.9     114.6
                                                     -----      ----     -----
            Deferred taxes (benefits):
              Income taxes:
                Federal                                8.4      (3.5)    (14.4)
                Net realized capital gains (losses)  (32.8)    (18.6)    (12.9)
                                                     -----     -----     -----
                                                     (24.4)    (22.1)    (27.3)
                                                     -----     -----     -----
            Total                                    $89.4     $57.8     $87.3
                                                     =====     =====     =====

     Income taxes were different from the amount computed by applying the
     federal income tax rate to income before income taxes for the following
     reasons:

                                              1997         1996        1995
                                              ----         ----        ----
                                                        (millions)

            Income before income taxes        $294.7       $198.9       $263.2
            Tax rate                              35%          35%          35%
                                             -------      -------      -------
            Application of the tax rate        103.1         69.6         92.1
                                             -------      -------      -------
            Tax effect of:
              State income tax, net of
                 federal benefit                 2.4          2.4          2.1
              Excludable dividends             (15.9)        (8.7)        (9.3)
              Other, net                        (0.2)        (5.5)         2.4
                                             -------      -------      --------
                 Income taxes                  $89.4        $57.8        $87.3
                                             =======      =======      ========


                                      F-24
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (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:

                                                     1997          1996
                                                     ----          ----
                                                         (millions)

           Deferred tax assets:
              Insurance reserves                     $415.8        $344.6
              Unrealized gains allocable to
                experience rated contracts            150.1         100.8
              Investment losses                         6.6           7.5
              Postretirement benefits other
                than pensions                          26.3          27.0
              Deferred compensation                    31.2          25.0
              Pension                                  (3.6)          7.6
              Restructuring charge                      9.5          17.6
              Depreciation                              3.9           2.6
              Other                                     8.8           9.1
                                                  ---------      --------
           Total gross assets                         648.6         541.8

           Deferred tax liabilities:
              Deferred policy acquisition costs       515.6         482.1
              Market discount                           5.1           6.8
              Net unrealized capital gains            200.5         133.7
              Other                                    (0.6)         (0.3)
                                                  ---------     ---------
           Total gross liabilities                    720.6         622.3
                                                  ---------     ---------
           Net deferred tax liability                 $72.0         $80.5
                                                  =========     =========

     Net unrealized capital gains and losses are presented in shareholder's
     equity net of deferred taxes. As of December 31, 1997 and 1996, 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, 1997. 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-25
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (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 amounts that are tax-deductible. As of
     December 31, 1997, 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 $2.7 million, $4.3
     million and $6.1 million for the years ended December 31, 1997, 1996 and
     1995, respectively.

     Employee Postretirement Benefits - In addition to providing pension
     benefits, Aetna currently provides certain health care and life insurance
     benefits 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. There is a cap on the
     portion of the cost paid by the Company relating to medical and dental
     benefits. 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 1997, 1996 and 1995 were $2.7
     million, $1.8 million and $1.4 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. In 1997,
     other changes in shareholder's equity includes an additional $0.8 million
     reduction reflecting revisions to the allocation of these accrued
     liabilities.

     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-26
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (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 1997, 1996 and 1995 were $0.6 million,
     $0.7 million and $0.8 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 $4.4 million, $5.4 million and $4.9
     million in 1997, 1996 and 1995, 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 1997, 1996
     and 1995, were $2.9 million, $8.1 million and $6.3 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. In 1997, other changes in
     shareholder's equity include an additional increase of $2.3 million
     reflecting revisions to the allocation of the deferred tax benefit.

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 0.10% to
     1.90% of their average daily net assets. The Company also receives fees
     from Aetna managed mutual funds for serving as investment adviser. Under
     the advisory agreements, these funds pay the Company a daily fee which, on
     an annual basis, ranges, depending on the fund, from 0.25% to 0.85% of
     their average daily net assets. The Company also receives fees (expressed
     as a percentage of the average daily net assets) from some of its funds 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 mutual funds,
     included in charges assessed against policyholders, amounted to $271.2
     million, $186.8 million and $128.1 million in 1997, 1996 and 1995,
     respectively. The Company may waive advisory fees at its discretion.


                                      F-27
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (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 for affiliated mutual funds and adviser for 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 0.06% to 0.55% of the average daily net assets
     under management. For the years ended December 31, 1997 and 1996, the
     Company paid $45.5 million and $16.0 million in such fees.

     The Company may, from time to time, make reimbursements to an Aetna managed
     mutual 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 $6.1 million and a $108.0
     million commission, paid by the Company to Aetna Life in 1996 and 1988,
     respectively, was capitalized as deferred policy acquisition costs. 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. Effective January 1, 1997, this agreement has been amended to
     transition (based on underlying investment rollover in Aetna Life) from a
     modified coinsurance to a coinsurance arrangement. As a result of this
     change, reserves will be ceded to the Company from Aetna Life as investment
     rollover occurs and the loan previously established will be reduced. The
     Company maintained insurance reserves of $574.5 million ($397.2 million
     relating to the modified coinsurance agreement and $177.3 million relating
     to the coinsurance agreement) and $628.3 million as of December 31, 1997
     and 1996, respectively, relating to the business assumed. The fair value of
     the loan relating to assets held by Aetna Life was $412.3 million and
     $625.3 million as of December 31, 1997 and 1996, respectively, and is based
     upon the fair value of the underlying assets. Premiums of $176.7 million,
     $25.3 million and $28.0 million and current and future benefits of $183.9
     million, $39.5 million and $43.0 million were assumed in 1997, 1996 and
     1995, respectively.

     Investment income of $37.5 million, $44.1 million and $46.5 million was
     generated from the reinsurance loan to affiliate in 1997, 1996 and 1995,
     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 $32.5 million and
     $28.9 million were maintained for this contract as of December 31, 1997 and
     1996, 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


                                      F-28
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (A wholly owned subsidiary of Aetna
                           Retirement Holdings, Inc.)

             Notes to Consolidated Financial Statements (Continued)

10.  Related Party Transactions (Continued)

     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 $5.9 million, $5.2 million and $3.2 million for 1997, 1996 and 1995,
     respectively.

     Effective October 1, 1997, the Company entered into a reinsurance agreement
     with Aetna Life to assume amounts in excess of $0.2 million for certain of
     its participating life insurance, on a yearly renewable term basis. Premium
     amounts related to this agreement were $0.7 million in 1997.

     The Company received a capital contribution of $10.4 million in cash from
     HOLDCO in 1996. The Company received no capital contributions in 1997 or
     1995.

     The Company paid $17.3 million and $3.5 million in cash dividends to HOLDCO
     in 1997 and 1996, respectively. 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 $37.0 million and $2.8 million
     due from affiliates in 1997 and 1996, respectively. Other liabilities
     include $1.2 million and $10.7 million due to affiliates for 1997 and 1996,
     respectively.

     As of December 31, 1997, Aetna transferred to the Company $2.5 million
     based on its decision not to settle state tax liabilities for the years
     1996 and 1997. This amount has been reported as an other increase in
     retained earnings.

     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-29
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (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.

<TABLE>
<CAPTION>
                                                         Ceded to       Assumed
                                              Direct      Other       from Other       Net
                                              Amount    Companies      Companies     Amount
                                                         (millions)
                                              -------  -------------  -----------  ---------
<S>                                            <C>        <C>           <C>         <C>
                              1997
                              ----
           Premiums:
              Life Insurance                   $ 35.7      $15.1         $177.4      $198.0
              Accident and Health Insurance       5.6        5.6             --          --
              Annuities                          67.9         --            1.2        69.1
                                              -------  -------------  -----------  ---------
                  Total earned premiums        $109.2      $20.7         $178.6      $267.1
                                              =======  =============  ===========  =========

                              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
                                              =======  =============  ===========  =========
</TABLE>

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, 1997, the
     Company had commitments to purchase investments of $38.7 million. The fair
     value of the investments at December 31, 1997 approximated $39.0 million.


                                      F-30
<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
                       (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.


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:

                                                1997         1996         1995
                                             ---------    ---------    ---------
                                                          (millions)
         Revenue:
           Financial Services                 $1,277.9     $1,195.1     $1,211.3
           Individual Life Insurance             620.4        445.7        407.9
                                             ---------    ---------    ---------
                Total revenue                 $1,898.3     $1,640.8     $1,619.2
                                             =========    =========    =========
         Income before income taxes: (2)
           Financial Services                   $188.2       $129.9       $160.1
           Individual Life Insurance             106.5         83.0        103.1
                                             ---------    ---------    ---------
                Total income before
                  income taxes                  $294.7       $212.9       $263.2
                                             =========    =========    =========
         Net income: (2)
           Financial Services                   $137.5        $94.3       $113.8
           Individual Life Insurance              67.8         55.9         62.1
                                             ---------    ---------    ---------
                Net income                      $205.3       $150.2       $175.9
                                             =========    =========    =========
         Assets under management: (3)
           Financial Services  (4)           $37,609.3    $27,268.1    $22,534.4
           Individual Life Insurance           3,096.1      2,830.5      2,590.9
                                             ---------    ---------    ---------
             Total assets under management    40,705.4    $30,098.6    $25,125.3
                                             =========    =========    =========

          (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 $551.5 million,
               $366.4 million and $797.1 million at December 31, 1997, 1996 and
               1995, respectively.

          (4)  The December 31, 1997 balance includes the transfer of $4,078.5
               million of assets under management that were previously reported
               by an affiliate.


                                      F-31
<PAGE>






   
Form No. SAI.88722-98                                         ALIAC Ed. May 1998
    



<PAGE>


                           VARIABLE ANNUITY ACCOUNT B
                           PART C - OTHER INFORMATION

Item 24.      Financial Statements and Exhibits

     (a) Financial Statements:

         (1)      Included in Part A:

                  Condensed Financial Information

         (2)      Included in Part B:

                  Financial Statements of Variable Annuity Account B:

                  -   Statement of Assets and Liabilities as of December 31,
                      1997

                  -   Statements of Operations and Changes in Net Assets for the
                      years ended December 31, 1997 and 1996

                  -   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, 1997, 1996 and 1995

                  -   Consolidated Balance Sheets as of December 31, 1997 and
                      1996

                  -   Consolidated Statements of Changes in Shareholder's Equity
                      for the years ended December 31, 1997, 1996 and 1995

                  -   Consolidated Statements of Cash Flows for the years ended
                      December 31, 1997, 1996 and 1995

                  -   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)    Broker-Dealer Agreement(2)

         (3.2)    Alternative Form of Wholesaling Agreement and Related Selling
                  Agreement(2)

         (4.1)    Variable Annuity Contract (GLID-CDA-HO)(3)

         (4.2)    Endorsement (E2ACB95) to Contract GLID-CDA-HO(3)

         (4.3)    Endorsement (EGETE-IC(R)) to Contract GLID-CDA-HO(4)

         (4.4)    Endorsement (EFUND97) to Contract GLID-CDA-HO(5)

         (5)      Variable Annuity Contract Application (300-GTD-IA)(6)

         (6.1)    Certificate of Incorporation of Aetna Life Insurance and
                  Annuity Company(7)

         (6.2)    Amendment of Certificate of Incorporation of Aetna Life
                  Insurance and Annuity Company(8)

         (6.3)    By-Laws as amended September 17, 1997 of Aetna Life Insurance
                  and Annuity Company(9)

         (7)      Not applicable

         (8.1)    Fund Participation Agreement among Calvert Responsibly
                  Invested Balanced Portfolio, Calvert Asset Management Company,
                  Inc. and Aetna Life Insurance and Annuity Company dated
                  December 1, 1997(10)

         (8.2)    Service Agreement between Calvert Asset Management Company,
                  Inc. and Aetna Life Insurance and Annuity Company dated
                  December 1, 1997(10)

         (8.3)    Fund Participation Agreement between Aetna Life Insurance and
                  Annuity Company, Variable Insurance Products Fund and Fidelity
                  Distributors Corporation dated February 1, 1994 and amended on
                  December 15, 1994, February 1, 1995, May 1, 1995, January 1,
                  1996 and March 1, 1996(8)

         (8.4)    Fifth Amendment, dated as of May 1, 1997, to the Fund
                  Participation Agreement between Aetna Life Insurance and
                  Annuity Company, Variable Insurance Products Fund and Fidelity
                  Distributors Corporation dated February 1, 1994 and amended on
                  December 15, 1994, February 1, 1995, May 1, 1995, January 1,
                  1996 and March 1, 1996(11)

         (8.5)    Sixth Amendment dated November 6, 1997 to the Fund
                  Participation Agreement between Aetna Life Insurance and
                  Annuity Company, Variable Insurance Products Fund and Fidelity
                  Distributors Corporation dated February 1, 1994 and amended on
                  December 15, 1994, February 1, 1995, May 1, 1995, January 1,
                  1996, March 1, 1996 and May 1, 1997(12)

         (8.6)    Form of Seventh Amendment dated as of May 1, 1998 to the Fund
                  Participation Agreement between Aetna Life Insurance and
                  Annuity Company, Variable Insurance Products Fund and Fidelity
                  Distributors Corporation dated February 1, 1994 and amended on
                  December 15, 1994, February 1, 1995, May 1, 1995, January 1,
                  1996, March 1, 1996, May 1, 1997 and November 6, 1997(13)

         (8.7)    Fund Participation Agreement between Aetna Life Insurance and
                  Annuity Company, Variable Insurance Products Fund II and
                  Fidelity Distributors Corporation dated February 1, 1994 and
                  amended on December 15, 1994, February 1, 1995, May 1, 1995,
                  January 1, 1996 and March 1,1996(8)

         (8.8)    Fifth Amendment, dated as of May 1, 1997, to the Fund
                  Participation Agreement between Aetna Life Insurance and
                  Annuity Company, Variable Insurance Products Fund II and
                  Fidelity Distributors Corporation dated February 1, 1994 and
                  amended on December 15, 1994, February 1, 1995, May 1, 1995,
                  January 1, 1996 and March 1, 1996(11)

         (8.9)    Sixth Amendment dated as of January 20, 1998 to the Fund
                  Participation Agreement between Aetna Life Insurance and
                  Annuity Company, Variable Insurance Products Fund II and
                  Fidelity Distributors Corporation dated February 1, 1994 and
                  amended on December 15, 1994, February 1, 1995, May 1, 1995,
                  January 1, 1996, March 1, 1996 and May 1, 1997(14)

         (8.10)   Form of Seventh Amendment dated as of May 1, 1998 to the Fund
                  Participation Agreement between Aetna Life Insurance and
                  Annuity Company, Variable Insurance Products Fund II and
                  Fidelity Distributors Corporation dated February 1, 1994 and
                  amended on December 15, 1994, February 1, 1995, May 1, 1995,
                  January 1, 1996, March 1, 1996, May 1, 1997 and January 20,
                  1998(13)

         (8.11)   Service Agreement between Aetna Life Insurance and Annuity
                  Company and Fidelity Investments Institutional Operations
                  Company dated as of November 1, 1995(16)

         (8.12)   Amendment dated January 1, 1997 to Service Agreement between
                  Aetna Life Insurance and Annuity Company and Fidelity
                  Investments Institutional Operations Company dated as of
                  November 1, 1995(11)

         (8.13)   Fund Participation Agreement among Janus Aspen Series and
                  Aetna Life Insurance and Annuity Company and Janus Capital
                  Corporation dated December 8, 1997(16)

         (8.14)   Service Agreement between Janus Capital Corporation and Aetna
                  Life Insurance and Annuity Company dated December 8, 1997(17)

         (8.15)   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)

         (8.16)   Fund Participation Agreement dated as of March 11, 1997
                  between Aetna Life Insurance and Annuity Company and
                  Oppenheimer Variable Annuity Account Funds and Oppenheimer
                  Funds, Inc.(17)

         (8.17)   Service Agreement dated as of March 11, 1997 between
                  Oppenheimer Funds, Inc. and Aetna Life Insurance and Annuity
                  Company(17)

         (9)      Opinion and Consent of Counsel

         (10)     Consent of Independent Auditors

         (11)     Not applicable

         (12)     Not applicable

         (13)     Schedule for Computation of Performance Data

         (14)     Not applicable

         (15.1)   Powers of Attorney(13)

         (15.2)   Authorization for Signatures(2)



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 (Accession No. 0000950146-96-000563).

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 (Accession No. 0000912057-96-006383).

3.   Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
     Statement on Form N-4 (File No. 33-88722), as filed electronically on
     November 30, 1995 (Accession No. 0000812057-95-010604).

4.   Incorporated by reference to Post-Effective Amendment No. 8 to Registration
     Statement on Form N-4 (File No. 33-75986), as filed electronically on
     August 30, 1996 (Accession No. 0000928389-96-000152).

5.   Incorporated by reference to Post-Effective Amendment No. 14 to
     Registration Statement on Form N-4 (File No. 33-75964), as filed
     electronically on July 29, 1997 (Accession No. 0000950146-97-001101).

6.   Incorporated by reference to Post-Effective Amendment No. 14 to
     Registration Statement on Form N-4 (File No. 33-75982), as filed
     electronically on August 19, 1997 (Accession No. 0000950416-97-001304).

7.   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 (Accession No. 0000950416-96-000534).

8.   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 (Accession No. 0000950416-97-000159).

9.   Incorporated by reference to Post-Effective Amendment No. 12 to
     Registration Statement on Form N-4 (File No. 33-91846), as filed
     electronically on October 30, 1997 (Accession No. 0000950146-97-001589).

10.  Incorporated by Reference to Post-Effective Amendment No. 8 to Registration
     Statement on Form N-4 (File No. 333-01107), as filed electronically on
     February 19, 1998 (Accession No. 0000950146-98-000248).

11.  Incorporated by reference to Post-Effective Amendment No. 30 to
     Registration Statement on Form N-4 (File No. 33-34370), as filed
     electronically on September 29, 1997 (Accession No. 0000950146-97-001485).

12.  Incorporated by Reference to Post-Effective Amendment No. 16 to
     Registration Statement on Form N-4 (File No. 33-75964), as filed
     electronically on February 9, 1998 (Accession No. 0000950146-98-000179).

13.  Incorporated by reference to Post-Effective Amendment No. 9 to Registration
     Statement on Form N-4 (File No. 333-01107), as filed electronically on
     April 7, 1998 (Accession No. 0000950146-98-000564).

14.  Incorporated by Reference to Post-Effective Amendment No. 7 to Registration
     Statement on Form S-6 (File No. 33-75248), as filed electronically on
     February 24, 1998 (Accession No. 0000950146-98-000267).

15.  Incorporated by Reference to Post-Effective Amendment No. 3 to Registration
     Statement on Form N-4 (File No. 33-88720), as filed electronically on June
     28, 1996 (Accession No. 0000928389-96-000136).

16.  Incorporated by reference to Post-Effective Amendment No. 10 to
     Registration Statement on Form N-4 (File No. 33-75992), as filed
     electronically on December 31, 1997 (Accession No. 0000950146-97-001982).

17.  Incorporated by reference to Post-Effective Amendment No. 27 to
     Registration Statement on Form N-4 (File No. 33-34370), as filed
     electronically on April 16, 1997 (Accession No. 0000950146-97-000617).

<PAGE>

Item 25.      Directors and Officers of the Depositor


Name and Principal
Business Address*        Positions and Offices with Depositor
- -----------------        ------------------------------------

Thomas J. McInerney      Director and President

Shaun P. Mathews         Director and Senior Vice President

Catherine H. Smith       Director, Chief Financial Officer and Senior 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 Corporate 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 26 of Post-Effective Amendment No.
9 to the Registration Statement on Form N-4 (File No. 333-01107), as filed
electronically on April 7, 1998 (Accession No. 0000950146-98-000564).

Item 27.      Number of Contract Owners

     As of February 28, 1998, there were 63,194 individuals holding interests in
variable annuity contracts funded through Variable Annuity Account B.

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 principal underwriter and investment adviser for Portfolio
         Partners, Inc., Aetna Variable Encore Fund, Aetna Variable Fund, Aetna
         Generation Portfolios, Inc., Aetna Income Shares, Aetna Balanced VP,
         Inc. (formerly 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)). Effective May 1, 1998, Aetna will no longer be the investment
         adviser for Aetna Variable Encore Fund, Aetna Variable Fund, Aetna
         Generation Portfolios, Inc., Aetna Income Shares, Aetna Balanced VP,
         Inc. (formerly Aetna Investment Advisers Fund, Inc.), Aetna GET Fund,
         and Aetna Variable Portfolios, Inc. 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.



<PAGE>



     (c) Compensation as of December 31, 1997:

<TABLE>
<CAPTION>
       (1)                   (2)                       (3)                  (4)                (5)

                        Net Underwriting          Compensation on
Name of                 Discounts and             Redemption or          Brokerage
Principal Underwriter   Commissions               Annuitization          Commissions       Compensation*
- ---------------------   -----------               -------------          -----------       -------------
<S>                     <C>                       <C>                    <C>               <C>
Aetna Life Insurance
and Annuity Company                               $347,583                                 $29,637,063
</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
<PAGE>

     (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 to its Registration
Statement on Form N-4 (File No. 33-88722) and has caused this Post-Effective
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hartford, State of Connecticut, on the 15th day of
April, 1998.

                                 VARIABLE ANNUITY ACCOUNT B OF AETNA
                                 LIFE INSURANCE AND ANNUITY COMPANY
                                     (Registrant)

                          By:    AETNA LIFE INSURANCE AND ANNUITY COMPANY
                                  (Depositor)

                          By:    Thomas J. McInerney*
                                 ------------------------
                                 Thomas J. McInerney
                                 President

     As required by the Securities Act of 1933, this Post-Effective Amendment
No. 7 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.

Signature               Title                                Date
- ---------               -----                                ----

Thomas J. McInerney*    Director and President           )
- ----------------------- (principal executive officer)    )
Thomas J. McInerney                                      )
                                                         )
Shaun P. Mathews*       Director                         )   April
- -----------------------                                  )
Shaun P. Mathews                                         )   15, 1998
                                                         )
Catherine H. Smith*     Director and                     )
- ----------------------- Chief Financial Officer          )
Catherine H. Smith                                       )
                                                         )
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  Broker-Dealer Agreement                                          *

99-B.3.2  Alternative Form of Wholesaling Agreement and Related            *
          Selling Agreement

99-B.4.1  Variable Annuity Contract and Endorsement (GLID-CDA-HO)          *

99-B.4.2  Endorsement (E2ACB95) to Contract GLID-CDA-HO                    *

99-B.4.3  Endorsement (EGETE-IC(R)) to Contract GLID-CDA-HO                *

99-B.4.4  Endorsement (EFUND97) to Contract GLID-CDA-HO                    *

99-B.5    Variable Annuity Contract Application (300-GTD-IA)               *

99-B.6.1  Certificate of Incorporation of Aetna Life Insurance and         *
          Annuity Company

99-B.6.2  Amendment of Certificate of Incorporation of Aetna Life          *
          Insurance and Annuity Company

99-B.6.3  By-Laws as amended September 17, 1997 of Aetna Life              *
          Insurance and Annuity Company

99-B.8.1  Fund Participation Agreement among Calvert Responsibly           *
          Invested Balanced Portfolio, Calvert Asset Management
          Company, Inc. and Aetna Life Insurance and Annuity Company
          dated December 1, 1997.

*Incorporated by reference


<PAGE>




Exhibit No.            Exhibit                                           Page
- -----------            -------                                           ----

99-B.8.2  Service Agreement between Calvert Asset Management Company,      *
          Inc. and Aetna Life Insurance and Annuity Company dated
          December 1, 1997.

99-B.8.3  Fund Participation Agreement between Aetna Life Insurance        *
          and Annuity Company, Variable Insurance Products Fund and
          Fidelity Distributors Corporation dated February 1, 1994 and
          amended on December 15, 1994, February 1, 1995, May 1, 1995,
          January 1, 1996 and March 1, 1996

99-B.8.4  Fifth Amendment, dated as of May 1, 1997, to the Fund            *
          Participation Agreement between Aetna Life Insurance and
          Annuity Company, Variable Insurance Products Fund and
          Fidelity Distributors Corporation dated February 1, 1994 and
          amended on December 15, 1994, February 1, 1995, May 1, 1995,
          January 1, 1996 and March 1, 1996

99-B.8.5  Sixth Amendment dated November 6, 1997 to the Fund               *
          Participation Agreement between Aetna Life Insurance and
          Annuity Company, Variable Insurance Products Fund and
          Fidelity Distributors Corporation dated February 1, 1994 and
          amended on December 15, 1994, February 1, 1995, May 1, 1995,
          January 1, 1996, March 1, 1996 and May 1, 1997

99-B.8.6  Form of Seventh Amendment dated as of May 1, 1998 to the         *
          Fund Participation Agreement between Aetna Life Insurance
          and Annuity Company, Variable Insurance Products Fund and
          Fidelity Distributors Corporation dated February 1, 1994 and
          amended on December 15, 1994, February 1, 1995, May 1, 1995,
          January 1, 1996, March 1, 1996, May 1, 1997 and November 6,
          1997

99-B.8.7  Fund Participation Agreement between Aetna Life Insurance        *
          and Annuity Company, Variable Insurance Products Fund II and
          Fidelity Distributors Corporation dated February 1, 1994 and
          amended on December 15, 1994, February 1, 1995, May 1, 1995,
          January 1, 1996 and March 1,1996

*Incorporated by reference


<PAGE>


Exhibit No.            Exhibit                                           Page
- -----------            -------                                           ----

99-B.8.8  Fifth Amendment, dated as of May 1, 1997, to the Fund            *
          Participation Agreement between Aetna Life Insurance and
          Annuity Company, Variable Insurance Products Fund II and
          Fidelity Distributors Corporation dated February 1, 1994 and
          amended on December 15, 1994, February 1, 1995, May 1, 1995,
          January 1, 1996 and March 1, 1996

99-B.8.9  Sixth Amendment dated as of January 20, 1998 to the Fund         *
          Participation Agreement between Aetna Life Insurance and
          Annuity Company, Variable Insurance Products Fund II and
          Fidelity Distributors Corporation dated February 1, 1994 and
          amended on December 15, 1994, February 1, 1995, May 1, 1995,
          January 1, 1996, March 1, 1996 and May 1, 1997

99-B.8.10 Form of Seventh Amendment dated as of May 1, 1998 to the         *
          Fund Participation Agreement between Aetna Life Insurance
          and Annuity Company, Variable Insurance Products Fund II and
          Fidelity Distributors Corporation dated February 1, 1994 and
          amended on December 15, 1994, February 1, 1995, May 1, 1995,
          January 1, 1996, March 1, 1996, May 1, 1997 and January 20,
          1998

99-B.8.11 Service Agreement between Aetna Life Insurance and Annuity       *
          Company and Fidelity Investments Institutional Operations
          Company dated as of November 1, 1995

99-B.8.12 Amendment dated January 1, 1997 to Service Agreement between     *
          Aetna Life Insurance and Annuity Company and Fidelity
          Investments Institutional Operations Company dated as of
          November 1, 1995

99-B.8.13 Fund Participation Agreement among Janus Aspen Series and        *
          Aetna Life Insurance and Annuity Company and Janus Capital
          Corporation dated December 8, 1997

*Incorporated by reference


<PAGE>

Exhibit No.            Exhibit                                           Page
- -----------            -------                                           ----

99-B.8.14 Service Agreement between Janus Capital Corporation and          *
          Aetna Life Insurance and Annuity Company dated December 8,
          1997

99-B.8.15 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.8.16 Fund Participation Agreement dated as of March 11, 1997          *
          between Aetna Life Insurance and Annuity Company and
          Oppenheimer Variable Annuity Account Funds and Oppenheimer
          Funds, Inc.

99-B.8.17 Service Agreement dated as of March 11, 1997 between             *
          Oppenheimer Funds, Inc. and Aetna Life Insurance and Annuity
          Company

99-B.9    Opinion and Consent of Counsel                                ________

99-B.10   Consent of Independent Auditors                               ________

99-B.13   Schedule for Computation of Performance Data                  ________

99-B.15.1 Powers of Attorney                                               *

99-B.15.2 Authorization for Signatures                                     *


*Incorporated by reference



     [Aetna Letterhead]                        151 Farmington Avenue
     [Aetna Logo]                              Hartford, CT  06156

                                               Julie E. Rockmore
     April 15, 1998                            Counsel
                                               Law Division, RE4A
                                               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. 7 to Registration Statement on Form N-4
    Prospectus Title: Aetna Plus-Group Variable Annuity Contracts for Healthcare
    Public Employer Deferred Compensation Plans
    File Nos.:  33-88722 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. 7. 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
Contractholders of Aetna Variable Annuity Account B:


We consent to the use of our reports dated February 3, 1998 and February 27,
1998 included herein in this Post-Effective Amendment No. 7 to Registration
Statement (No. 33-88722) on Form N-4 and to the references to our firm under the
headings "Condensed Financial Information" in the prospectus and "Independent
Auditors" in the statement of additional information.


                                       /s/ KPMG Peat Marwick LLP
                                       -------------------------
                                           KPMG Peat Marwick LLP

Hartford, Connecticut
April 15, 1998



              SCHEDULE FOR COMPUTATION OF TOTAL RETURN CALCULATIONS

TOTAL RETURN CALCUALTION (STANDARDIZED)

The standardized rate represents fund performance for the most recent 1-year,
5-year and 10-year periods. The "1-year rate" represents fund performance for
the period January 1, 1997 through December 31, 1997; the "5-year rate" is for
the period January 1, 1993 through December 31, 1997; the "10-year rate" is for
the period January 1, 1988 through December 31, 1997. "Since inception" figures
assume the redemption on December 31, 1997 of values attributable to a $1,000
payment made on the date contributions were first received in the fund under the
separate account.

The formula used in the computation of the total return calculation is as
follows:

       Formula
             P(1 + T) (n) = ERV

                      P   = a hypothetical initial payment of $1,000
                      T   = average annual total return
                      n   = number of years
                      ERV = ending redeemable value at the end of 1,
                            5, or 10 year periods (or a fractional
                            portion thereof) of a hypothetical $1,000
                            payment made at the beginning of the 1, 5,
                            or 10 year periods

The total returns reflect the deduction of all recurring charges during each
period (e.g., mortality and expense risk charges, maintenance fees,
administrative charges (if applicable) and deferred sales charges).

TOTAL RETURN CALCULATION (NON-STANDARDIZED)

The non-standardized rate represents fund performance for the most recent
1-year, 3-year, 5-year and 10-year periods. The "1-year rate" represents fund
performance for the period January 1, 1997 through December 31, 1997; the
"3-year rate" is for the period January 1, 1995 through December 31, 1997; the
"5-year rate" is for the period January 1, 1993 through December 31, 1997; and
the "10-year rate" is for the period January 1, 1988 through December 31, 1997.

The non-standardized figures will be calculated in a manner similar to the one
discussed above for the standardized figures, except that non-standardized
figures will not reflect the deduction of any applicable deferred sales charge
(which would decrease the level of performance shown if reflected in these
calculations), and the "since inception" figures assume the redemption on
December 31, 1997 of values attributable to a $1,000 payment made on the
inception dates of the funds.

For an illustration of the Computation of the Total Return Quotations, both
Standardized and Non-Standardized, see attached.

<PAGE>

<TABLE>
<CAPTION>
                                                  Maintenance                                      One Year
                         Fund Name                    Fee          As of Date      As of AUV      as of Date
                         ---------                    ---          ----------      ---------      ----------
<S>                                                    <C>          <C>            <C>             <C>
Aetna Ascent VP                                        0            12/31/97       15.534885       12/31/96
Aetna Balanced VP, Inc.                                0            12/31/97       19.165551       12/31/96
Aetna Bond VP                                          0            12/31/97       13.485816       12/31/96
Aetna Crossroads VP                                    0            12/31/97       14.566382       12/31/96
Aetna Growth and Income VP                             0            12/31/97       22.233121       12/31/96
Aetna Growth VP                                        0            12/31/97       13.221432       05/30/97
Aetna Index Plus Large Cap VP                          0            12/31/97       14.537894       12/31/96
Aetna Legacy VP                                        0            12/31/97       13.440553       12/31/96
Aetna Money Market VP                                  0            12/31/97       12.041272       12/31/96
Aetna Small Company VP                                 0            12/31/97       13.70428        05/30/97
Aetna Value Opportunity VP                             0            12/31/97       13.309797       05/30/97
Calvert Social Balanced Portfolio                      0            12/31/97       17.943863       12/31/96
Fidelity VIP Equity-Income Portfolio                   0            12/31/97       15.930378       12/31/96
Fidelity VIP Growth Portfolio                          0            12/31/97       14.033817       12/31/96
Fidelity VIP Overseas Portfolio                        0            12/31/97       12.496225       12/31/96
Fidelity VIP II Contrafund Portfolio                   0            12/31/97       15.516761       12/31/96
Janus Aspen Aggressive Growth Portfolio                0            12/31/97       15.553748       12/31/96
Janus Aspen Balanced Portfolio                         0            12/31/97       15.129773       12/31/96
Janus Aspen Flexible Income Portfolio                  0            12/31/97       14.526936       12/31/96
Janus Aspen Growth Portfolio                           0            12/31/97       15.557606       12/31/96
Janus Aspen Worldwide Growth Portfolio                 0            12/31/97       16.900548       12/31/96
Lexington Natural Resources Trust                      0            12/31/97       14.024929       12/31/96
Portfolio Partners
  MFS Emerging Equities Portfolio                      0            12/31/97       15.361137       11/28/97
Alger American Small Cap/
  Portfolio Partners-MFS Emerging Equities             0            12/31/97       15.361137       12/31/96
Portfolio Partners
  MFS Research Growth Portfolio                        0            12/31/97       12.863144       11/28/97
American Century VP Capital Appreciation/
  Portfolio Partners-MFS Research Growth               0            12/31/97       12.863144       12/31/96
Portfolio Partners
  MFS Value Equity Portfolio                           0            12/31/97       21.541443       11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners-MFS Value Equity                  0            12/31/97       21.541443       12/31/96
Portfolio Partners
  Scudder International
  Growth Portfolio                                     0            12/31/97       18.06965        11/28/97
Scudder International Portfolio Class A/
  Portfolio Partners-Scudder International Growth      0            12/31/97       18.06965        12/31/96
Portfolio Partners
  T. Rowe Price Growth Equity Portfolio                0            12/31/97       14.534073       11/28/97
Alger American Growth/
  Portfolio Partners-T. Rowe Price Growth Equity       0            12/31/97       14.534073       12/31/96

<CAPTION>
                                              One Year      One Year   Five Year    Five Year   Five Year
                         Fund Name            as of AUV      w/ DSC    as of Date   as of AUV    w/ DSC
                         ---------            ---------      ------    ----------   ---------    ------
<S>                                           <C>            <C>       <C>          <C>           <C>
Aetna Ascent VP                               13.054737      13.05%    08/31/95
Aetna Balanced VP, Inc.                       15.76525       15.49%    12/31/92     10.136542     12.66%
Aetna Bond VP                                 12.545946       2.12%    12/31/92     10.012943      5.27%
Aetna Crossroads VP                           12.482579      10.86%    08/31/95
Aetna Growth and Income VP                    17.246036      22.47%    12/31/92     10.216366     15.88%
Aetna Growth VP                                                        05/30/97
Aetna Index Plus Large Cap VP                 10.940038      26.24%    10/31/96
Aetna Legacy VP                               11.826364       7.97%    08/31/95
Aetna Money Market VP                         11.502168      (0.55%)   12/31/92      9.878992      3.19%
Aetna Small Company VP                                                 05/30/97
Aetna Value Opportunity VP                                             05/30/97
Calvert Social Balanced Portfolio             15.05611       13.22%    12/31/92     10.156645     11.14%
Fidelity VIP Equity-Income Portfolio          12.528687      20.79%    12/30/94
Fidelity VIP Growth Portfolio                 11.450706      16.43%    12/30/94
Fidelity VIP Overseas Portfolio               11.286166       5.19%    01/31/95
Fidelity VIP II Contrafund Portfolio          12.593301      17.05%    06/30/95
Janus Aspen Aggressive Growth Portfolio       13.909298       6.23%    10/31/94
Janus Aspen Balanced Portfolio                12.484496      15.13%    01/31/95
Janus Aspen Flexible Income Portfolio         13.096115       5.38%    10/31/94
Janus Aspen Growth Portfolio                  12.770002      15.74%    07/29/94
Janus Aspen Worldwide Growth Portfolio        13.939704      15.18%    04/28/95
Lexington Natural Resources Trust             13.187723       1.03%    05/26/93
Portfolio Partners
  MFS Emerging Equities Portfolio                                      11/28/97
Alger American Small Cap/
  Portfolio Partners-MFS Emerging Equities    14.16931        2.99%    09/30/93
Portfolio Partners
  MFS Research Growth Portfolio                                        11/28/97
American Century VP Capital Appreciation/
  Portfolio Partners-MFS Research Growth      13.355097      (8.50%)   12/31/92     10.062609      4.18%
Portfolio Partners
  MFS Value Equity Portfolio                                           11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners-MFS Value Equity         17.178098      19.13%    12/31/92     12.133651     11.25%
Portfolio Partners
  Scudder International Growth Portfolio                               11/28/97
Scudder International Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth                16.704121       2.77%    12/31/92      9.874457     11.93%
Portfolio Partners
  T. Rowe Price Growth Equity Portfolio                                11/28/97
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity                 11.41812       20.93%    02/28/95

<CAPTION>
                                                 Ten Year    Ten Year    Ten Year  Inception   Inception
                         Fund Name              as of Date   as of AUV    w/ DSC      Date        AUV
                         ---------              ----------   ---------    ------      ----        ---
<S>                                              <C>         <C>         <C>        <C>        <C>
Aetna Ascent VP                                  08/31/95                           08/31/95   10.088955
Aetna Balanced VP, Inc.                          06/30/89                           06/30/89    7.419305
Aetna Bond VP                                    12/31/87    6.016657     8.41%
Aetna Crossroads VP                              08/31/95                           08/31/95   10.079994
Aetna Growth and Income VP                       12/31/87    5.14315     15.76%
Aetna Growth VP                                  05/30/97                           05/30/97   11.078209
Aetna Index Plus Large Cap VP                    10/31/96                           10/31/96   10.449084
Aetna Legacy VP                                  08/31/95                           08/31/95    9.952234
Aetna Money Market VP                            12/31/87    7.279265     5.16%
Aetna Small Company VP                           05/30/97                           05/30/97   11.324002
Aetna Value Opportunity VP                       05/30/97                           05/30/97   10.985112
Calvert Social Balanced Portfolio                11/30/92                           11/30/92    9.97583
Fidelity VIP Equity-Income Portfolio             12/30/94                           12/30/94    8.237218
Fidelity VIP Growth Portfolio                    12/30/94                           12/30/94    7.485493
Fidelity VIP Overseas Portfolio                  01/31/95                           01/31/95    8.83778
Fidelity VIP II Contrafund Portfolio             06/30/95                           06/30/95    9.391904
Janus Aspen Aggressive Growth Portfolio          10/31/94                           10/31/94   10.406982
Janus Aspen Balanced Portfolio                   01/31/95                           01/31/95    8.891191
Janus Aspen Flexible Income Portfolio            10/31/94                           10/31/94    9.931935
Janus Aspen Growth Portfolio                     07/29/94                           07/29/94    8.32184
Janus Aspen Worldwide Growth Portfolio           04/28/95                           04/28/95    8.780431
Lexington Natural Resources Trust                05/26/93                           05/26/93    9.797795
Portfolio Partners
  MFS Emerging Equities Portfolio                11/28/97                           11/28/97   15.547116
Alger American Small Cap/
  Portfolio Partners-
  MFS Emerging Equities                          09/30/93                           09/30/93    9.866351
Portfolio Partners
  MFS Research Growth Portfolio                  11/28/97                           11/28/97   13.110465
American Century VP Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                            08/31/92                           08/31/92    9.146616
Portfolio Partners
  MFS Value Equity Portfolio                     11/28/97                           11/28/97   21.224505
Neuberger & Berman AMT Growth/
  Portfolio Partners-
  MFS Value Equity                               11/30/92                           11/30/92   11.922109
Portfolio Partners
  Scudder International
  Growth Portfolio                               11/28/97                           11/28/97   17.838237
Scudder International Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth                   08/31/92                           08/31/92   10.399418
Portfolio Partners
  T. Rowe Price Growth
  Equity Portfolio                               11/28/97                           11/28/97   14.237079
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity                    02/28/95                           02/28/95    7.815748


<CAPTION>
                                                            Separate
                                           Inception         Account              One Year   Three Year   Five Year
                         Fund Name           w/DSC           Charge    Free Out     DSC         DSC         DSC
                         ---------           -----            ------   --------     ---         ---         ---
<S>                                          <C>               <C>        <C>      <C>         <C>         <C>
Aetna Ascent VP                              17.70%            75         0        5.00%       5.00%       4.00%
Aetna Balanced VP, Inc.                      11.67%            75         0        5.00%       5.00%       4.00%
Aetna Bond VP                                                  75         0        5.00%       5.00%       4.00%
Aetna Crossroads VP                          14.54%            75         0        5.00%       5.00%       4.00%
Aetna Growth and Income VP                                     75         0        5.00%       5.00%       4.00%
Aetna Growth VP                              13.38%            75         0        5.00%       5.00%       4.00%
Aetna Index Plus Large Cap VP                27.01%            75         0        5.00%       5.00%       4.00%
Aetna Legacy VP                              11.27%            75         0        5.00%       5.00%       4.00%
Aetna Money Market VP                                          75         0        5.00%       5.00%       4.00%
Aetna Small Company VP                       14.97%            75         0        5.00%       5.00%       4.00%
Aetna Value Opportunity VP                   15.10%            75         0        5.00%       5.00%       4.00%
Calvert Social Balanced Portfolio            11.34%            75         0        5.00%       5.00%       4.00%
Fidelity VIP Equity-Income Portfolio         22.45%            75         0        5.00%       5.00%       4.00%
Fidelity VIP Growth Portfolio                21.19%            75         0        5.00%       5.00%       4.00%
Fidelity VIP Overseas Portfolio              10.65%            75         0        5.00%       5.00%       4.00%
Fidelity VIP II Contrafund Portfolio         19.72%            75         0        5.00%       5.00%       4.00%
Janus Aspen Aggressive Growth Portfolio      11.70%            75         0        5.00%       5.00%       4.00%
Janus Aspen Balanced Portfolio               17.91%            75         0        5.00%       5.00%       4.00%
Janus Aspen Flexible Income Portfolio        10.95%            75         0        5.00%       5.00%       4.00%
Janus Aspen Growth Portfolio                 18.26%            75         0        5.00%       5.00%       4.00%
Janus Aspen Worldwide Growth Portfolio       25.29%            75         0        5.00%       5.00%       4.00%
Lexington Natural Resources Trust             6.91%            75         0        5.00%       5.00%       4.00%
Portfolio Partners                          
  MFS Emerging Equities Portfolio            (6.14%)           75         0        5.00%       5.00%       4.00%
Alger American Small Cap/                                      
  Portfolio Partners-                                          
  MFS Emerging Equities                       9.64%            75         0        5.00%       5.00%       4.00%
Portfolio Partners                                             
  MFS Research Growth Portfolio              (6.79%)           75         0        5.00%       5.00%       4.00%
American Century                                               
  VP Capital Appreciation/                                     
  Portfolio Partners-                                          
  MFS Research Growth                         5.79%            75         0        5.00%       5.00%       4.00%
Portfolio Partners                                             
  MFS Value Equity Portfolio                 (3.58%)           75         0        5.00%       5.00%       4.00%
Neuberger & Berman AMT Growth/                                 
  Portfolio Partners-                                          
  MFS Value Equity                           11.44%            75         0        5.00%       5.00%       4.00%
Portfolio Partners                                             
  Scudder International                                        
  Growth Portfolio                           (3.77%)           75         0        5.00%       5.00%       4.00%
Scudder International                                          
  Portfolio Class A/                                           
  Portfolio Partners-                                          
  Scudder International Growth               10.07%            75         0        5.00%       5.00%       4.00%
Portfolio Partners                                             
  T. Rowe Price Growth                                         
  Equity Portfolio                           (3.02%)           75         0        5.00%       5.00%       4.00%
Alger American Growth/                                    
  Portfolio Partners-                                
  T. Rowe Price Growth Equity                22.20%            75         0        5.00%       5.00%       4.00%
                                             
<CAPTION>
                                              Ten Year    Inception
                         Fund Name              DSC          DSC
                         ---------              ---          ---
Aetna Ascent VP                                0.00%        5.00%
Aetna Balanced VP, Inc.                        0.00%        1.00%
Aetna Bond VP                                  0.00%
Aetna Crossroads VP                            0.00%        5.00%
Aetna Growth and Income VP                     0.00%
Aetna Growth VP                                0.00%        5.00%
Aetna Index Plus Large Cap VP                  0.00%        5.00%
Aetna Legacy VP                                0.00%        5.00%
Aetna Money Market VP                          0.00%
Aetna Small Company VP                         0.00%        5.00%
Aetna Value Opportunity VP                     0.00%        5.00%
Calvert Social Balanced Portfolio              0.00%        4.00%
Fidelity VIP Equity-Income Portfolio           0.00%        5.00%
Fidelity VIP Growth Portfolio                  0.00%        5.00%
Fidelity VIP Overseas Portfolio                0.00%        5.00%
Fidelity VIP II Contrafund Portfolio           0.00%        5.00%
Janus Aspen Aggressive Growth Portfolio        0.00%        5.00%
Janus Aspen Balanced Portfolio                 0.00%        5.00%
Janus Aspen Flexible Income Portfolio          0.00%        5.00%
Janus Aspen Growth Portfolio                   0.00%        5.00%
Janus Aspen Worldwide Growth Portfolio         0.00%        5.00%
Lexington Natural Resources Trust              0.00%        5.00%
Portfolio Partners
  MFS Emerging Equities Portfolio              0.00%        5.00%
Alger American Small Cap/
  Portfolio Partners-
  MFS Emerging Equities                        0.00%        5.00%
Portfolio Partners
  MFS Research Growth Portfolio                0.00%        5.00%
American Century
  VP Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                          0.00%        4.00%
Portfolio Partners
  MFS Value Equity Portfolio                   0.00%        5.00%
Neuberger & Berman AMT Growth/
  Portfolio Partners-
  MFS Value Equity                             0.00%        4.00%
Portfolio Partners
  Scudder International
  Growth Portfolio                             0.00%        5.00%
Scudder International
  Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth                 0.00%        4.00%
Portfolio Partners
  T. Rowe Price Growth
  Equity Portfolio                             0.00%        5.00%
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity                  0.00%        5.00%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                          Maintenance                            One Year     One Year
                   Fund Name                  Fee      As of Date   As of AUV    as of Date   as of AUV
                   ---------                  ---      ----------   ---------    ----------   ---------
<S>                                            <C>      <C>          <C>          <C>         <C>
Aetna Ascent VP                                0        12/31/97     15.534885    12/31/96    13.054737
Aetna Balanced VP, Inc.                        0        12/31/97     19.165551    12/31/96    15.76525
Aetna Bond VP                                  0        12/31/97     13.485816    12/31/96    12.545946
Aetna Crossroads VP                            0        12/31/97     14.566382    12/31/96    12.482579
Aetna Growth and Income VP                     0        12/31/97     22.233121    12/31/96    17.246036
Aetna Growth VP                                0        12/31/97     13.221432    12/31/96    10.015302
Aetna Index Plus Large Cap VP                  0        12/31/97     14.537894    12/31/96    10.940038
Aetna Legacy VP                                0        12/31/97     13.440553    12/31/96    11.826364
Aetna Money Market VP                          0        12/31/97     12.041272    12/31/96    11.502168
Aetna Small Company VP                         0        12/31/97     13.70428     12/31/96    10.266571
Aetna Value Opportunity VP                     0        12/31/97     13.309797    12/31/96     9.622689
Calvert Social Balanced Portfolio              0        12/31/97     17.943863    12/31/96    15.05611
Fidelity VIP Equity-Income Portfolio           0        12/31/97     15.930378    12/31/96    12.528687
Fidelity VIP Growth Portfolio                  0        12/31/97     14.033817    12/31/96    11.450706
Fidelity VIP Overseas Portfolio                0        12/31/97     12.496225    12/31/96    11.286166
Fidelity VIP II Contrafund Portfolio           0        12/31/97     15.516761    12/31/96    12.593301
Janus Aspen Aggressive Growth Portfolio        0        12/31/97     15.553748    12/31/96    13.909298
Janus Aspen Balanced Portfolio                 0        12/31/97     15.129773    12/31/96    12.484496
Janus Aspen Flexible Income Portfolio          0        12/31/97     14.526936    12/31/96    13.096115
Janus Aspen Growth Portfolio                   0        12/31/97     15.557606    12/31/96    12.770002
Janus Aspen Worldwide Growth Portfolio         0        12/31/97     16.900548    12/31/96    13.939704
Lexington Natural Resources Trust              0        12/31/97     14.024929    12/31/96    13.187723
Oppenheimer Global Securities Fund             0        12/31/97     22.578903    12/31/96    18.581972
Oppenheimer Strategic Bond Fund                0        12/31/97     23.351816    12/31/96    21.643378
Portfolio Partners                                                   
  MFS Emerging
  Equities Portfolio                           0        12/31/97     15.361137    11/28/97
Alger American Small Cap/
  Portfolio Partners-
  MFS Emerging Equities                        0        12/31/97     15.361137    12/31/96     14.16931
Portfolio Partners
  MFS Research Growth Portfolio                0        12/31/97     12.863144    11/28/97
American Century VP
  Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                          0        12/31/97     12.863144    12/31/96    13.355097
Portfolio Partners
  MFS Value Equity Portfolio                   0        12/31/97     21.541443    11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners-
  MFS Value Equity                             0        12/31/97     21.541443    12/31/96    17.178098
Portfolio Partners
  Scudder International
  Growth Portfolio                             0        12/31/97     18.06965     11/28/97
Scudder International
  Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth                 0        12/31/97     18.06965     12/31/96    16.704121
Portfolio Partners
  T. Rowe Price Growth
  Equity Portfolio                             0        12/31/97     14.534073    11/28/97
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity                  0        12/31/97     14.534073    12/31/96     11.41812


<CAPTION>
                                            One Year   Three Year    Three Year     Three Year    Five Year
                   Fund Name                w/out DSC   as of Date    as of AUV      w/out DSC   as of Date
                   ---------                ---------   ----------    ---------      ---------   ----------
<S>                                          <C>         <C>          <C>             <C>         <C>
Aetna Ascent VP                              19.00%                                               07/05/95
Aetna Balanced VP, Inc.                      21.57%      12/30/94     10.92121        20.62%      12/31/92
Aetna Bond VP                                 7.49%      12/30/94     10.397031        9.06%      12/31/92
Aetna Crossroads VP                          16.69%                                               07/05/95
Aetna Growth and Income VP                   28.92%      12/30/94     10.635663       27.86%      12/31/92
Aetna Growth VP                              32.01%                                               12/13/96
Aetna Index Plus Large Cap VP                32.89%                                               09/16/96
Aetna Legacy VP                              13.65%                                               07/05/95
Aetna Money Market VP                         4.69%      12/30/94     10.44908         4.84%      12/31/92
Aetna Small Company VP                       33.48%                                               12/27/96
Aetna Value Opportunity VP                   38.32%                                               12/13/96
Calvert Social Balanced Portfolio            19.18%      12/30/94     10.456561       19.72%      12/31/92
Fidelity VIP Equity-Income Portfolio         27.15%      12/30/94      8.237218       24.59%      12/31/92
Fidelity VIP Growth Portfolio                22.56%      12/30/94      7.485493       23.31%      12/31/92
Fidelity VIP Overseas Portfolio              10.72%      12/30/94      9.226416       10.64%      12/31/92
Fidelity VIP II Contrafund Portfolio         23.21%                                               01/03/95
Janus Aspen Aggressive Growth Portfolio      11.82%      12/30/94     10.259921       14.88%      09/13/93
Janus Aspen Balanced Portfolio               21.19%      12/30/94      8.740769       20.07%      09/13/93
Janus Aspen Flexible Income Portfolio        10.93%      12/30/94      9.829224       13.91%      09/13/93
Janus Aspen Growth Portfolio                 21.83%      12/30/94      8.406619       22.77%      09/13/93
Janus Aspen Worldwide Growth Portfolio       21.24%      12/30/94      8.609322       25.21%      09/13/93
Lexington Natural Resources Trust             6.35%      12/30/94      9.023697       15.83%      12/31/92
Oppenheimer Global Securities Fund           21.51%      12/30/94     15.662444       12.97%      12/31/92
Oppenheimer Strategic Bond Fund               7.89%      12/30/94     16.998904       11.16%      05/03/93
Portfolio Partners
  MFS Emerging Equities Portfolio                        11/28/97                                 11/28/97
Alger American Small Cap/
  Portfolio Partners-
  MFS Emerging Equities                       8.41%      12/30/94      9.56621        17.10%      12/31/92
Portfolio Partners
  MFS Research Growth Portfolio                          11/28/97                                 11/28/97
American Century VP Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                        (3.68%)     12/30/94     10.807654        5.98%      12/31/92
Portfolio Partners
  MFS Value Equity Portfolio                             11/28/97                                 11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners-
  MFS Value Equity                           25.40%      12/30/94     12.128214       21.10%      12/31/92
Portfolio Partners
  Scudder International
  Growth Portfolio                                       11/28/97                                 11/28/97
Scudder International
  Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth                8.18%      12/30/94     13.295169       10.77%      12/31/92
Portfolio Partners
  T. Rowe Price Growth
  Equity Portfolio                                       11/28/97                                 11/28/97
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity                27.29%      12/31/94      7.497651       24.69%      12/31/92

<CAPTION>
                                           Five Year    Five Year    Ten Year      Ten Year     Ten Year
                   Fund Name               as of AUV    w/out DSC   as of Date     as of AUV    w/out DSC
                   ---------               ---------    ---------   ----------     ---------    ---------
<S>                                        <C>             <C>       <C>           <C>          <C>
Aetna Ascent VP                                                      07/05/95
Aetna Balanced VP, Inc.                    10.136542      13.59%     04/03/89
Aetna Bond VP                              10.012943       6.14%     12/31/87      6.016657      8.41%
Aetna Crossroads VP                                                  07/05/95
Aetna Growth and Income VP                 10.216366      16.83%     12/31/87      5.14315      15.76%
Aetna Growth VP                                                      12/13/96
Aetna Index Plus Large Cap VP                                        09/16/96
Aetna Legacy VP                                                      07/05/95
Aetna Money Market VP                       9.878992       4.04%     12/31/87      7.279265      5.16%
Aetna Small Company VP                                               12/27/96
Aetna Value Opportunity VP                                           12/13/96
Calvert Social Balanced Portfolio          10.156645      12.06%     12/31/87      5.998221     11.58%
Fidelity VIP Equity-Income Portfolio        6.601057      19.27%     12/31/87      3.655718     15.86%
Fidelity VIP Growth Portfolio               6.366208      17.13%     12/31/87      3.095801     16.32%
Fidelity VIP Overseas Portfolio             6.702739      13.27%     12/31/87      5.372653      8.81%
Fidelity VIP II Contrafund Portfolio                                 01/03/95
Janus Aspen Aggressive Growth Portfolio                              09/13/93
Janus Aspen Balanced Portfolio                                       09/13/93
Janus Aspen Flexible Income Portfolio                                09/13/93
Janus Aspen Growth Portfolio                                         09/13/93
Janus Aspen Worldwide Growth Portfolio                               09/13/93
Lexington Natural Resources Trust           8.728847       9.95%     10/14/91
Oppenheimer Global Securities Fund          9.901008      17.92%     11/12/90
Oppenheimer Strategic Bond Fund                                      05/03/93
Portfolio Partners
  MFS Emerging
  Equities Portfolio                                                 11/28/97
Alger American Small Cap/
  Portfolio Partners-
  MFS Emerging Equities                     8.964323      11.37%     09/21/88
Portfolio Partners
  MFS Research
  Growth Portfolio                                                   11/28/97
American Century
  VP Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                      10.062609       5.03%     12/31/87      6.007014      7.91%
Portfolio Partners
  MFS Value Equity Portfolio                                         11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners-
  MFS Value Equity                         12.133651      12.16%     12/31/87      5.917743     13.79%
Portfolio Partners
  Scudder International
  Growth Portfolio                                                   11/28/97
Scudder International
  Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth              9.874457      12.85%     12/31/87      6.389023     10.96%
Portfolio Partners
  T. Rowe Price Growth
  Equity Portfolio                                                   11/28/97
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity               6.125325      18.86%     01/09/89

<CAPTION>
                                                                                  Separate
                                        Inception    Inception      Inception     Account     Free
                   Fund Name              Date          AUV         w/out DSC      Charge     Out
                   ---------              ----          ---         ---------      ------     ---
<S>                                       <C>         <C>           <C>              <C>       <C>
Aetna Ascent VP                           07/05/95     9.67164      20.93%           75        0
Aetna Balanced VP, Inc.                   04/03/89     7.294066     11.68%           75        0
Aetna Bond VP                                                                        75        0
Aetna Crossroads VP                       07/05/95     9.720559     17.61%           75        0
Aetna Growth and Income VP                                                           75        0
Aetna Growth VP                           12/13/96     9.874759     31.98%           75        0
Aetna Index Plus Large Cap VP             09/16/96    10.000000     33.58%           75        0
Aetna Legacy VP                           07/05/95     9.673076     14.10%           75        0
Aetna Money Market VP                                                                75        0
Aetna Small Company VP                    12/27/96    10.153003     34.43%           75        0
Aetna Value Opportunity VP                12/13/96     9.42385      38.85%           75        0
Calvert Social Balanced Portfolio                                                    75        0
Fidelity VIP Equity-Income Portfolio                                                 75        0
Fidelity VIP Growth Portfolio                                                        75        0
Fidelity VIP Overseas Portfolio                                                      75        0
Fidelity VIP II Contrafund Portfolio      01/03/95     7.546318     27.25%           75        0
Janus Aspen Aggressive Growth Portfolio   09/13/93     7.543472     18.33%           75        0
Janus Aspen Balanced Portfolio            09/13/93     8.16404      15.43%           75        0
Janus Aspen Flexible Income Portfolio     09/13/93     9.946127      9.21%           75        0
Janus Aspen Growth Portfolio              09/13/93     7.980992     16.80%           75        0
Janus Aspen Worldwide Growth Portfolio    09/13/93     7.188387     22.00%           75        0
Lexington Natural Resources Trust         10/14/91     8.335147      8.74%           75        0
Oppenheimer Global Securities Fund        11/12/90    10.434459     11.43%           75        0
Oppenheimer Strategic Bond Fund           05/03/93    17.157783      6.83%           75        0
Portfolio Partners
  MFS Emerging
  Equities Portfolio                      11/28/97    15.547755     (1.20%)          75        0
Alger American Small Cap/
  Portfolio Partners-
  MFS Emerging Equities                   09/21/88     3.282454     18.10%           75        0
Portfolio Partners
  MFS Research
  Growth Portfolio                        11/28/97    13.111004     (1.89%)          75        0
American Century
  VP Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                                                                75        0
Portfolio Partners
  MFS Value Equity Portfolio              11/28/97    21.254208      1.35%           75        0
Neuberger & Berman AMT Growth/
  Portfolio Partners-
  MFS Value Equity                                                                   75        0
Portfolio Partners
  Scudder International
  Growth Portfolio                        11/28/97    17.800495      1.51%           75        0
Scudder International
  Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth                                                       75        0
Portfolio Partners
  T. Rowe Price Growth
  Equity Portfolio                        11/28/97    14.25434       1.96%           75        0
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity             01/09/89     3.094042     18.81%           75        0
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                         Maintenance                                One Year        One Year
                       Fund Name             Fee         As of Date    As of AUV    as of Date      as of AUV
                       ---------             ---         ----------    ---------    ----------      ---------
<S>                                           <C>         <C>          <C>           <C>            <C>
Aetna Ascent VP                               0           12/31/97     15.534885     12/31/96       13.054737
Aetna Balanced VP, Inc.                       0           12/31/97     19.165551     12/31/96       15.76525
Aetna Bond VP                                 0           12/31/97     13.485816     12/31/96       12.545946
Aetna Crossroads VP                           0           12/31/97     14.566382     12/31/96       12.482579
Aetna Growth and Income VP                    0           12/31/97     22.233121     12/31/96       17.246036
Aetna Growth VP                               0           12/31/97     13.221432     05/30/97
Aetna Index Plus Large Cap VP                 0           12/31/97     14.537894     12/31/96       10.940038
Aetna Legacy VP                               0           12/31/97     13.440553     12/31/96       11.826364
Aetna Money Market VP                         0           12/31/97     12.041272     12/31/96       11.502168
Aetna Small Company VP                        0           12/31/97     13.70428      05/30/97
Aetna Value Opportunity VP                    0           12/31/97     13.309797     05/30/97
Calvert Social Balanced Portfolio             0           12/31/97     17.943863     12/31/96       15.05611
Fidelity VIP Equity-Income Portfolio          0           12/31/97     15.930378     12/31/96       12.528687
Fidelity VIP Growth Portfolio                 0           12/31/97     14.033817     12/31/96       11.450706
Fidelity VIP Overseas Portfolio               0           12/31/97     12.496225     12/31/96       11.286166
Fidelity VIP II Contrafund Portfolio          0           12/31/97     15.516761     12/31/96       12.593301
Janus Aspen Aggressive Growth Portfolio       0           12/31/97     15.553748     12/31/96       13.909298
Janus Aspen Balanced Portfolio                0           12/31/97     15.129773     12/31/96       12.484496
Janus Aspen Flexible Income Portfolio         0           12/31/97     14.526936     12/31/96       13.096115
Janus Aspen Growth Portfolio                  0           12/31/97     15.557606     12/31/96       12.770002
Janus Aspen Worldwide Growth Portfolio        0           12/31/97     16.900548     12/31/96       13.939704
Lexington Natural Resources Trust             0           12/31/97     14.024929     12/31/96       13.187723
Portfolio Partners
  MFS Emerging
  Equities Portfolio                          0           12/31/97     15.361137     11/28/97
Alger American Small Cap/
  Portfolio Partners-
  MFS Emerging Equities                       0           12/31/97     15.361137     12/31/96       14.16931
Portfolio Partners
  MFS Research
  Growth Portfolio                            0           12/31/97     12.863144     11/28/97
American Century
  VP Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                         0           12/31/97     12.863144     12/31/96       13.355097
Portfolio Partners
  MFS Value Equity Portfolio                  0           12/31/97     21.541443     11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners-
  MFS Value Equity                            0           12/31/97     21.541443     12/31/96       17.178098
Portfolio Partners
  Scudder International
  Growth Portfolio                            0           12/31/97     18.06965      11/28/97
Scudder International
  Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth                0           12/31/97     18.06965      12/31/96       16.704121
Portfolio Partners
  T. Rowe Price Growth
  Equity Portfolio                            0           12/31/97     14.534073     11/28/97
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity                 0           12/31/97     14.534073     12/31/96       11.41812

<CAPTION>
                                        One Year    Five Year     Five Year    Five Year     Ten Year
                    Fund Name            w/ DSC     as of Date    as of AUV     w/ DSC      as of Date
                    ---------            ------     ----------    ---------     ------      ----------
<S>                                      <C>        <C>           <C>           <C>         <C>
Aetna Ascent VP                          13.05%     08/31/95                                08/31/95
Aetna Balanced VP, Inc.                  15.49%     12/31/92      10.136542     12.43%      06/30/89
Aetna Bond VP                             2.12%     12/31/92      10.012943      5.05%      12/31/87
Aetna Crossroads VP                      10.86%     08/31/95                                08/31/95
Aetna Growth and Income VP               22.47%     12/31/92      10.216366     15.63%      12/31/87
Aetna Growth VP                                     05/30/97                                05/30/97
Aetna Index Plus Large Cap VP            26.24%     10/31/96                                10/31/96
Aetna Legacy VP                           7.97%     08/31/95                                08/31/95
Aetna Money Market VP                    (0.55%)    12/31/92       9.878992      2.98%      12/31/87
Aetna Small Company VP                              05/30/97                                05/30/97
Aetna Value Opportunity VP                          05/30/97                                05/30/97
Calvert Social Balanced Portfolio        13.22%     12/31/92      10.156645     10.91%      11/30/92
Fidelity VIP Equity-Income Portfolio     20.79%     12/30/94                                12/30/94
Fidelity VIP Growth Portfolio            16.43%     12/30/94                                12/30/94
Fidelity VIP Overseas Portfolio           5.19%     01/31/95                                01/31/95
Fidelity VIP II Contrafund Portfolio     17.05%     06/30/95                                06/30/95
Janus Aspen Aggressive Growth Portfolio   6.23%     10/31/94                                10/31/94
Janus Aspen Balanced Portfolio           15.13%     01/31/95                                01/31/95
Janus Aspen Flexible Income Portfolio     5.38%     10/31/94                                10/31/94
Janus Aspen Growth Portfolio             15.74%     07/29/94                                07/29/94
Janus Aspen Worldwide Growth Portfolio   15.18%     04/28/95                                04/28/95
Lexington Natural Resources Trust         1.03%     05/26/93                                05/26/93
Portfolio Partners
  MFS Emerging
  Equities Portfolio                                11/28/97                                11/28/97
Alger American Small Cap/
  Portfolio Partners-
  MFS Emerging Equities                   2.99%     09/30/93                                09/30/93
Portfolio Partners
  MFS Research Growth Portfolio                     11/28/97                                11/28/97
American Century
  VP Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                    (8.50%)    12/31/92      10.062609      3.96%      08/31/92
Portfolio Partners
  MFS Value Equity Portfolio                        11/28/97                                11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners-
  MFS Value Equity                       19.13%     12/31/92      12.133651     11.02%      11/30/92
Portfolio Partners
  Scudder International
  Growth Portfolio                                  11/28/97                                11/28/97
Scudder International
  Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth            2.77%     12/31/92       9.874457     11.69%      08/31/92
Portfolio Partners
  T. Rowe Price Growth
  Equity Portfolio                                  11/28/97                                11/28/97
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity            20.93%     02/28/95                                02/28/95

<CAPTION>
                                                                                                      Separate
                                         Ten Year     Ten Year   Inception    Inception   Inception    Account            One Year
                    Fund Name            as of AUV      w/ DSC      Date         AUV        w/ DSC     Charge   Free Out    DSC
                    ---------            ---------      ------      ----         ---        ------     ------   --------    ----
<S>                                      <C>            <C>       <C>         <C>           <C>         <C>         <C>     <C>
Aetna Ascent VP                                                   08/31/95    10.088955     17.70%      75          0       5.00%
Aetna Balanced VP, Inc.                                           06/30/89     7.419305     11.13%      75          0       5.00%
Aetna Bond VP                            6.016657        8.41%                                    
Aetna Crossroads VP                                               08/31/95    10.079994     14.54%      75          0       5.00%
Aetna Growth and Income VP               5.14315        15.76%                                    
Aetna Growth VP                                                   05/30/97    11.078209     13.38%      75          0       5.00%
Aetna Index Plus Large Cap VP                                     10/31/96    10.449084     27.01%      75          0       5.00%
Aetna Legacy VP                                                   08/31/95     9.952234     11.27%      75          0       5.00%
Aetna Money Market VP                    7.279265        5.16%                                    
Aetna Small Company VP                                            05/30/97    11.324002     14.97%      75          0       5.00%
Aetna Value Opportunity VP                                        05/30/97    10.985112     15.10%      75          0       5.00%
Calvert Social Balanced Portfolio                                 11/30/92     9.97583      11.11%      75          0       5.00%
Fidelity VIP Equity-Income Portfolio                              12/30/94     8.237218     22.45%      75          0       5.00%
Fidelity VIP Growth Portfolio                                     12/30/94     7.485493     21.19%      75          0       5.00%
Fidelity VIP Overseas Portfolio                                   01/31/95     8.83778      10.65%      75          0       5.00%
Fidelity VIP II Contrafund Portfolio                              06/30/95     9.391904     19.72%      75          0       5.00%
Janus Aspen Aggressive Growth Portfolio                           10/31/94    10.406982     11.70%      75          0       5.00%
Janus Aspen Balanced Portfolio                                    01/31/95     8.891191     17.91%      75          0       5.00%
Janus Aspen Flexible Income Portfolio                             10/31/94     9.931935     10.95%      75          0       5.00%
Janus Aspen Growth Portfolio                                      07/29/94     8.32184      18.26%      75          0       5.00%
Janus Aspen Worldwide Growth Portfolio                            04/28/95     8.780431     25.29%      75          0       5.00%
Lexington Natural Resources Trust                                 05/26/93     9.797795      6.91%      75          0       5.00%
Portfolio Partners                                                                                
  MFS Emerging
  Equities Portfolio                                              11/28/97    15.547116     (6.14%)     75          0       5.00%
Alger American Small Cap/                                                                          
  Portfolio Partners-
  MFS Emerging Equities                                           09/30/93     9.866351      9.64%      75          0       5.00%
Portfolio Partners                                                                                
  MFS Research
  Growth Portfolio                                                11/28/97    13.110465     (6.79%)     75          0       5.00%
American Century                                                                                   
  VP Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                                             08/31/92     9.146616      5.58%      75          0       5.00%
Portfolio Partners                                                                                
  MFS Value Equity Portfolio                                      11/28/97    21.224505     (3.58%)     75          0       5.00%
Neuberger & Berman AMT Growth/                                                                     
  Portfolio Partners-
  MFS Value Equity                                                11/30/92    11.922109     11.21%      75          0       5.00%
Portfolio Partners                                                                                
  Scudder International
  Growth Portfolio                                                11/28/97    17.838237     (3.77%)     75          0       5.00%
Scudder International                                                                              
  Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth                                    08/31/92    10.399418      9.85%      75          0       5.00%
Portfolio Partners                                                                                
  T. Rowe Price Growth
  Equity Portfolio                                                11/28/97    14.237079     (3.02%)     75          0       5.00%
Alger American Growth/                                                                             
  Portfolio Partners-T.
  Rowe Price Growth Equity                                        02/28/95     7.815748     22.20%      75          0       5.00%

<CAPTION>
                                        Three Year     Five Year     Ten Year   Inception
                    Fund Name              DSC           DSC           DSC        DSC
                    ---------              ---           ---           ---        ---
<S>                                       <C>           <C>           <C>        <C>
Aetna Ascent VP                           5.00%         5.00%         0.00%      5.00%
Aetna Balanced VP, Inc.                   5.00%         5.00%         0.00%      5.00%
Aetna Bond VP                             5.00%         5.00%         0.00%
Aetna Crossroads VP                       5.00%         5.00%         0.00%      5.00%
Aetna Growth and Income VP                5.00%         5.00%         0.00%
Aetna Growth VP                           5.00%         5.00%         0.00%      5.00%
Aetna Index Plus Large Cap VP             5.00%         5.00%         0.00%      5.00%
Aetna Legacy VP                           5.00%         5.00%         0.00%      5.00%
Aetna Money Market VP                     5.00%         5.00%         0.00%
Aetna Small Company VP                    5.00%         5.00%         0.00%      5.00%
Aetna Value Opportunity VP                5.00%         5.00%         0.00%      5.00%
Calvert Social Balanced Portfolio         5.00%         5.00%         0.00%      5.00%
Fidelity VIP Equity-Income Portfolio      5.00%         5.00%         0.00%      5.00%
Fidelity VIP Growth Portfolio             5.00%         5.00%         0.00%      5.00%
Fidelity VIP Overseas Portfolio           5.00%         5.00%         0.00%      5.00%
Fidelity VIP II Contrafund Portfolio      5.00%         5.00%         0.00%      5.00%
Janus Aspen Aggressive Growth Portfolio   5.00%         5.00%         0.00%      5.00%
Janus Aspen Balanced Portfolio            5.00%         5.00%         0.00%      5.00%
Janus Aspen Flexible Income Portfolio     5.00%         5.00%         0.00%      5.00%
Janus Aspen Growth Portfolio              5.00%         5.00%         0.00%      5.00%
Janus Aspen Worldwide Growth Portfolio    5.00%         5.00%         0.00%      5.00%
Lexington Natural Resources Trust         5.00%         5.00%         0.00%      5.00%
Portfolio Partners
  MFS Emerging
  Equities Portfolio                      5.00%         5.00%         0.00%      5.00%
Alger American Small Cap/
  Portfolio Partners-
  MFS Emerging Equities                   5.00%         5.00%         0.00%      5.00%
Portfolio Partners
  MFS Research
  Growth Portfolio                        5.00%         5.00%         0.00%      5.00%
American Century
  VP Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                     5.00%         5.00%         0.00%      5.00%
Portfolio Partners
  MFS Value
  Equity Portfolio                        5.00%         5.00%         0.00%      5.00%
Neuberger & Berman AMT Growth/
  Portfolio Partners-
  MFS Value Equity                        5.00%         5.00%         0.00%      5.00%
Portfolio Partners
  Scudder International
  Growth Portfolio                        5.00%         5.00%         0.00%      5.00%
Scudder International
  Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth            5.00%         5.00%         0.00%      5.00%
Portfolio Partners
  T. Rowe Price Growth
  Equity Portfolio                        5.00%         5.00%         0.00%      5.00%
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity             5.00%         5.00%         0.00%      5.00%
</TABLE>



<PAGE>
<TABLE>
<CAPTION>
                                         Maintenance                                 One Year
                     Fund Name               Fee        As of Date    As of AUV     as of Date
                     ---------               ---        ----------    ---------     ----------
<S>                                           <C>       <C>           <C>           <C>
Aetna Ascent VP                               0         12/31/97      15.534885     12/31/96
Aetna Balanced VP, Inc.                       0         12/31/97      19.165551     12/31/96
Aetna Bond VP                                 0         12/31/97      13.485816     12/31/96
Aetna Crossroads VP                           0         12/31/97      14.566382     12/31/96
Aetna Growth and Income VP                    0         12/31/97      22.233121     12/31/96
Aetna Growth VP                               0         12/31/97      13.221432     12/31/96
Aetna Index Plus Large Cap VP                 0         12/31/97      14.537894     12/31/96
Aetna Legacy VP                               0         12/31/97      13.440553     12/31/96
Aetna Money Market VP                         0         12/31/97      12.041272     12/31/96
Aetna Small Company VP                        0         12/31/97      13.70428      12/31/96
Aetna Value Opportunity VP                    0         12/31/97      13.309797     12/31/96
Calvert Social Balanced Portfolio             0         12/31/97      17.943863     12/31/96
Fidelity VIP Equity-Income Portfolio          0         12/31/97      15.930378     12/31/96
Fidelity VIP Growth Portfolio                 0         12/31/97      14.033817     12/31/96
Fidelity VIP Overseas Portfolio               0         12/31/97      12.496225     12/31/96
Fidelity VIP II Contrafund Portfolio          0         12/31/97      15.516761     12/31/96
Janus Aspen Aggressive Growth Portfolio       0         12/31/97      15.553748     12/31/96
Janus Aspen Balanced Portfolio                0         12/31/97      15.129773     12/31/96
Janus Aspen Flexible Income Portfolio         0         12/31/97      14.526936     12/31/96
Janus Aspen Growth Portfolio                  0         12/31/97      15.557606     12/31/96
Janus Aspen Worldwide Growth Portfolio        0         12/31/97      16.900548     12/31/96
Lexington Natural Resources Trust             0         12/31/97      14.024929     12/31/96
Oppenheimer Global Securities Fund            0         12/31/97      22.578903     12/31/96
Oppenheimer Strategic Bond Fund               0         12/31/97      23.351816     12/31/96
Portfolio Partners
  MFS Emerging
  Equities Portfolio                          0         12/31/97      15.361137     11/28/97
Alger American Small Cap/
  Portfolio Partners-
  MFS Emerging Equities                       0         12/31/97      15.361137     12/31/96
Portfolio Partners
  MFS Research
  Growth Portfolio                            0         12/31/97      12.863144     11/28/97
American Century
  VP Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                         0         12/31/97      12.863144     12/31/96
Portfolio Partners
  MFS Value Equity Portfolio                  0         12/31/97      21.541443     11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners-
  MFS Value Equity                            0         12/31/97      21.541443     12/31/96
Portfolio Partners
  Scudder International
  Growth Portfolio                            0         12/31/97      18.06965      11/28/97
Scudder International
  Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth                0         12/31/97      18.06965      12/31/96
Portfolio Partners
  T. Rowe Price Growth
  Equity Portfolio                            0         12/31/97      14.534073     11/28/97
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity                 0         12/31/97      14.534073     12/31/96

<CAPTION>
                                          One Year       One Year       Three Year     Three Year     Three Year
                   Fund Name              as of AUV      w/out DSC      as of Date      as of AUV     w/out DSC
                   ---------              ---------      ---------      ----------      ---------     ---------
<S>                                       <C>             <C>            <C>             <C>           <C>
Aetna Ascent VP                           13.054737       19.00%
Aetna Balanced VP, Inc.                   15.76525        21.57%         12/30/94        10.92121      20.62%
Aetna Bond VP                             12.545946        7.49%         12/30/94        10.397031      9.06%
Aetna Crossroads VP                       12.482579       16.69%
Aetna Growth and Income VP                17.246036       28.92%         12/30/94        10.635663     27.86%
Aetna Growth VP                           10.015302       32.01%
Aetna Index Plus Large Cap VP             10.940038       32.89%
Aetna Legacy VP                           11.826364       13.65%
Aetna Money Market VP                     11.502168        4.69%         12/30/94        10.44908       4.84%
Aetna Small Company VP                    10.266571       33.48%
Aetna Value Opportunity VP                 9.622689       38.32%
Calvert Social Balanced Portfolio         15.05611        19.18%         12/30/94        10.456561     19.72%
Fidelity VIP Equity-Income Portfolio      12.528687       27.15%         12/30/94         8.237218     24.59%
Fidelity VIP Growth Portfolio             11.450706       22.56%         12/30/94         7.485493     23.31%
Fidelity VIP Overseas Portfolio           11.286166       10.72%         12/30/94         9.226416     10.64%
Fidelity VIP II Contrafund Portfolio      12.593301       23.21%
Janus Aspen Aggressive Growth Portfolio   13.909298       11.82%         12/30/94        10.259921     14.88%
Janus Aspen Balanced Portfolio            12.484496       21.19%         12/30/94         8.740769     20.07%
Janus Aspen Flexible Income Portfolio     13.096115       10.93%         12/30/94         9.829224     13.91%
Janus Aspen Growth Portfolio              12.770002       21.83%         12/30/94         8.406619     22.77%
Janus Aspen Worldwide Growth Portfolio    13.939704       21.24%         12/30/94         8.609322     25.21%
Lexington Natural Resources Trust         13.187723        6.35%         12/30/94         9.023697     15.83%
Oppenheimer Global Securities Fund        18.581972       21.51%         12/30/94        15.662444     12.97%
Oppenheimer Strategic Bond Fund           21.643378        7.89%         12/30/94        16.998904     11.16%
Portfolio Partners
  MFS Emerging
  Equities Portfolio                                                     11/28/97
Alger American Small Cap/
  Portfolio Partners-
  MFS Emerging Equities                   14.16931         8.41%         12/30/94         9.56621      17.10%
Portfolio Partners
  MFS Research Growth Portfolio                                          11/28/97
American Century
  VP Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                     13.355097       (3.68%)        12/30/94        10.807654      5.98%
Portfolio Partners
  MFS Value Equity Portfolio                                             11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners-
  MFS Value Equity                        17.178098       25.40%         12/30/94        12.128214     21.10%
Portfolio Partners
  Scudder International
  Growth Portfolio                                                       11/28/97
Scudder International
  Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth            16.704121        8.18%         12/30/94        13.295169     10.77%
Portfolio Partners
  T. Rowe Price Growth
  Equity Portfolio                                                       11/28/97
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity             11.41812        27.29%         12/31/94         7.497651     24.69%

<CAPTION>
                                        Five Year     Five Year      Five Year      Ten Year       Ten Year
                   Fund Name            as of Date     as of AUV      w/out DSC     as of Date     as of AUV
                   ---------            ----------     ---------      ---------     ----------     ---------
<S>                                      <C>          <C>             <C>           <C>            <C>
Aetna Ascent VP                          07/05/95                                   07/05/95
Aetna Balanced VP, Inc.                  12/31/92     10.136542       13.59%        04/03/89
Aetna Bond VP                            12/31/92     10.012943        6.14%        12/31/87       6.016657
Aetna Crossroads VP                      07/05/95                                   07/05/95
Aetna Growth and Income VP               12/31/92     10.216366       16.83%        12/31/87       5.14315
Aetna Growth VP                          12/13/96                                   12/13/96
Aetna Index Plus Large Cap VP            09/16/96                                   09/16/96
Aetna Legacy VP                          07/05/95                                   07/05/95
Aetna Money Market VP                    12/31/92      9.878992        4.04%        12/31/87       7.279265
Aetna Small Company VP                   12/27/96                                   12/27/96
Aetna Value Opportunity VP               12/13/96                                   12/13/96
Calvert Social Balanced Portfolio        12/31/92     10.156645       12.06%        12/31/87       5.998221
Fidelity VIP Equity-Income Portfolio     12/31/92      6.601057       19.27%        12/31/87       3.655718
Fidelity VIP Growth Portfolio            12/31/92      6.366208       17.13%        12/31/87       3.095801
Fidelity VIP Overseas Portfolio          12/31/92      6.702739       13.27%        12/31/87       5.372653
Fidelity VIP II Contrafund Portfolio     01/03/95                                   01/03/95
Janus Aspen Aggressive Growth Portfolio  09/13/93                                   09/13/93
Janus Aspen Balanced Portfolio           09/13/93                                   09/13/93
Janus Aspen Flexible Income Portfolio    09/13/93                                   09/13/93
Janus Aspen Growth Portfolio             09/13/93                                   09/13/93
Janus Aspen Worldwide Growth Portfolio   09/13/93                                   09/13/93
Lexington Natural Resources Trust        12/31/92      8.728847        9.95%        10/14/91
Oppenheimer Global Securities Fund       12/31/92      9.901008       17.92%        11/12/90
Oppenheimer Strategic Bond Fund          05/03/93                                   05/03/93
Portfolio Partners
  MFS Emerging
  Equities Portfolio                     11/28/97                                   11/28/97
Alger American Small Cap/
  Portfolio Partners-
  MFS Emerging Equities                  12/31/92      8.964323       11.37%        09/21/88
Portfolio Partners
  MFS Research
  Growth Portfolio                       11/26/97                                   11/28/97
American Century
  VP Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                    12/31/92     10.062609        5.03%        12/31/87       6.007014
Portfolio Partners
  MFS Value Equity Portfolio             11/28/97                                   11/28/97
Neuberger & Berman AMT Growth/
  Portfolio Partners-
  MFS Value Equity                       12/31/92     12.133651       12.16%        12/31/87       5.917743
Portfolio Partners
  Scudder International
  Growth Portfolio                       11/28/97                                   11/28/97
Scudder International
  Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth           12/31/92      9.874457       12.85%        12/31/87       6.389023
Portfolio Partners
  T. Rowe Price Growth
  Equity Portfolio                       11/28/97                                   11/28/97
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity            12/31/92      6.125325       18.86%        01/09/89



<CAPTION>
                                                                                                 Separate
                                         Ten Year       Inception      Inception    Inception    Account     Free
                   Fund Name             w/out DSC         Date           AUV       w/out DSC     Charge      Out
                   ---------             ---------         ----           ---       ---------     ------      ---
<S>                                       <C>           <C>             <C>           <C>           <C>        <C>
Aetna Ascent VP                                         07/05/95         9.67164      20.93%        75         0
Aetna Balanced VP, Inc.                                 04/03/89         7.294066     11.68%        75         0
Aetna Bond VP                              8.41%                                                    75         0
Aetna Crossroads VP                                     07/05/95         9.720559     17.61%        75         0
Aetna Growth and Income VP                15.76%                                                    75         0
Aetna Growth VP                                         12/13/96         9.874759     31.98%        75         0
Aetna Index Plus Large Cap VP                           09/16/96        10.000000     33.58%        75         0
Aetna Legacy VP                                         07/05/95         9.673076     14.10%        75         0
Aetna Money Market VP                      5.16%                                                    75         0
Aetna Small Company VP                                  12/27/96        10.153003     34.43%        75         0
Aetna Value Opportunity VP                              12/13/96         9.42385      38.85%        75         0
Calvert Social Balanced Portfolio         11.58%                                                    75         0
Fidelity VIP Equity-Income Portfolio      15.86%                                                    75         0
Fidelity VIP Growth Portfolio             16.32%                                                    75         0
Fidelity VIP Overseas Portfolio            8.81%                                                    75         0
Fidelity VIP II Contrafund Portfolio                    01/03/95         7.546318     27.25%        75         0
Janus Aspen Aggressive Growth Portfolio                 09/13/93         7.543472     18.33%        75         0
Janus Aspen Balanced Portfolio                          09/13/93         8.16404      15.43%        75         0
Janus Aspen Flexible Income Portfolio                   09/13/93         9.946127      9.21%        75         0
Janus Aspen Growth Portfolio                            09/13/93         7.980992     16.80%        75         0
Janus Aspen Worldwide Growth Portfolio                  09/13/93         7.188387     22.00%        75         0
Lexington Natural Resources Trust                       10/14/91         8.335147      8.74%        75         0
Oppenheimer Global Securities Fund                      11/12/90        10.434459     11.43%        75         0
Oppenheimer Strategic Bond Fund                         05/03/93        17.157783      6.83%        75         0
Portfolio Partners
  MFS Emerging
  Equities Portfolio                                    11/28/97        15.547755     (1.20%)       75         0
Alger American Small Cap/
  Portfolio Partners-
  MFS Emerging Equities                                 09/21/88         3.282454     18.10%        75         0
Portfolio Partners
  MFS Research
  Growth Portfolio                                      11/28/97        13.111004     (1.89%)       75         0
American Century
  VP Capital Appreciation/
  Portfolio Partners-
  MFS Research Growth                      7.91%                                                    75         0
Portfolio Partners
  MFS Value Equity Portfolio                            11/28/97        21.254208      1.35%        75         0
Neuberger & Berman AMT Growth/
  Portfolio Partners-
  MFS Value Equity                        13.79%                                                    75         0
Portfolio Partners
  Scudder International
  Growth Portfolio                                      11/28/97        17.800495      1.51%        75         0
Scudder International
  Portfolio Class A/
  Portfolio Partners-
  Scudder International Growth            10.96%                                                    75         0
Portfolio Partners
  T. Rowe Price Growth
  Equity Portfolio                                      11/28/97        14.25434       1.96%        75         0
Alger American Growth/
  Portfolio Partners-
  T. Rowe Price Growth Equity                           01/09/89         3.094042     18.81%        75         0
</TABLE>


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