As filed with the Securities and Exchange Registration No. 33-75998
Commission on April 17, 1998 Registration No. 811-2512
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
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POST-EFFECTIVE AMENDMENT NO. 8 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment to
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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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)
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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
General Description of Registrant,
5 Depositor, and Portfolio Companies.... The Company; Variable Annuity
Account B; The Funds
6 Deductions............................. 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
of Additional Information.............. Contents of the Statement of
Additional Information
<PAGE>
FORM N-4 PART B
ITEM NO. (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
Performance Data; Average
21 Calculation of Performance Data........ 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
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The Contracts offered in connection with this Prospectus are individual
non-qualified deferred variable annuity contracts issued by Aetna Life Insurance
and Annuity Company ("Company"). Both Installment Purchase Payment Contracts and
Single Purchase Payment Contracts are described herein. The Contracts are
designed to provide retirement benefits to individuals who either are not
participating in formal retirement plans, or are participating in formal
retirement plans but wish to personally supplement their benefits. The Contracts
may receive favorable tax deferred treatment under Federal income tax law.
The Contracts provide that contributions may be allocated to the Fixed Account
(a Credited Interest Option), 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 Variable Fund d/b/a Aetna Growth and Income VP
[bullet] Aetna Legacy VP (formerly Aetna Legacy Variable Portfolio)
[bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP
[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] 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
Except as specifically mentioned, this Prospectus describes only investments
through the Separate Account. A brief description of the Fixed Account is
contained in an Appendix to this Prospectus.
The availability of the Funds and the Fixed Account is subject to applicable
regulatory authorization. Not all Funds (or the Credited Interest Option) may be
available in all jurisdictions or under all Contracts. (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 Contents for the SAI is found on page 16 of this Prospectus. An SAI may be
obtained 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. 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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED
MAY 1, 1998.
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
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 Option ................................ 4
PURCHASE .................................................. 4
Contract Availability ................................... 4
Contract Purchase ....................................... 4
Purchase Payments ....................................... 4
Allocation of Purchase Payments ......................... 4
Right to Cancel ......................................... 4
CHARGES AND DEDUCTIONS .................................... 4
Daily Deductions from the Separate Account .............. 4
Mortality and Expense Risk Charge ..................... 4
Administrative Charge ................................. 5
Maintenance Fee ......................................... 5
Deferred Sales Charge ................................... 5
Fund Expenses ........................................... 6
Premium and Other Taxes ................................. 6
CONTRACT VALUATION ........................................ 6
Contract Value ........................................ 6
Accumulation Units .................................... 6
Net Investment Factor ................................. 6
TRANSFERS ................................................. 7
Telephone Transfers ..................................... 7
Dollar Cost Averaging Program ........................... 7
WITHDRAWALS ............................................... 7
Reinvestment Privilege .................................. 8
SYSTEMATIC DISTRIBUTION OPTIONS ........................... 8
DEATH BENEFIT DURING ACCUMULATION PERIOD .................. 9
ANNUITY PERIOD ............................................ 9
Annuity Period Elections ................................ 9
Partial Annuitization ................................... 9
Annuity Options ......................................... 10
Annuity Payments ........................................ 10
Charges Deducted During the Annuity Period .............. 10
Death Benefit Payable During the Annuity Period ......... 10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
TAX STATUS .................................................. 11
Introduction .............................................. 11
Taxation of the Company ................................... 11
Tax Status of the Contracts ............................... 11
Taxation of Annuities ..................................... 12
MISCELLANEOUS ............................................... 14
Distribution .............................................. 14
Delay or Suspension of Payments ........................... 14
Performance Reporting ..................................... 14
Voting Rights ............................................. 15
Modification of the Contract .............................. 15
Transfer of Ownership; Assignment ......................... 15
Legal Matters and Proceedings ............................. 15
Year 2000 ................................................. 15
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ......... 16
APPENDIX I--FIXED ACCOUNT ................................... 17
APPENDIX II--CONDENSED FINANCIAL INFORMATION ................ 18
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
PERSON TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING CONTAINED IN THIS PROSPECTUS EXCEPT AS OTHERWISE CONTAINED HEREIN.
<PAGE>
DEFINITIONS
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The following terms are defined as they are used in this Prospectus:
Accumulation Period: The period during which Purchase Payment(s) credited to a
Contract are invested to fund future annuity payments.
Accumulation Unit: A measure of the value of each Subaccount before annuity
payments begin.
Annuitant: The person on whose life or life expectancy the annuity payments are
based.
Annuity: A series of payments for life, a definite period or a combination of
the two.
Annuity Date: The date on which annuity payments begin.
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.
Code: Internal Revenue Code of 1986, as amended.
Company (We, Us): Aetna Life Insurance and Annuity Company.
Contracts: The individual non-qualified deferred, variable annuity contracts
described in this Prospectus.
Contract Holder (You): The person or entity to whom the Contract is issued.
Contract Value: The total dollar value of amounts held in a Contract as of each
Valuation Date during the Accumulation Period.
Contract Year: A period of twelve months measured from the date on which a
Contract is established (the effective date) or from an anniversary of such
effective date.
Credited Interest Option: The fixed interest option under the Contract. The
Credited Interest Option currently available is the Fixed Account, which is
described in Appendix I to this Prospectus. Amounts allocated to the Credited
Interest Option are included in the Contract Value.
Fund(s): An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the Contract.
Home Office: The Company's principal executive offices located at 151
Farmington Avenue, Hartford, Connecticut 06156.
Purchase Payment(s): The gross payment(s) made to the Company under a Contract.
Purchase Payment Periods: For "Installment Purchase Payment Contracts," 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.
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.
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DEFINITIONS - 1
<PAGE>
PROSPECTUS SUMMARY
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CONTRACTS OFFERED
The Contracts offered in connection with this Prospectus are individual
non-qualified deferred variable annuity contracts issued by Aetna Life Insurance
and Annuity Company ("Company"). Both Installment Purchase Payment Contracts and
Single Purchase Payment Contracts are described herein. The Contracts are
designed to provide retirement benefits to individuals who either are not
participating in formal retirement plans, or are participating in formal
retirement plans but wish to personally supplement their benefits. The Contracts
may receive favorable tax deferred treatment under Federal income tax law.
CONTRACT PURCHASE
The Contracts may be purchased by completing the application and submitting
it to the Company. The minimum Purchase payment for a Single Purchase Payment
Contract is $5,000. Installment Purchase Payments must be at least $100 per
month ($1,200 annually) and may not be less than $25 per payment. (See
"Purchase.")
FREE LOOK PERIOD
You may cancel the Contract no later than 10 days after receiving it (or
longer if required by state law) by returning it to us along with a written
notice of cancellation. Unless state law requires otherwise, the amount you will
receive upon cancellation will reflect the investment performance of the
Subaccounts into which your Purchase Payments were deposited. In some cases this
may be more or less than the amount of your 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 in this Prospectus. The Contract
allows investment in any of the Subaccounts, as well as in the Fixed Account
described below. The total number of investment options that you may select
during the Accumulation Period is limited to 18. For a complete list of the
Funds available under the Contracts, and 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 funding 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 the Fixed Account, which
allows you to earn fixed rates of interest. (See Appendix I 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
charges and an administrative charge), as well as any annual maintenance fee 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 Contract Value. (See the Fee Table and
"Charges and Deductions.")
TRANSFERS
Prior to the Annuity Date, and subject to certain limitations, Contract
Values may be transferred among the Subaccounts and the Fixed Account without
charge. Transfers can be requested in writing or by telephone in accordance with
the Company's transfer procedures. (See Appendix I for a full description of the
restrictions applicable to transfers from the Fixed Account.) (See "Transfers.")
WITHDRAWALS
All or a part of the Contract Value may be withdrawn prior to the Annuity
Date by properly completing a disbursement form and sending it to the Company.
Certain charges may be assessed upon withdrawal. (See "Withdrawals.")
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SUMMARY - 1
<PAGE>
The Contract also offers Systematic Distribution Options during the
Accumulation Period to persons meeting certain criteria. The Systematic
Distribution Options are not available in all states and may not be suitable in
every situation. (See "Systematic Distribution Options.")
DEATH BENEFIT
A death benefit is payable if you die before the Annuity Date. Death
benefit proceeds will be paid to the beneficiary in an amount equal to the
Contract Value. Until the election of a method of payment, the Contract Value
will remain invested under the Contract. The 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 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, you may elect to begin receiving Annuity Payments.
Annuity Payments can be made on either a fixed, variable or combination 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 you or your
beneficiary(ies) actually receive a distribution from the Contract. A 10%
federal tax penalty 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 06156-1258
Attention: Customer Service
[bullet] Call Customer Service: 1-800-531-4547(for automated transfers or
changes in the allocation of Account Values,
call: 1-800-262-3862)
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SUMMARY - 2
<PAGE>
FEE TABLE
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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 upon purchase of the Contract. All costs that are borne
directly or indirectly under the Subaccounts and Funds are shown below. Charges
shown do not include premium taxes that may be applicable. For more information
regarding fees and expenses paid out of the 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 CONTRACTS:
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<TABLE>
<CAPTION>
Purchase Payment Deferred Sales
Periods Completed Charge Deduction
- -------------------------------------------- ------------------
<S> <C>
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%
10 or more 0%
</TABLE>
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SINGLE PURCHASE PAYMENT CONTRACTS:
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<TABLE>
<CAPTION>
Contract Years Deferred Sales
Completed Charge Deduction
- -------------------------------------------- ------------------
<S> <C>
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%
</TABLE>
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<TABLE>
<S> <C>
Annual Contract Maintenance Fee
Installment Purchase Payment Contract ......... $20.00**
Single Purchase Payment Contract .............. $ 0.00
</TABLE>
* The total amount deducted for the deferred sales charge will not exceed
8.5% of the total Purchase Payments applied to the Contract.
** The maintenance fee will generally be deducted annually from each
Installment Purchase Payment Contract during the Accumulation Period. The
maintenance fee, to the extent permitted by state law, is also deducted
upon termination of the Contract.
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)
<TABLE>
<S> <C>
Mortality and Expense Risk .............. 1.25%
Administrative Charge ................... 0.00%***
-----
Total Separate Account Charges ......... 1.25%
=====
</TABLE>
*** We currently do not impose an Administrative Charge. However, we reserve
the right to deduct a daily charge of not more than 0.25% per year from
the Subaccounts.
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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, these figures are a percentage of each Fund's
average net assets and 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
your Contract Value.
<TABLE>
<CAPTION>
Investment Other Total
Advisory Fees(1) Expenses Fund
(after expense (after expense Annual
reimbursement) reimbursement) 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 and Income VP(3) 0.50% 0.09% 0.59%
Aetna Legacy VP(2)(3) 0.49% 0.31% 0.80%
Aetna Money Market VP(3) 0.25% 0.10% 0.35%
Fidelity VIP Equity-Income Portfolio(4) 0.50% 0.08% 0.58%
Fidelity VIP Growth Portfolio(4) 0.60% 0.09% 0.69%
Fidelity VIP Overseas Portfolio(4) 0.75% 0.17% 0.92%
Fidelity VIP II Contrafund Portfolio(4) 0.60% 0.11% 0.71%
Janus Aspen Aggressive Growth Portfolio(5) 0.73% 0.03% 0.76%
Janus Aspen Balanced Portfolio(5) 0.76% 0.07% 0.83%
Janus Aspen Flexible Income Portfolio 0.65% 0.10% 0.75%
Janus Aspen Growth Portfolio(5) 0.65% 0.05% 0.70%
Janus Aspen Worldwide Growth Portfolio(5) 0.66% 0.08% 0.74%
Portfolio Partners MFS Emerging Equities Portfolio(6)(7) 0.68% 0.13% 0.81%
Portfolio Partners MFS Research Growth Portfolio(6)(7) 0.70% 0.15% 0.85%
Portfolio Partners MFS Value Equity Portfolio(6) 0.65% 0.25% 0.90%
Portfolio Partners Scudder International Growth Portfolio(6) 0.80% 0.20% 1.00%
Portfolio Partners T. Rowe Price Growth Equity Portfolio(6) 0.60% 0.15% 0.75%
</TABLE>
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(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 0.91% for Legacy VP, respectively.
(3) Prior to May 1, 1998, the investment adviser provided administrative
services to the Fund and assumed the Fund's ordinary 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 under the 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.
(4) 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 and
0.68% for Contrafund Portfolio.
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FEE TABLE - 2
<PAGE>
(5) 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.
(6) 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.
(7) The advisory fee is 0.70% of the first $500 million in assets and 0.65% on
the excess.
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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. For the
purposes of these Examples, the maximum maintenance fee of $20.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.011%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
--------- ---------
If you withdraw your entire Contract If you do not withdraw your Contract
Value at the end of the periods shown, Value, or if you annuitize at the end of
you would pay the following expenses, the periods shown, you would pay the
including any applicable deferred sales following expenses (no deferred sales
charge: 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 $72 $119 $169 $239 $21 $65 $111 $239
Aetna Balanced VP, Inc. $70 $113 $159 $218 $19 $59 $101 $218
Aetna Bond VP $70 $110 $154 $207 $18 $55 $ 95 $207
Aetna Crossroads VP $72 $119 $169 $239 $21 $65 $111 $239
Aetna Growth and Income VP $70 $113 $158 $217 $19 $58 $100 $217
Aetna Legacy VP $72 $119 $169 $239 $21 $65 $111 $239
Aetna Money Market VP $68 $106 $147 $191 $16 $51 $ 88 $191
Fidelity VIP Equity-Income Portfolio $70 $113 $158 $216 $19 $58 $100 $216
Fidelity VIP Growth Portfolio $71 $116 $163 $228 $20 $61 $105 $228
Fidelity VIP Overseas Portfolio $74 $123 $174 $251 $22 $68 $117 $251
Fidelity VIP II Contrafund Portfolio $72 $117 $164 $230 $20 $62 $106 $230
Janus Aspen Aggressive Growth Portfolio $72 $118 $167 $235 $21 $63 $109 $235
Janus Aspen Balanced Portfolio $73 $120 $170 $242 $21 $66 $112 $242
Janus Aspen Flexible Income Portfolio $72 $118 $166 $234 $20 $63 $108 $234
Janus Aspen Growth Portfolio $71 $116 $164 $229 $20 $62 $106 $229
Janus Aspen Worldwide Growth Portfolio $72 $117 $166 $233 $20 $63 $108 $233
Portfolio Partners MFS Emerging Equities
Portfolio $72 $119 $169 $240 $21 $65 $111 $240
Portfolio Partners MFS Research Growth
Portfolio $73 $121 $171 $244 $21 $66 $113 $244
Portfolio Partners MFS Value Equity Portfolio $73 $122 $173 $249 $22 $68 $116 $249
Portfolio Partners Scudder International
Growth Portfolio $74 $125 $178 $260 $23 $71 $121 $260
Portfolio Partners T. Rowe Price
Growth Equity Portfolio $72 $118 $166 $234 $20 $63 $108 $234
</TABLE>
* This example would not apply if a nonlifetime variable annuity option is
selected, and a lump-sum settlement is requested within three years after
annuity payments start 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.)
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FEE TABLE - 4
<PAGE>
CONDENSED FINANCIAL INFORMATION
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Condensed Financial Information for the Separate Account is shown in
Appendix II.
THE COMPANY
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- --------------------------------------------------------------------------------
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
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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 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 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
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THE FUNDS
Purchase Payments may be allocated to one or more of the Subaccounts as
designated on the application. In turn, the Subaccounts invest in the
corresponding Funds at net asset value.
The availability of Funds may be subject to applicable regulatory
authorization. In addition, the Company may add, withdraw or substitute Funds,
subject to the conditions in the Contract and in compliance with regulatory
requirements. Not all Funds may be available in all jurisdictions or under all
Contracts. The total number of investment options that you may select during the
Accumulation Period is limited to 18. Each Subaccount selected and the Fixed
Account counts as one option once you have made an allocation to it, even if you
no longer have amounts allocated to that option.
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 one or more of the
following asset classes: stocks, bonds and cash equivalents, based on
the investment adviser's judgment of which of those sectors or mix
thereof offers the best investment prospects.(1)
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1
<PAGE>
[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] 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.(2)
[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.(2)
[bullet] Fidelity Investments Variable Insurance Products Fund--Overseas
Portfolio seeks long-term growth by investing mainly 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.(2)
[bullet] Fidelity Investments Variable Insurance Products Fund II--Contrafund
Portfolio seeks maximum total return over the long term by investing
mainly in equity securities of companies that are undervalued or out-
of-favor. (2)
[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.(3)
[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 securities selected
primarily for their growth potential and 40%-60% of its assets in
securities selected primarily for their income potential. (3)
[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). (3)
[bullet] Janus Aspen Series--Growth Portfolio seeks long-term growth of capital.
The Portfolio pursues its investment objective by investing primarily
in common stocks of any size. This Portfolio generally invests in
larger, more established issuers. (3)
[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
- --------------------------------------------------------------------------------
2
<PAGE>
through investments in common stocks of foreign and domestic issuers.
(3)
[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.(4a)
[bullet] Portfolio Partners, Inc.--MFS Research Growth Portfolio seeks long-term
growth of capital and future income.(4a)
[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.(4a)
[bullet] Portfolio Partners, Inc.--Scudder International Growth Portfolio seeks
long-term growth of capital primarily through a diversified portfolio
of marketable foreign equity securities.(4b)
[bullet] Portfolio Partners T. Rowe Price Growth Equity Portfolio seeks
long-term growth of capital and, secondarily, seeks to increase
dividend income by investing primarily in common stocks issued by a
diversified group of well-established growth companies.(4c)
Investment Advisers for each of the Funds:
(1) Aeltus Investment Management, Inc.
(2) Fidelity Management & Research Company
(3) Janus Capital Corporation
(4) 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
- --------------------------------------------------------------------------------
3
<PAGE>
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 OPTION
Purchase Payments may be allocated to the Fixed Account, which is the
Credited Interest Option available under the Contract. The Fixed Account is 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 from
time to time. Transfers from the Fixed Account are limited. (See Appendix I.)
PURCHASE
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- --------------------------------------------------------------------------------
CONTRACT AVAILABILITY
The Contracts are designed to provide retirement benefits to individuals
who either are not participating in formal retirement plans, or are
participating in formal retirement plans but wish to personally supplement their
benefits.
This Contract may be aggregated with other annuity contracts purchased by
you 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.")
CONTRACT PURCHASE
Prospective Contract Holders may purchase a Contract by submitting an
application to the Company. The Company must accept or reject the application
within two business days of receipt. If the application is incomplete, the
Company may hold any forms and accompanying Purchase Payments for five days.
Purchase Payments may be held for longer periods only with the consent of the
Contract Holder, pending acceptance of the forms. Any Purchase Payment
accompanying the application, or received prior to the acceptance of the
application, will be invested as of the date of acceptance. If the application
is rejected, the application and any Purchase Payments will be returned to the
Contract Holder.
PURCHASE PAYMENTS
Two types of Contracts are available. Continuing, periodic payments will be
placed in "Installment Purchase Payment Contracts." Lump-sum transfers of
amounts accumulated under a pre-existing plan may be placed in "Single Purchase
Payment Contracts." The minimum Purchase Payment for a new Single Purchase
Payment Contract is $5,000. Installment Purchase Payments must be at least $100
per month ($1,200 annually) and may not be less than $25 per payment.
ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments were initially allocated to the Subaccounts or the Fixed
Account as specified on the application. Changes in such allocation may be made
in writing or by telephone transfer. Allocations must be in whole percentages,
and there are limitations on the number of investment options that can be
selected during the Accumulation Period. (See "Investment Options--The Funds.")
RIGHT TO CANCEL
You may cancel the Contract without penalty by returning it to the Company
with a written notice of your intent to cancel. In most states, you have ten
days to exercise this right; some states allow you a longer free-look period.
When we receive your request for cancellation, we will return your Contract
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 Contract
Value). In states that do not require a return of Purchase Payments, you bear
the entire investment risk for amounts allocated among the Subaccounts during
the free look period. Contract Values will be determined as of the Valuation
Date on which we receive your request for cancellation at our Home Office.
CHARGES AND DEDUCTIONS
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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 1.25% of the daily net assets of the Subaccounts
and compensates the
- --------------------------------------------------------------------------------
4
<PAGE>
Company for the assumption of the mortality and expense risks under the
Contract. 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 expenses relating to the Contracts and as a source of
profit to the Company. The Company expects to make a profit from the mortality
and expense risk charge.
Administrative Charge. The Company reserves the right, upon 30 days'
notice, to make a deduction from each of the Subaccounts for an administrative
charge. The administrative charge compensates the Company for administrative
expenses that exceed revenues from the maintenance fee described below. 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.
Under the Contract, the amount of the administrative charge may be of an
amount up to, on an annual basis, 0.25% of the daily net assets of the
Subaccounts. There is currently no administrative charge during the Accumulation
Period or Annuity Period. The charge in effect at the time of election of an
Annuity Option will be applicable during the entire Annuity Period.
MAINTENANCE FEE
During the Accumulation Period, the Company will deduct an annual
maintenance fee of $20 from Installment Purchase Contracts on each Contract Year
anniversary. No maintenance fee is deducted from Single Purchase Payment
Contracts. The maintenance fee is to reimburse the Company for some of its
administrative expenses relating to the establishment and maintenance of the
Contracts.
The maintenance fee will be deducted on a pro rata basis from each
Subaccount or Credited Interest Option in which you have an interest. The
maintenance fee will also be deducted upon termination of the Contract, to the
extent permitted by state law.
DEFERRED SALES CHARGE
Withdrawals of all or a portion of the Contract Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of the amounts
withdrawn from the Subaccounts and the Fixed Account.
For Installment Purchase Payment Contracts, the deferred sales charge is
based on the number of completed Purchase Payment Periods. For Single Purchase
Payment Contracts, it is based on the number of Contract years that have elapsed
since the Contract effective date. The amount of the deferred sales charge is
determined in accordance with the schedule set forth in the following tables:
SINGLE PURCHASE PAYMENT CONTRACT:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contract Years Deferred Sales
Completed Charge Deduction
- ----------------------------- -----------------
<S> <C>
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%
</TABLE>
- --------------------------------------------------------------------------------
INSTALLMENT PURCHASE PAYMENT CONTRACT:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Purchase Payment Deferred Sales
Periods Completed Charge Deduction
- ------------------------------ -----------------
<S> <C>
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%
</TABLE>
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A deferred sales charge will not be deducted from any portion of the
Contract Value if the withdrawal is:
[bullet] applied to provide Annuity benefits;
[bullet] taken on or after the tenth anniversary of the effective date of the
Contract; paid due to your death;
[bullet] made due to the election of the Systematic Withdrawal Option (see
"Systematic Distribution Option"); or
[bullet] paid due to a full withdrawal where the Contract Value is $2,500 or
less and no amount has been withdrawn during the prior 12 months; or
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5
<PAGE>
[bullet] taken from an Installment Purchase Payment Contract if you are at
least age 591/2 and have completed nine Purchase Payment Periods.
The deduction for the deferred sales charge will not exceed 8.5% of the
total Purchase Payments actually made to the Contract. 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.
Free Withdrawals. Up to 10% of the current Contract Value may be withdrawn
during each calendar year without imposition of a deferred sales charge. The
free withdrawal applies only to the first partial withdrawal in each calendar
year. The 10% amount will be based on the Contract Value calculated on the
Valuation Date next following our receipt of your request for withdrawal. This
provision does not apply to a full withdrawal of the Contract or if SWO is
elected. This provision also does not apply for those Contracts issued in the
state of Washington. (See "Systematic Distribution Options.")
In the instances cited above, no deferred sales charge is deducted.
However, the withdrawn amount may be subject to the 10% penalty tax.
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 set forth in the Fee Table in
this Prospectus and described more fully in the accompanying Fund prospectus.
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 Contract Values at any time, but no
earlier than we have a tax liability under state law.
Any municipal premium tax assessed at a rate in excess of 1% will be
deducted from the Purchase Payment(s) or from the amount applied to an Annuity
option based upon our determination of when such tax is due. We will absorb any
municipal premium tax which is assessed at 1% or less. We reserve the right,
however, to reflect this added expense in our Annuity purchase rates for
residents of such municipalities.
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. (See "Tax Status.")
CONTRACT VALUATION
- --------------------------------------------------------------------------------
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Contract Value. Until the Annuity Date, the Contract Value is the total
dollar value of amounts held under your Contract as of any Valuation Date. The
Contract Value at any given time is based on the value of the units held in each
Subaccount, plus the value of amounts held in the Fixed Account.
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" ("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
"Contract Valuation--Net Investment Factor.") 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
charge (if any).
Initial Purchase Payments will be credited to your Contract at the AUV next
computed following our acceptance of the application 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 Contract at the AUV next computed
following our 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
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6
<PAGE>
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, divided by;
d) the total value of the Subaccount's Accumulation and Annuity Units on
the preceding Valuation Date, minus;
e) a daily charge at the annual effective rate of 1.25% for mortality and
expense risks, and an administrative charge which will not exceed
0.25% (currently 0%) on an annual basis.
The net investment rate may be either positive or negative.
TRANSFERS
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- --------------------------------------------------------------------------------
At any time prior to the Annuity Date, you can transfer amounts held under
your Contract from one Subaccount to another. Transfers between the Fixed
Account and the Subaccounts are subject to certain restrictions. (See Appendix
I.) 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.
The Company currently allows unlimited transfers of accumulated amounts to
available investment options without charge. The total number of investment
options that you may select during the Accumulation Period is limited. (See
"Investment Options--The Funds.") The transfer amount may not be less than $500.
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
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.
DOLLAR COST AVERAGING PROGRAM
You may establish automated transfers of Contract Values on a monthly or
quarterly basis through the Company's Dollar Cost Averaging Program. 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. Please refer to the "Inquiries"
section of the Prospectus Summary which describes how you can obtain further
information.
WITHDRAWALS
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All or a portion of the Contract Value may be withdrawn at any time during
the Accumulation Period. To request a withdrawal, you 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 in
good order.
Withdrawals may be requested in one of the following forms:
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7
<PAGE>
[bullet] Full Withdrawal of a Contract: The amount paid upon a full withdrawal
will be the Contract Value allocated to the Subaccounts and the Fixed
Account, minus any applicable deferred sales charge and maintenance fee
due.
[bullet] Partial Withdrawals (Percentage): The amount paid will be the
percentage of the Contract Value requested minus any applicable
deferred sales charge.
[bullet] Partial Withdrawal (Specified Dollar Amount): The amount paid will be
the dollar amount requested. However, the amount withdrawn from the
Contract will equal the amount requested plus any applicable deferred
sales charge.
For any partial withdrawal, amounts will be withdrawn proportionately from
each Subaccount or the Fixed Account in which your Contract is invested, unless
you request otherwise in writing. All amounts paid will be based on Contract
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.
Tax treatment of withdrawals from this Contract may be modified if you own
other annuity contracts issued by us (and our affiliates) that were purchased on
or after October 12, 1988. (See "Tax Status--Multiple Contracts.")
REINVESTMENT PRIVILEGE
Within 30 days after a withdrawal, you may elect to reinvest all or a
portion of the proceeds received for the full withdrawal of an Account.
Reinvested amounts must be received by the Company within 60 days of the
withdrawal. Accumulation Units will be credited to the Contract for the amount
reinvested, as well as any maintenance fee and any deferred sales charge imposed
at the time of withdrawal. Any maintenance fee which falls due after the
withdrawal and before the reinvestment will be deducted from the amounts
reinvested. Reinvested amounts will be reallocated to the applicable investment
options in the same proportion as they were allocated at the time of withdrawal.
Accumulation Units will be credited to your Contract based on the Accumulation
Unit Value next computed following our receipt of your request along with the
amount to be reinvested. The reinvestment privilege may be used only once. If
you are contemplating reinvestment, you should seek competent advice regarding
the tax consequences associated with such a transaction.
SYSTEMATIC DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company offers a withdrawal option under the Contract that is not
considered an annuity option ("Systematic Distribution Option"). To exercise
this option, the Contract Value must meet the minimum dollar amounts and age
criteria applicable to that option.
[bullet] SWO--Systematic Withdrawal Option. SWO is a series of partial
withdrawals from the Contract 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.
Other Systematic Distribution Options may be added from time to time.
Additional information relating to the Systematic Distribution Option may be
obtained from your local representative or from the Company at its Home Office.
If you select a Systematic Distribution Option, you will retain all of the
rights and flexibility permitted under the Contract during the Accumulation
Period. Your Contract Value will continue to be subject to the charges and
deductions described in this Prospectus. Taking a withdrawal under a Systematic
Distribution Option may have tax consequences. Any person concerned about tax
implications should consult a competent tax advisor prior to electing an option.
Once you elect a Systematic Distribution Option, you may revoke it any time
by submitting a written request to our Home Office. Once the option is revoked,
it may not be elected again. The Company reserves the right to discontinue the
availability of SWO or any other Systematic Distribution Options at any time,
and/or to change the terms of future elections.
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8
<PAGE>
DEATH BENEFIT DURING ACCUMULATION PERIOD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Contract provides that a death benefit is payable to the
beneficiary(ies) upon your death before the Annuity Date. The amount of the
death benefit will be equal to the Contract Value. Death benefit proceeds may be
paid to the beneficiary:
[bullet] in a lump sum; or
[bullet] in accordance with any of the Annuity Options available under the
Contract.
The beneficiary may instead elect one of the following two options;
however, the Code limits how long the death benefit proceeds may be left in
these options (see below):
[bullet] to leave the Contract Value invested in the Contract; or
[bullet] to leave the Contract Value on deposit in the Company's general
account, and to receive monthly, quarterly, semi-annual or annual
interest payments at the interest rate then being credited on such
deposits. The balance on deposit can be withdrawn at any time or
applied to an Annuity Option.
When paying the beneficiary, we will determine the Contract 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 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. Generally, either payments must begin within one year of
your death, or the entire value of your benefits must be distributed within five
years following your death. An exception to this provision applies if the
beneficiary is your surviving spouse, in which case the beneficiary will be
treated as a successor Contract Holder of the Contract. This successor Contract
Holder may exercise all rights to the Contract. Under the Code, no distributions
from the Contract are required until the death of this successor Contract
Holder. In no event may payments extend beyond the life expectancy 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
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ANNUITY PERIOD ELECTIONS
At least 30 days prior to the Annuity Date, you must notify us in writing
of the following:
[bullet] the date on which you would like to start receiving annuity payments;
[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.
Until a date and option are elected, the Account will continue in the
Accumulation Period. Once Annuity Payments begin, the Annuity Option may not be
changed, nor may transfers be made among the investment option(s) selected.
PARTIAL ANNUITIZATION
You may elect an Annuity Option with respect to a portion of your Contract
Value, while leaving the remaining portion of your Contract Value invested in
the Accumulation Period. The Code and the regulations thereunder do not
specifically address the tax treatment applicable to payments provided pursuant
to the exercise of this option. The Company takes the position that payments
provided pursuant to this option are taxable as annuity payments, and not as a
withdrawal. However, because the tax treatment of such payments is currently
unclear, you should consult with a qualified
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tax advisor if you are considering a partial annuitization of your Contract.
ANNUITY OPTIONS
You 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%, 662/3% 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.
An annuity may be selected on a fixed or variable basis and payments may be
made for 3-30 years. If a nonlifetime option is elected on a variable basis, the
Annuitant 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 your 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.
Amount of Each Annuity Payment. The amount of each payment depends on the
size of your Contract Value, how you allocate it 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 your Contract Value on the Annuity Date is
insufficient to elect an option for the minimum amount specified, a lump-sum
payment must be elected.
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 (31/2% 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 31/2% 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 SAI
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 an Annuitant 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.
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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 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 beneficiary (unless otherwise requested), and no deferred sales charge
will be imposed.
If the Annuitant dies after Annuity payments have begun and if there is a
death benefit payable under the Annuity option elected, the remaining value must
be distributed to the beneficiary at least as rapidly as under the original
method of distribution.
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
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INTRODUCTION
The following provides a general discussion of the federal tax treatment of
the Contract 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 or beneficiary may depend upon the tax status of the individual
concerned. Any person concerned about these tax implications or any state, local
or any other tax consequences 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 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 Account 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.
Accordingly, 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 interpretation 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
Diversification. Section 817(h) of the Code requires that with respect to
the Contracts, the investments of the Funds be "adequately diversified" in
accordance with Treasury Regulations in order for the Contracts to qualify as
annuity contracts under 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 affects how the Funds' assets may be
invested.
In certain circumstances, owners of variable annuity contracts 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. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of investment control
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over the assets. The ownership rights under the contract are similar to, but
different in certain respects from those described by the IRS in rulings in
which it was determined that contract owners were not owners of separate account
assets. For example, a Contract Holder has additional flexibility in allocating
premium payments and account values. In addition, the number of funds provided
under the Contract is significantly greater than the number of funds offered in
contracts on which rulings have been issued. These differences could result in a
Contract Holder being treated as the owner of a pro rata portion of the assets
of the Separate Account. 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.
Required Distributions: In order to be treated as an annuity contract for
federal income tax purposes, section 72(s) of the Code requires that Contracts
issued after January 18, 1985 provide that (a) if any Contract Holder dies on or
after the Annuity Date but prior to the time the entire interest in the Contract
has been distributed, the remaining portion of such interest will be distributed
at least as rapidly as under the method of distribution in effect at the time of
the Contract Holder's death; and (b) if any Contract Holder dies prior to the
Annuity Date, the entire interest in the Contract will be distributed within
five years after the date of such Contract Holder's death. These requirements
will be considered satisfied as to any portion of a Contract Holder's interest
which is payable to or for the benefit of a "designated beneficiary" and which
is distributed over the life of such designated beneficiary or over a period not
extending beyond the life expectancy of that beneficiary, provided that such
distributions begin within one year of the Contract Holder's death. The
"designated beneficiary" refers to a natural person designated by the Contract
Holder as a beneficiary and to whom ownership of the Contract passes by reason
of death. However, if the "designated beneficiary" is the surviving spouse of
the deceased Contract Holder, the Contract may be continued with the surviving
spouse as the new Contract Holder. If the Contract Holder is a non-natural
person the surviving spouse who is the "designated beneficiary" of the deceased
Annuitant may continue the Contract.
If (i) the Contract was issued before January 19,1985 or (2) the Contract
was issued after January 18, 1985 and the Contract Holder is a natural person
but not the Annuitant and the Annuitant dies, if the beneficiary does not elect
an Annuity option within 60 days of the date of death, the gain, if any, will be
includable in the beneficiary's income in the year the Annuitant dies.
The Contracts contain provisions which are intended to comply with the
requirements of section 72(s) of the Code, although no regulations interpreting
these requirements have yet been issued. The Company intends to review such
provisions and modify them if necessary to assure that they comply with the
requirements of Code section 72(s) when clarified by regulation or otherwise.
The following discussion is based on the assumption that the Contract
qualifies as an annuity contract for federal income tax purposes.
TAXATION OF ANNUITIES
In General: Section 72 of the Code governs taxation of annuities in
general. The Company believes that a Contract Holder who is a natural person
generally is not taxed on increases in the Contract Value until distribution
occurs by withdrawing all or part of such Contract Value (e.g., withdrawals or
Annuity payments under the Annuity Option elected). For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of the Contract
Value generally will be treated as a distribution. The taxable portion of a
distribution (in the form of a single sum payment or an annuity or a deemed
distribution) is taxable as ordinary income.
Non-Natural Holders of a Contract. If the Contract Holder is not a natural
person, a Contract is not treated as an annuity for income tax purposes and the
"income on the contract" for the taxable year is currently taxable as ordinary
income. "Income on the Contract" is any increase over the year in the Surrender
Value, adjusted for Purchase Payments made during the year, amounts previously
distributed and amounts previously included in income. There are some exceptions
to the rule and a non-natural person should consult with its tax advisor prior
to purchasing this Contract. A non-natural person exempt from federal income
taxes should consult with its tax advisor regarding treatment of "income on the
contract" for purposes of the unrelated business income tax. When the Contract
Holder is not a natural person, the Annuitant is considered the Contract Holder
for meeting the required distribution-at-death rules. In addition, when the
Contract Holder is not a natural
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person, a change in the Annuitant is treated as the death of the Contract
Holder.
The following discussion generally applies to a Contract owned by a natural
person.
Withdrawals: Partial withdrawals, including withdrawals under the
Systematic Withdrawal Option, are generally treated as taxable income to the
extent that the Contract Value immediately before the withdrawal exceeds the
"investment in the contract" at that time. Full surrenders of a Contract are
treated as taxable income to the extent that the amount received exceeds the
"investment in the contract".
Annuity Payments: Although the tax consequences may vary depending on the
Annuity payment elected under the Contract, in general, only the portion of the
Annuity payment that represents the amount by which the Contract Value exceeds
the "investment in the contract" will be taxed; after the "investment in the
contract" is recovered, the full amount of any additional Annuity payments is
taxable. For variable annuity payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the contract" by the total number of expected periodic payments.
However, the entire distribution will be taxable once the recipient has
recovered the dollar amount of his or her "investment in the contract". For
fixed annuity payments, in general there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Annuity payments for the term of the
payments; however, the remainder of each Annuity payment is taxable. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional Annuity payments is taxable. If Annuity payments cease as a result of
an Annuitant's death before full recovery of the "investment in the contract,"
consult a competent tax advisor regarding deductibility of the unrecovered
amount.
Penalty Tax: In the case of a distribution, there may be imposed a federal
tax penalty equal to 10% of the amount treated as taxable income. In general,
however, there is no penalty tax on distributions: (1) made on or after the date
on which the taxpayer attains age 591/2; (2) made as a result of death of a
Contract Holder or if the Contract Holder is not an individual, at the death of
the Annuitant; (3) made as a result of the taxpayer's becoming disabled (as
defined in the Code); (4) received in substantially equal periodic payments for
the life or life expectancy of the taxpayer or the joint lives or joint life
expectancies of the taxpayer and a "designated beneficiary"; or (5) allocable to
"investment in the Contract" before August 14, 1982.
Taxation of Death Benefit Proceeds: Amounts may be distributed from the
Contract because of the death of a Contract Holder or the Annuitant. Generally,
such amounts are includible in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full surrender
as described above, or (2) if distributed under an Annuity Option, they are
taxed in the same manner as Annuity payments, as described above.
Transfers, Assignments, or Exchanges of the Contract: A transfer of
ownership of a Contract, the designation of an Annuitant, payee or other
beneficiary who is not also a Contract Holder, the selection of certain Annuity
Dates, or the exchange of a Contract may result in certain tax consequences. The
assignment, pledge or agreement to assign or pledge any portion of the Contract
Value generally will be treated as a taxable distribution. Anyone contemplating
any such designation, transfer, assignment, selection, or exchange should
contact a competent tax advisor with respect to the potential tax effects of
such a transaction.
Multiple Contracts: All deferred non-qualified annuity contracts that are
issued on or after October 12, 1988 by the Company (or its affiliates) to the
same owner during any calendar year are treated as one annuity contract for the
purposes of determining the amount includible in gross income under section
72(e) of the Code. In addition, the Treasury Department has specific authority
to issue regulations that prevent the avoidance of Section 72(e) through the
serial purchase of annuity contracts or otherwise.
Withholding: Annuity distributions generally are subject to withholding for
the recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. If the recipient is a non-resident alien, any withholding will be
governed by Code Section 1441 based on the individual's citizenship, the country
of domicile and treaty status.
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MISCELLANEOUS
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DISTRIBUTION
The Company serves as the principal 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 principal underwriter, the Company
contracts 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 agents to sell variable
annuity contracts. These registered representatives may also provide services to
Contract Holders in connection with establishing their Contracts.
Payment of Commissions. 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. The percentage amount will range from 1%
to 71/2% of those Purchase Payments. The Company may also pay renewal
commissions and service fees on Purchase Payments made after the first year. 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 expenses.
The name of the Distributor and the registered representative responsible for
your Contract are set forth in your application. Commissions and sales related
expenses are paid by the Company and are not deducted from Purchase Payments.
(See "Charges and Deductions--Deferred Sales Charge.")
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 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.
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 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, the
administrative charge 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 also be
calculated 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.
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VOTING RIGHTS
In accordance with the Company's view of present applicable law, it will
vote the shares of each of the Funds held by the Separate Account at regular and
special meetings of Fund shareholders in accordance with instructions received
from Contract Holders. The Company will vote shares for which it has not
received instructions in the same proportion as it votes shares for which it has
received instructions.
Contract Holders will receive periodic reports relating to the Fund(s) in
which they have an interest, as well as any proxy materials and a form on which
to give voting instructions. Voting instructions will be solicited by written
communication at least 14 days before such meeting. The number of votes to which
each person may give direction will be determined as of the record date set by
the Fund.
The number of votes each Contract Holder may cast during the Accumulation
Period is equal to the portion of the Contract Value 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 Contract Value or valuation reserve relates
to more than one Fund, the calculation of votes will be performed separately for
each Fund.
MODIFICATION OF THE CONTRACT
The Company may change the Contract as required by federal or state law. In
addition, the Company may, upon 30 day's written notice to the Contract Holder,
make changes to certain provisions of the Contract if it deems an amendment
appropriate. However, no change will affect the amount or terms of any annuity
which begins before the change, and certain provisions of the Contract may not
be changed. Certain changes will require the approval of appropriate state or
federal regulatory authorities.
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 Contract Holder and the
interest of the Annuitant and any beneficiary will be subject to the rights of
any assignee of record.
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 developed
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.
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CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
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The Statement of Additional Information (SAI) 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
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APPENDIX I
FIXED ACCOUNT
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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 (this minimum interest rate cannot be changed by the Company). The
Company may credit a higher interest rate from time to time. 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 Purchase Payment values and
promising a minimum interest rate and Annuity Payment. Under certain emergency
conditions, the Company may defer payment:
(a) for a period of up to 6 months (unless not allowed by state law); and
(b) as provided by federal law.
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.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers from the Fixed Account to any other available investment
options(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.
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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APPENDIX II
CONDENSED FINANCIAL INFORMATION
(Selected data for accumulation units outstanding throughout each period)
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- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the periods 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 for the year ended December 31, 1997 are
included in the Statement of Additional Information.
Table I
(For Contracts with total Separate Account charges of 1.25%)
<TABLE>
<CAPTION>
1997 1996 1995 1994
----------------- ----------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
AETNA ASCENT VP
Value at beginning of period $12.999 $10.652 $10.000(2)
Value at end of period $15.392 $12.999 $10.652
Increase (decrease) in value of
accumulation unit(1) 18.40% 22.04% 6.52%
Number of accumulation units
outstanding at end of period 317,579 99,589 16,791
AETNA BALANCED VP, INC.
Value at beginning of period $15.698 $13.803 $10.971 $11.164
Value at end of period $18.989 $15.698 $13.803 $10.971
Increase (decrease) in value of
accumulation unit(1) 20.96% 13.73% 25.81% (1.73)%
Number of accumulation units
outstanding at end of period 3,174,738 3,885,730 6,430,772 3,541,703
AETNA BOND VP
Value at beginning of period $12.493 $12.212 $10.457 $11.006
Value at end of period $13.361 $12.493 $12.212 $10.457
Increase (decrease) in value of
accumulation unit(1) 6.96% 2.30% 16.78% (4.99)%
Number of accumulation units
outstanding at end of period 1,168,988 1,947,629 4,853,662 1,988,960
AETNA CROSSROADS VP
Value at beginning of period $12.430 $10.594 $10.000(2)
Value at end of period $14.432 $12.430 $10.594
Increase (decrease) in value of
accumulation unit(1) 16.11% 17.32% 5.94%
Number of accumulation units
outstanding at end of period 175,559 74,128 16,953
AETNA GROWTH AND INCOME VP
Value at beginning of period $17.173 $13.972 $10.698 $10.940
Value at end of period $22.028 $17.173 $13.972 $10.698
Increase (decrease) in value of
accumulation unit(1) 28.27% 22.91% 30.61% (2.21)%
Number of accumulation units
outstanding at end of period 10,689,845 15,372,944 30,554,957 11,117,383
AETNA LEGACY VP
Value at beginning of period $11.776 $10.443 $10.000(2)
Value at end of period $13.317 $11.776 $10.443
Increase (decrease) in value of
accumulation unit(1) 13.08 12.76% 4.43%
Number of accumulation units
outstanding at end of period 133,741 25,977 2,222
AETNA MONEY MARKET VP
Value at beginning of period $11.453 $11.007 $10.509 $10.223
Value at end of period $11.930 $11.453 $11.007 $10.509
Increase (decrease) in value of
accumulation unit(1) 4.16% 4.05% 4.73% 2.79%
Number of accumulation units
outstanding at end of period 974,714 1,984,269 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 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(7) $34.122 $32.431 $30.285 $28.029
Increase (decrease) in value of
accumulation unit(1) 1.91% (7) 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>
- --------------------------------------------------------------------------------
18
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- ----------------
<S> <C> <C> <C>
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $12.475 $11.054 $10.000(2)
Value at end of period $15.784 $12.475 $11.054
Increase (decrease) in value of
accumulation unit(1) 26.53% 12.86% 10.54%
Number of accumulation units
outstanding at end of period 328,562 208,072 294,244
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $11.402 $10.066 $10.000(2)
Value at end of period $13.904 $11.402 $10.066
Increase (decrease) in value of
accumulation unit(1) 21.95% 13.27% 0.66%
Number of accumulation units
outstanding at end of period 229,060 199,720 288,576
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period $11.238 $10.052 $10.000(2)
Value at end of period $12.381 $11.238 $10.052
Increase (decrease) in value of
accumulation unit(1) 10.17% 11.80% 0.52%
Number of accumulation units
outstanding at end of period 51,780 38,994 33,813
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $12.540 $10.468 $10.000(2)
Value at end of period $15.374 $12.540 $10.468
Increase (decrease) in value of
accumulation unit(1) 22.60% 19.79% 4.68%
Number of accumulation units
outstanding at end of period 465,699 273,189 379,862
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $13.850 $12.992 $10.319
Value at end of period $15.410 $13.850 $12.992
Increase (decrease) in value of
accumulation unit(1) 11.26% 6.60% 25.91%
Number of accumulation units
outstanding at end of period 469,230 590,904 723,839
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $12.431 $10.835 $10.000(2)
Value at end of period $14.990 $12.431 $10.835
Increase (decrease) in value of
accumulation unit(1) 20.58% 14.73% 8.35%
Number of accumulation units
outstanding at end of period 193,429 74,184 7,772
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $13.040 $12.094 $9.886
Value at end of period $14.393 $13.040 $12.094
Increase (decrease) in value of
accumulation unit(1) 10.37% 7.83% 22.33%
Number of accumulation units
outstanding at end of period 109,812 96,128 84,048
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $12.716 $10.870 $10.000(2)
Value at end of period $15.414 $12.716 $10.870
Increase (decrease) in value of
accumulation unit(1) 21.22% 16.98% 8.70%
Number of accumulation units
outstanding at end of period 179,226 132,465 26,022
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $13.880 $10.893 $10.000(2)
Value at end of period $16.745 $13.880 $10.893
Increase (decrease) in value of
accumulation unit(1) 20.64% 27.43% 8.93%
Number of accumulation units
outstanding at end of period 953,522 520,275 227,582
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
---------------- ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
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(8)
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(8)
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
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
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ------------ -------------
<S> <C> <C> <C>
PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period $15.411
Value at end of period $15.219
Increase (decrease) in value of
accumulation unit(1) (1.24)%(9)
Number of accumulation units
outstanding at end of period 742,913
PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period $12.995
Value at end of period $12.744
Increase (decrease) in value of
accumulation unit(1) (1.93)%(9)
Number of accumulation units
outstanding at end of period 664,979
PORTFOLIO PARTNERS MFS VALUE EQUITY PORTFOLIO
Value at beginning of period $21.038
Value at end of period $21.343
Increase (decrease) in value of
accumulation unit(1) 1.45%(9)
Number of accumulation units
outstanding at end of period 296,540
PORTFOLIO PARTNERS SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period $17.682
Value at end of period $17.903
Increase (decrease) in value of
accumulation unit(1) 1.25%(9)
Number of accumulation units
outstanding at end of period 411,600
PORTFOLIO PARTNERS T. ROWE PRICE GROWTH EQUITY PORTFOLIO
Value at beginning of period $14.112
Value at end of period $14.400
Increase (decrease) in value of
accumulation unit(1) 2.04%(9)
Number of accumulation units
outstanding at end of period 231,297
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
----------- ---------------- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
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) The initial Accumulation Unit value was established at $10.000 during
August 1995, when the Fund became available under the Contract.
(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) 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%.
(8) The initial Accumulation Unit value was established at $10.000 during
October 1994, when the funds were first received in this option.
(9) Reflects less than a full year of performance activity. Funds were first
received in this option during November 1997.
- --------------------------------------------------------------------------------
20
<PAGE>
CONDENSED FINANCIAL INFORMATION
(Selected data for accumulation units outstanding throughout each period)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The condensed financial information presented below for the period ended
December 31, 1997, 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 for the
year ended December 31, 1997 are included in the Statement of Additional
Information.
Table II
(For Contracts containing limits on fees)
<TABLE>
<CAPTION>
1997
--------------------
<S> <C>
AETNA ASCENT VP
Value at beginning of period $13.943
Value at end of period $15.422
Increase (decrease) in value of
accumulation unit(1) 10.61%(2)
Number of accumulation units
outstanding at end of period 23,868
AETNA BALANCED VP, INC.
Value at beginning of period $16.898
Value at end of period $19.016
Increase (decrease) in value of
accumulation unit(1) 12.53%(2)
Number of accumulation units
outstanding at end of period 477,504
AETNA BOND VP
Value at beginning of period $12.747
Value at end of period $13.373
Increase (decrease) in value of
accumulation unit(1) 4.91%(2)
Number of accumulation units
outstanding at end of period 489,431
AETNA CROSSROADS VP
Value at beginning of period $13.178
Value at end of period $14.461
Increase (decrease) in value of
accumulation unit(1) 9.74%(2)
Number of accumulation units
outstanding at end of period 10,798
AETNA GROWTH AND INCOME VP
Value at beginning of period $19.527
Value at end of period $22.060
Increase (decrease) in value of
accumulation unit(1) 12.97%(2)
Number of accumulation units
outstanding at end of period 4,106,796
AETNA LEGACY VP
Value at beginning of period $12.335
Value at end of period $13.343
Increase (decrease) in value of
accumulation unit(1) 8.18%(2)
Number of accumulation units
outstanding at end of period 2,254
AETNA MONEY MARKET VP
Value at beginning of period $11.654
Value at end of period $11.930
Increase (decrease) in value of
accumulation unit(1) 2.37%(2)
Number of accumulation units
outstanding at end of period 580,412
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $14.017
Value at end of period $15.784
Increase (decrease) in value of
accumulation unit(1) 12.60%(2)
Number of accumulation units
outstanding at end of period 35,342
</TABLE>
- --------------------------------------------------------------------------------
21
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997
-------------------
<S> <C>
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $12.498
Value at end of period $13.904
Increase (decrease) in value of
accumulation unit(1) 11.26%(2)
Number of accumulation units
outstanding at end of period 3,029
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $13.535
Value at end of period $15.374
Increase (decrease) in value of
accumulation unit(1) 13.59%(2)
Number of accumulation units
outstanding at end of period 13,675
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $13.806
Value at end of period $15.410
Increase (decrease) in value of
accumulation unit(1) 11.62%(2)
Number of accumulation units
outstanding at end of period 19,818
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $13.554
Value at end of period $14.990
Increase (decrease) in value of
accumulation unit(1) 10.60%(2)
Number of accumulation units
outstanding at end of period 2,819
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $13.985
Value at end of period $15.414
Increase (decrease) in value of
accumulation unit(1) 10.22%(2)
Number of accumulation units
outstanding at end of period 750
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period $15.851
Value at end of period $16.745
Increase (decrease) in value of
accumulation unit(1) 5.64%(2)
Number of accumulation units
outstanding at end of period 44,433
PORTFOLIO PARTNERS MFS
EMERGING EQUITIES PORTFOLIO
Value at beginning of period $15.411
Value at end of period $15.219
Increase (decrease) in value of
accumulation unit(1) (1.24)%(3)
Number of accumulation units
outstanding at end of period 11,848
PORTFOLIO PARTNERS MFS
RESEARCH GROWTH PORTFOLIO
Value at beginning of period $12.995
Value at end of period $12.744
Increase (decrease) in value of
accumulation unit(1) (1.93)%(3)
Number of accumulation units
outstanding at end of period 141,582
</TABLE>
- --------------------------------------------------------------------------------
22
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997
------------------
<S> <C>
PORTFOLIO PARTNERS MFS
VALUE EQUITY PORTFOLIO
Value at beginning of period $21.038
Value at end of period $21.343
Increase (decrease) in value of
accumulation unit(1) (1.45)%(3)
Number of accumulation units
outstanding at end of period 8,563
PORTFOLIO PARTNERS SCUDDER
INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period $17.682
Value at end of period $17.903
Increase (decrease) in value of
accumulation unit(1) 1.25%(3)
Number of accumulation units
outstanding at end of period 3,986
PORTFOLIO PARTNERS T. ROWE
PRICE GROWTH EQUITY PORTFOLIO
Value at beginning of period $14.112
Value at end of period $14.400
Increase (decrease) in value of
accumulation unit(1) 2.04%(3)
Number of accumulation units
outstanding at end of period 3,310
</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. Funds were first
received in this option during June 1997.
(3) Reflects less than a full year of performance activity. Funds were first
received in this option during November 1997.
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
Statement of Additional Information dated May 1, 1998
Individual Variable Annuity Contracts
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Variable Annuity Account B (the
"Separate Account") dated May 1, 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.......................................... 2
Variable Annuity Account B............................................... 2
Offering and Purchase of Contracts....................................... 3
Performance Data......................................................... 3
General.............................................................. 3
Average Annual Total Return Quotations............................... 4
Annuity Payments......................................................... 9
Sales Material and Advertising........................................... 10
Independent Auditors..................................................... 10
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 in the Contract. The availability of the Funds
is subject to applicable regulatory authorization. Not all Funds are available
in all jurisdictions or under all Contracts.
2
<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 Variable Fund d/b/a Aetna Growth and Income VP
[bullet] Aetna Legacy VP (formerly Aetna Legacy Variable Portfolio)
[bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP
[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] 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
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. 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 "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). 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,
maintenance fees, 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 maintenance fee is converted to a percentage of
assets based on the average account size under the Contracts
3
<PAGE>
described in the prospectus. The total return figures shown below may be
different from the actual historical total return under your Contract because
for periods prior to 1994, the 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 Funds 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 Contract Value upon redemption may be more or less
than your original cost.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
The set of tables shown below represents the two variations in contract payment
type. Table A reflects the average annual standardized and non-standardized
total return quotation figures for the periods ended December 31, 1997 for the
Subaccounts under Single Payment Contracts issued by the Company. Table B
reflects the average annual standardized and non-standardized total return
quotation figures for the periods ended December 31, 1997 for the Subaccounts
under Installment Payment Contracts with a $20 annual maintenance fee. 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.
4
<PAGE>
TABLE A
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Date
Contributions
Single Payment Account First Received
($0 Maintenance Fee) STANDARDIZED Under the
Separate
Account
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years Inception*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP 12.49% 18.27% 08/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 14.91% 12.62% 11.21% 06/30/89
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) 1.61% 5.04% 7.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 10.31% 14.99% 08/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 21.86% 15.90% 15.19%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 7.43% 11.58% 08/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) (1.04%) 2.90% 4.64%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 20.19% 23.06% 12/30/94
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 15.85% 21.76% 12/30/94
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 4.66% 10.86% 01/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 16.47% 20.34% 06/30/95
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 5.70% 11.92% 10/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 14.56% 18.38% 01/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 4.85% 11.13% 10/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 15.16% 18.67% 07/29/94
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 14.60% 26.06% 04/28/95
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio (6.18%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/Portfolio Partners MFS Emerging Equities(3) 2.48% 9.69% 09/30/93
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio (6.83%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/Portfolio Partners MFS
Research Growth(3) (8.96%) 3.92% 5.57% 08/31/92
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio (3.63%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth/Portfolio Partners MFS Value Equity(3) 18.54% 11.18% 11.36% 11/30/92
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio (3.81%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/Portfolio Partners Scudder
International Growth(3) 2.25% 11.87% 9.95% 08/31/92
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price Growth Equity Portfolio (3.06%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Growth/Portfolio Partners T. Rowe Price Growth 20.32% 22.83% 02/28/95
Equity(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</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 4.23%. 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.
5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Single Payment Account NON-STANDARDIZED Fund
($0 Maintenance Fee) Inception
Date
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception**
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP 18.41% 20.36% 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 20.96% 20.02% 13.02% 11.13% 04/03/89
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) 6.96% 8.51% 5.61% 7.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 16.11% 17.05% 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 28.28% 27.23% 16.24% 15.19%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 13.08% 13.55% 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 4.17% 4.32% 3.52% 4.64%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio(1) 26.52% 23.97% 18.68% 15.28%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio(1) 21.95% 22.69% 16.55% 15.74%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio(1) 10.17% 10.09% 12.71% 8.27%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 22.60% 26.61% 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 11.27% 14.30% 17.75% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 20.58% 19.47% 14.86% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 10.37% 13.34% 8.67% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 21.22% 22.16% 16.22% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 20.64% 24.59% 21.40% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio (1.24%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/Portfolio Partners MFS Emerging Equities(3) 7.87% 16.52% 10.82% 17.51% 09/21/88
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio (1.93%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/Portfolio Partners MFS
Research Growth(3) (4.16%) 5.45% 4.51% 7.38%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio 1.45% 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth/Portfolio Partners MFS Value Equity(3) 24.78% 20.50% 11.61% 13.23%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio 1.25% 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/Portfolio Partners Scudder
International Growth(3) 7.64% 10.22% 12.29% 10.41%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price Growth Equity Portfolio 2.04% 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Growth/Portfolio Partners T. Rowe Price Growth 26.66% 24.07% 18.27% 18.22% 01/09/89
Equity(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</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 4.23%. 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.
6
<PAGE>
TABLE B
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Date
Contributions
Installment Payment Account First Received
($20 Maintenance Fee) STANDARDIZED Under the
Separate
Account
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years Inception*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP 12.47% 18.26% 08/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 14.90% 12.51% 11.04% 06/30/89
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) 1.60% 4.89% 7.86%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 10.30% 14.98% 08/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 21.85% 15.80% 15.18%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 7.42% 11.57% 08/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) (1.05%) 2.73% 4.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 20.18% 23.05% 12/30/94
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 15.84% 21.75% 12/30/94
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 4.65% 10.85% 01/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 16.46% 20.33% 06/30/95
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 5.69% 11.91% 10/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 14.54% 18.37% 01/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 4.84% 11.12% 10/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 15.15% 18.66% 07/29/94
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 14.59% 26.05% 04/28/95
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio (6.19%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/Portfolio Partners MFS Emerging Equities(3) 2.47% 9.68% 09/30/93
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio (6.85%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/Portfolio Partners MFS
Research Growth(3) (8.97%) 3.76% 5.43% 08/31/92
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio (3.64%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth/Portfolio Partners MFS Value Equity(3) 18.53% 11.06% 11.25% 11/30/92
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio (3.82%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/Portfolio Partners Scudder
International Growth(3) 2.24% 11.75% 9.84% 08/31/92
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price Growth Equity Portfolio (3.07%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Growth/Portfolio Partners T. Rowe Price Growth 20.31% 22.82% 02/28/95
Equity(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</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 4.219%. 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.
7
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Installment Payment Account Fund
($20 Maintenance Fee) NON-STANDARDIZED Inception
Date
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception**
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP 18.39% 20.35% 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 20.95% 20.01% 13.01% 11.11% 04/03/89
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) 6.94% 8.50% 5.60% 7.86%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 16.10% 17.04% 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 28.26% 27.22% 16.23% 15.18%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 13.07% 13.54% 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 4.15% 4.31% 3.51% 4.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio(1) 26.51% 23.96% 18.67% 15.27%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio(1) 21.94% 22.68% 16.53% 15.73%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio(1) 10.16% 10.08% 12.69% 8.26%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 22.59% 26.60% 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 11.25% 14.29% 17.74% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 20.57% 19.46% 14.85% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 10.36% 13.33% 8.66% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 21.21% 22.15% 16.21% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 20.63% 24.58% 21.39% 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio (1.25%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/Portfolio Partners MFS Emerging Equities(3) 7.86% 16.51% 10.81% 17.50% 09/21/88
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio (1.94%) 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/Portfolio Partners MFS
Research Growth(3) (4.18%) 5.44% 4.50% 7.36%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio 1.44% 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth/Portfolio Partners MFS Value Equity(3) 24.76% 20.49% 11.60% 13.22%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio 1.24% 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/Portfolio Partners Scudder
International Growth(3) 7.62% 10.21% 12.28% 10.39%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price Growth Equity Portfolio 2.03% 11/28/97
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Growth/Portfolio Partners T. Rowe Price Growth 26.64% 24.06% 18.26% 18.21% 01/09/89
Equity(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</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 4.219%. 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.
8
<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 period 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 period prior to retirement was
$13.650000. This produces a total value of $40,950.
Assume also that no premium tax is payable and that the Annuity table in the
Contract provides, for the option elected, a first monthly variable Annuity
Payment of $6.68 per $1000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the valuation period in 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 period (assume such value to be
$13.504376) to produce an Annuity Unit value of $13.523359 for the valuation
period in which the second payment is due.
9
<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 Subaccount
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. 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 review of filings made with the SEC.
10
<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
<TABLE>
<S> <C>
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
</TABLE>
S-2
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1997 (continued):
<TABLE>
<S> <C>
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)
</TABLE>
<TABLE>
<S> <C>
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
</TABLE>
S-3
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1997 (continued):
<TABLE>
<S> <C>
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
</TABLE>
S-4
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1997 (continued):
<TABLE>
<S> <C>
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
==============
</TABLE>
See Notes to Financial Statements
S-5
<PAGE>
Variable Annuity Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
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>
<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.75998-98 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 (IA-CDA-IA)(3)
(4.2) Variable Annuity Contract (I-CDA-HD)(4)
(5) Variable Annuity Contract Application (713.00.1(C))(5)
(6.1) Certification of Incorporation of Aetna Life Insurance and
Annuity Company(6)
(6.2) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(4)
(6.3) By-Laws as amended September 17, 1997 of Aetna Life Insurance
and Annuity Company(7)
(7) Not applicable
(8.1) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund and Fidelity
Distributors Corporation
<PAGE>
dated February 1, 1994 and amended on
December 15, 1994, February 1, 1995, May 1, 1995, January 1,
1996 and March 1, 1996(4)
(8.2) 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(8)
(8.3) 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(9)
(8.4) 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(10)
(8.5) 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(4)
(8.6) 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(8)
(8.7) 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(11)
(8.8) 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(10)
(8.9) Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investments Institutional Operations
Company dated as of November 1, 1995(12)
(8.10) 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(8)
<PAGE>
(8.11) Fund Participation Agreement among Janus Aspen Series and
Aetna Life Insurance and Annuity Company and Janus Capital
Corporation dated December 8, 1997(13)
(8.12) Service Agreement between Janus Capital Corporation and Aetna
Life Insurance and Annuity Company dated December 8, 1997(13)
(8.13) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Lexington Management Corporation regarding
Natural Resources Trust dated December 1, 1988 and amended
February 11, 1991(2)
(9) Opinion and Consent of Counsel
(10) Consent of Independent Auditors
(11) Not applicable
(12) Not applicable
(13) Schedule for Computation of Performance Data
(14) Not applicable
(15.1) Powers of Attorney(10)
(15.2) Authorizations 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 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).
4. Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-75964), as filed
electronically on February 11, 1997 (Accession No. 0000950146-97-000159).
5. Incorporated by reference to Post-Effective Amendment No. 7 to Registration
Statement on Form N-4 (File No. 33-75998), as filed electronically on
August 21, 1997 (Accession No. 0000950146-97-001328).
6. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 33-60477), as filed electronically on April
15, 1996 (Accession No. 0000950146-97-000534).
7. 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).
8. 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).
<PAGE>
9. 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).
10. 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).
11. 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).
12. 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).
13. 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).
<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
<PAGE>
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. 33-75998) 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 17th 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. 8 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 ) 17, 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 (IA-CDA-IA) *
99-B.4.2 Variable Annuity Contract (I-CDA-HD) *
99-B.5 Variable Annuity Contract Application (713.00.1(C)) *
99-B.6.1 Certification 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 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.8.2 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
*Incorporated by reference
<PAGE>
Exhibit
No. Exhibit Page
- -------- ------- ----
99-B.8.3 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.8.4 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.8.5 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.8.6 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.8.7 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.8.8 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
<PAGE>
Exhibit
No. Exhibit Page
- -------- ------- ----
99-B.8.9 Service Agreement between Aetna Life Insurance and Annuity *
Company and Fidelity Investments Institutional Operations
Company dated as of November 1, 1995
99-B.8.10 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.8.11 Fund Participation Agreement among Janus Aspen Series and *
Aetna Life Insurance and Annuity Company and Janus Capital
Corporation dated December 8, 1997
99-B.8.12 Service Agreement between Janus Capital Corporation and *
Aetna Life Insurance and Annuity Company dated December 8,
1997
99-B.8.13 Fund Participation Agreement between Aetna Life Insurance *
and Annuity Company and Lexington Management Corporation
regarding Natural Resources Trust dated December 1, 1988 and
amended February 11, 1991
99-B.9 Opinion and Consent of Counsel -------
99-B.10 Consent of Independent Auditors -------
99-B.13 Schedule for Computation of Performance Data -------
99-B.15.1 Powers of Attorney *
99-B.15.2 Authorizations for Signatures *
*Incorporated by reference
[Aetna Letterhead] 151 Farmington Avenue
[Aetna Logo] Hartford, CT 06156
April 17, 1998 Julie E. Rockmore
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. 14 to Registration Statement on Form N-4
Prospectus Title: Group Variable Annuity Contracts for Employer-Sponsored
Deferred Compensation Plans
File Nos. 33-75996* 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.14. 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.
- --------
* Pursuant to Rule 429(a) under the Securities Act of 1933, Registrant has
included a combined prospectus under this Registration Statement which
includes all the information which would currently be required in a
prospectus relating to the securities covered by Registration Statement No.
2-52448 and the individual deferred compensation contracts covered by
Registration Statement No. 33-76000.
<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. 8 to Registration
Statement (No. 33-75998) 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 17, 1998
SCHEDULE FOR COMPUTATION OF TOTAL RETURN CALCULATIONS
TOTAL RETURN CALCULATION (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>
- -------------------------------------------------------------------------------------------------------------------
Fund Name Maintenance Fee As of Date
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aetna Ascent VP 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Aetna Bond VP 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI-MFS Emerging Equities 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI -MFS Research Growth 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth/PPI-MFS Value Equity 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI-Scudder International Growth 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price Growth Equity Portfolio 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
Alger American Growth/PPI-T. Rowe Price Growth Equity 0 12/31/97
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
One Year One Year One Year Five Year Five Year Five Year Ten Year
As of AUV as of Date as of AUV w/ DSC as of Date as of AUV w/ DSC as of Date
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
15.391745 12/31/96 12.999247 12.49% 08/31/95 08/31/95
- ----------------------------------------------------------------------------------------------------
18.988948 12/31/96 15.698221 14.91% 12/31/92 10.296768 12.62% 06/30/89
- ----------------------------------------------------------------------------------------------------
13.361484 12/31/96 12.49259 1.61% 12/31/92 10.171407 5.04% 12/31/87
- ----------------------------------------------------------------------------------------------------
14.432166 12/31/96 12.429517 10.31% 08/31/95 08/31/95
- ----------------------------------------------------------------------------------------------------
22.02832 12/31/96 17.172736 21.86% 12/31/92 10.377933 15.90% 12/31/87
- ----------------------------------------------------------------------------------------------------
13.316689 12/31/96 11.776088 7.43% 08/31/95 08/31/95
- ----------------------------------------------------------------------------------------------------
11.930269 12/31/96 11.453256 (1.04%) 12/31/92 10.035454 2.90% 12/31/87
- ----------------------------------------------------------------------------------------------------
15.783609 12/31/96 12.475419 20.19% 12/30/94 12/30/94
- ----------------------------------------------------------------------------------------------------
13.90447 12/31/96 11.401996 15.85% 12/30/94 12/30/94
- ----------------------------------------------------------------------------------------------------
12.381052 12/31/96 11.238192 4.66% 01/31/95 01/31/95
- ----------------------------------------------------------------------------------------------------
15.373786 12/31/96 12.539773 16.47% 06/30/95 06/30/95
- ----------------------------------------------------------------------------------------------------
15.410323 12/31/96 13.850114 5.70% 10/31/94 10/31/94
- ----------------------------------------------------------------------------------------------------
14.990359 12/31/96 12.431432 14.56% 01/31/95 01/31/95
- ----------------------------------------------------------------------------------------------------
14.393023 12/31/96 13.040435 4.85% 10/31/94 10/31/94
- ----------------------------------------------------------------------------------------------------
15.414239 12/31/96 12.715698 15.16% 07/29/94 07/29/94
- ----------------------------------------------------------------------------------------------------
16.744841 12/31/96 13.880465 14.60% 04/28/95 04/28/95
- ----------------------------------------------------------------------------------------------------
13.895638 12/31/96 13.131679 0.53% 05/26/93 05/26/93
- ----------------------------------------------------------------------------------------------------
15.219471 11/28/97 11/28/97 11/28/97
- ----------------------------------------------------------------------------------------------------
15.219471 12/31/96 14.109006 2.48% 09/30/93 09/30/93
- ----------------------------------------------------------------------------------------------------
12.744432 11/28/97 11/28/97 11/28/97
- ----------------------------------------------------------------------------------------------------
12.744432 12/31/96 13.298219 (8.96%) 12/31/92 10.221688 3.92% 08/31/92
- ----------------------------------------------------------------------------------------------------
21.342862 11/28/97 11/28/97 11/28/97
- ----------------------------------------------------------------------------------------------------
21.342862 12/31/96 17.105011 18.54% 12/31/92 12.325744 11.18% 11/30/92
- ----------------------------------------------------------------------------------------------------
17.903087 11/28/97 11/28/97 11/28/97
- ----------------------------------------------------------------------------------------------------
17.903087 12/31/96 16.633095 2.25% 12/31/92 10.029678 11.87% 08/31/92
- ----------------------------------------------------------------------------------------------------
14.400089 11/28/97 11/28/97 11/28/97
- ----------------------------------------------------------------------------------------------------
14.400089 12/31/96 11.369536 20.32% 02/28/95 02/28/95
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Ten Year Ten Year Inception Inception Inception Separate One Year Three Year
as of AUV w/ DSC Date AUV w/ DSC Account Charge Free Out DSC DSC
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
08/31/95 10.11326 18.27% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
06/30/89 7.668959 11.21% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
6.265495 7.87% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
08/31/95 10.104274 14.99% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
5.355471 15.19% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
08/31/95 9.976191 11.58% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
7.581047 4.64% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
12/30/94 8.284263 23.06% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
12/30/94 7.528333 21.76% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
01/31/95 8.884655 10.86% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
06/30/95 9.422318 20.34% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
10/31/94 10.475172 11.92% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
01/31/95 8.938208 18.38% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
10/31/94 9.997066 11.13% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
07/29/94 8.387039 18.67% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
04/28/95 8.816335 26.06% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
05/26/93 9.936903 6.83% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
11/28/97 15.410688 (6.18%) 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
09/30/93 9.985067 9.69% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
11/28/97 12.995336 (6.83%) 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
08/31/92 9.306424 5.57% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
11/28/97 21.038336 (3.63%) 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
11/30/92 12.115909 11.36% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
11/28/97 17.681792 (3.81%) 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
08/31/92 10.580797 9.95% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
11/28/97 14.112187 (3.06%) 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
02/28/95 7.854109 22.83% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------
Five Year DSC Ten Year DSC Inception DSC
- ------------------------------------------------------------
<S> <C> <C>
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 1.00%
- ------------------------------------------------------------
4.00% 0.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 4.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 4.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 4.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
4.00% 0.00% 5.00%
- ------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Fund Name Maintenance Fee As of Date
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aetna Ascent VP 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI-MFS Emerging Equities 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI -MFS Research Growth 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth/PPI-MFS Value Equity 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI-Scudder International Growth 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price Growth Equity Portfolio 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
Alger American Growth/PPI-T. Rowe Price Growth Equity 0 12/31/97
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
One Year One Year One Year Three Year Three Year Three Year Five Year
As of AUV as of Date as of AUV w/out DSC as of Date as of AUV w/out DSC as of Date
- ----------------------------------------------------------------------------------------------------
15.391745 12/31/96 12.999247 18.41% 07/04/95
- ----------------------------------------------------------------------------------------------------
18.988948 12/31/96 15.698221 20.96% 12/30/94 10.983809 20.02% 12/31/92
- ----------------------------------------------------------------------------------------------------
13.361484 12/31/96 12.49259 6.96% 12/30/94 10.456693 8.51% 12/31/92
- ----------------------------------------------------------------------------------------------------
14.432166 12/31/96 12.429517 16.11% 07/04/95
- ----------------------------------------------------------------------------------------------------
22.02832 12/31/96 17.172736 28.28% 12/30/94 10.696606 27.23% 12/31/92
- ----------------------------------------------------------------------------------------------------
13.316689 12/31/96 11.776088 13.08% 07/04/95
- ----------------------------------------------------------------------------------------------------
11.930269 12/31/96 11.453256 4.17% 12/30/94 10.509242 4.32% 12/31/92
- ----------------------------------------------------------------------------------------------------
15.783609 12/31/96 12.475419 26.52% 12/30/94 8.284263 23.97% 12/31/92
- ----------------------------------------------------------------------------------------------------
13.90447 12/31/96 11.401996 21.95% 12/30/94 7.528333 22.69% 12/31/92
- ----------------------------------------------------------------------------------------------------
12.381052 12/31/96 11.238192 10.17% 12/30/94 9.279494 10.09% 12/31/92
- ----------------------------------------------------------------------------------------------------
15.373786 12/31/96 12.539773 22.60% 01/03/95
- ----------------------------------------------------------------------------------------------------
15.410323 12/31/96 13.850114 11.27% 12/30/94 10.318643 14.30% 09/13/93
- ----------------------------------------------------------------------------------------------------
14.990359 12/31/96 12.431432 20.58% 12/30/94 8.790816 19.47% 09/13/93
- ----------------------------------------------------------------------------------------------------
14.393023 12/31/96 13.040435 10.37% 12/30/94 9.885536 13.34% 09/13/93
- ----------------------------------------------------------------------------------------------------
15.414239 12/31/96 12.715698 21.22% 12/30/94 8.454664 22.16% 09/13/93
- ----------------------------------------------------------------------------------------------------
16.744841 12/31/96 13.880465 20.64% 12/30/94 8.658623 24.59% 09/13/93
- ----------------------------------------------------------------------------------------------------
13.895638 12/31/96 13.131679 5.82% 12/30/94 9.078875 15.24% 12/31/92
- ----------------------------------------------------------------------------------------------------
15.219471 11/26/97 11/26/97 11/26/97
- ----------------------------------------------------------------------------------------------------
15.219471 12/31/96 14.109006 7.87% 12/30/94 9.620795 16.52% 12/31/92
- ----------------------------------------------------------------------------------------------------
12.744432 11/26/97 11/26/97 11/26/97
- ----------------------------------------------------------------------------------------------------
12.744432 12/31/96 13.298219 (4.16%) 12/30/94 10.869476 5.45% 12/31/92
- ----------------------------------------------------------------------------------------------------
21.342862 11/26/97 11/26/97 11/26/97
- ----------------------------------------------------------------------------------------------------
21.342862 12/31/96 17.105011 24.78% 12/30/94 12.197718 20.50% 12/31/92
- ----------------------------------------------------------------------------------------------------
17.903087 11/26/97 11/26/97 11/26/97
- ----------------------------------------------------------------------------------------------------
17.903087 12/31/96 16.633095 7.64% 12/30/94 13.37162 10.22% 12/31/92
- ----------------------------------------------------------------------------------------------------
14.400089 11/26/97 11/26/97 11/26/97
- ----------------------------------------------------------------------------------------------------
14.400089 12/31/96 11.369536 26.66% 12/31/94 7.540429 24.07% 12/31/92
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
Five Year Five Year Ten Year Ten Year Ten Year Inception Inception Inception
as of AUV w/out DSC as of Date as of AUV w/out DSC Date AUV w/out DSC
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
07/04/95 07/05/95 9.702035 20.36%
- --------------------------------------------------------------------------------------------------
10.296768 13.02% 04/03/89 04/03/89 7.548552 11.13%
- --------------------------------------------------------------------------------------------------
10.171407 5.61% 12/31/87 6.265495 7.87%
- --------------------------------------------------------------------------------------------------
07/04/95 07/05/95 9.751116 17.05%
- --------------------------------------------------------------------------------------------------
10.377933 16.24% 12/31/87 5.355471 15.19%
- --------------------------------------------------------------------------------------------------
07/04/95 07/05/95 9.703482 13.55%
- --------------------------------------------------------------------------------------------------
10.035454 3.52% 12/31/87 7.581047 4.64%
- --------------------------------------------------------------------------------------------------
6.704793 18.68% 12/31/87 3.806495 15.28%
- --------------------------------------------------------------------------------------------------
6.466592 16.55% 12/31/87 3.223592 15.74%
- --------------------------------------------------------------------------------------------------
6.808071 12.71% 12/31/87 5.595032 8.27%
- --------------------------------------------------------------------------------------------------
01/03/95 01/03/95 7.588726 26.61%
- --------------------------------------------------------------------------------------------------
09/13/93 09/13/93 7.635468 17.75%
- --------------------------------------------------------------------------------------------------
09/13/93 09/13/93 8.26399 14.86%
- --------------------------------------------------------------------------------------------------
09/13/93 09/13/93 10.068172 8.67%
- --------------------------------------------------------------------------------------------------
09/13/93 09/13/93 8.078691 16.22%
- --------------------------------------------------------------------------------------------------
09/13/93 09/13/93 7.276124 21.40%
- --------------------------------------------------------------------------------------------------
8.870361 9.39% 10/14/91 10/14/91 8.521908 8.19%
- --------------------------------------------------------------------------------------------------
11/26/97 11/28/97 15.410688 (1.24%)
- --------------------------------------------------------------------------------------------------
9.105831 10.82% 09/21/88 09/21/88 3.405956 17.51%
- --------------------------------------------------------------------------------------------------
11/26/97 11/28/97 12.995336 (1.93%)
- --------------------------------------------------------------------------------------------------
10.221688 4.51% 12/31/87 6.255644 7.38%
- --------------------------------------------------------------------------------------------------
11/26/97 11/28/97 21.038336 1.45%
- --------------------------------------------------------------------------------------------------
12.325744 11.61% 12/31/87 6.162172 13.23%
- --------------------------------------------------------------------------------------------------
11/26/97 11/28/97 17.681792 1.25%
- --------------------------------------------------------------------------------------------------
10.029678 12.29% 12/31/87 6.652999 10.41%
- --------------------------------------------------------------------------------------------------
11/26/97 11/28/97 14.112187 2.04%
- --------------------------------------------------------------------------------------------------
6.221655 18.27% 01/09/89 01/09/89 3.205004 18.22%
- --------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------
Separate
Account Charge Free Out
- ------------------------------
<S> <C>
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
125 0.1
- ------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Fund Name Maintenance Fee As of Date
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aetna Ascent VP 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Aetna Bond VP 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Aetna Money Market VP 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI-MFS Emerging Equities 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI -MFS Research Growth 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth/PPI-MFS Value Equity 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI-Scudder International Growth 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price Growth Equity Portfolio 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
Alger American Growth/PPI-T. Rowe Price Growth Equity 20 12/31/97
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
One Year One Year One Year Five Year Five Year Five Year Ten Year
As of AUV as of Date as of AUV w/ DSC as of Date as of AUV w/ DSC as of Date
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
15.391745 12/31/96 12.999247 12.47% 08/31/95 08/31/95
- ----------------------------------------------------------------------------------------------------
18.988948 12/31/96 15.698221 14.90% 12/31/92 10.296768 12.51% 06/30/89
- ----------------------------------------------------------------------------------------------------
13.361484 12/31/96 12.49259 1.60% 12/31/92 10.171407 4.89% 12/31/87
- ----------------------------------------------------------------------------------------------------
14.432166 12/31/96 12.429517 10.30% 08/31/95 08/31/95
- ----------------------------------------------------------------------------------------------------
22.02832 12/31/96 17.172736 21.85% 12/31/92 10.377933 15.80% 12/31/87
- ----------------------------------------------------------------------------------------------------
13.316689 12/31/96 11.776088 7.42% 08/31/95 08/31/95
- ----------------------------------------------------------------------------------------------------
11.930269 12/31/96 11.453256 (1.05%) 12/31/92 10.035454 2.73% 12/31/87
- ----------------------------------------------------------------------------------------------------
15.783609 12/31/96 12.475419 20.18% 12/30/94 12/30/94
- ----------------------------------------------------------------------------------------------------
13.90447 12/31/96 11.401996 15.84% 12/30/94 12/30/94
- ----------------------------------------------------------------------------------------------------
12.381052 12/31/96 11.238192 4.65% 01/31/95 01/31/95
- ----------------------------------------------------------------------------------------------------
15.373786 12/31/96 12.539773 16.46% 06/30/95 06/30/95
- ----------------------------------------------------------------------------------------------------
15.410323 12/31/96 13.850114 5.69% 10/31/94 10/31/94
- ----------------------------------------------------------------------------------------------------
14.990359 12/31/96 12.431432 14.54% 01/31/95 01/31/95
- ----------------------------------------------------------------------------------------------------
14.393023 12/31/96 13.040435 4.84% 10/31/94 10/31/94
- ----------------------------------------------------------------------------------------------------
15.414239 12/31/96 12.715698 15.15% 07/29/94 07/29/94
- ----------------------------------------------------------------------------------------------------
16.744841 12/31/96 13.880465 14.59% 04/28/95 04/28/95
- ----------------------------------------------------------------------------------------------------
13.895638 12/31/96 13.131679 0.52% 05/26/93 05/26/93
- ----------------------------------------------------------------------------------------------------
15.219471 11/28/97 11/28/97 11/28/97
- ----------------------------------------------------------------------------------------------------
15.219471 12/31/96 14.109006 2.47% 09/30/93 09/30/93
- ----------------------------------------------------------------------------------------------------
12.744432 11/28/97 11/28/97 11/28/97
- ----------------------------------------------------------------------------------------------------
12.744432 12/31/96 13.298219 (8.97%) 12/31/92 10.221688 3.76% 08/31/92
- ----------------------------------------------------------------------------------------------------
21.342862 11/28/97 11/28/97 11/28/97
- ----------------------------------------------------------------------------------------------------
21.342862 12/31/96 17.105011 18.53% 12/31/92 12.325744 11.06% 11/30/92
- ----------------------------------------------------------------------------------------------------
17.903087 11/28/97 11/28/97 11/28/97
- ----------------------------------------------------------------------------------------------------
17.903087 12/31/96 16.633095 2.24% 12/31/92 10.029678 11.75% 08/31/92
- ----------------------------------------------------------------------------------------------------
14.400089 11/28/97 11/28/97 11/28/97
- ----------------------------------------------------------------------------------------------------
14.400089 12/31/96 11.369536 20.31% 02/28/95 02/28/95
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Ten Year Ten Year Inception Inception Inception Separate One Year Three Year
as of AUV w/ DSC Date AUV w/ DSC Account Charge Free Out DSC DSC
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
08/31/95 10.11326 18.26% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
06/30/89 7.668959 11.04% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
6.265495 7.86% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
08/31/95 10.104274 14.98% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
5.355471 15.18% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
08/31/95 9.976191 11.57% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
7.581047 4.63% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
12/30/94 8.284263 23.05% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
12/30/94 7.528333 21.75% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
01/31/95 8.884655 10.85% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
06/30/95 9.422318 20.33% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
10/31/94 10.475172 11.91% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
01/31/95 8.938208 18.37% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
10/31/94 9.997066 11.12% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
07/29/94 8.387039 18.66% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
04/28/95 8.816335 26.05% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
05/26/93 9.936903 6.82% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
11/28/97 15.410688 (6.19%) 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
09/30/93 9.985067 9.68% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
11/28/97 12.995336 (6.85%) 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
08/31/92 9.306424 5.43% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
11/28/97 21.038336 (3.64%) 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
11/30/92 12.115909 11.25% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
11/28/97 17.681792 (3.82%) 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
08/31/92 10.580797 9.84% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
11/28/97 14.112187 (3.07%) 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
02/28/95 7.854109 22.82% 125 0.1 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------
Five Year DSC Ten Year DSC Inception DSC
- ----------------------------------------------------------
<S> <C> <C>
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
5.00% 0.00% 5.00%
- ----------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Fund Name Maintenance Fee As of Date
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aetna Ascent VP 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Aetna Bond VP 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Aetna Money Market VP 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI-MFS Emerging Equities 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI -MFS Research Growth 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth/PPI-MFS Value Equity 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI-Scudder International Growth 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price Growth Equity Portfolio 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
Alger American Growth/PPI-T. Rowe Price Growth Equity 20 12/31/97
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------
One Year One Year One Year Three Year Three Year Three Year Five Year
As of AUV as of Date as of AUV w/out DSC as of Date as of AUV w/out DSC as of Date
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
15.391745 12/31/96 12.999247 18.39% 07/04/95
- -------------------------------------------------------------------------------------------------------
18.988948 12/31/96 15.698221 20.95% 12/30/94 10.983809 20.01% 12/31/92
- -------------------------------------------------------------------------------------------------------
13.361484 12/31/96 12.49259 6.94% 12/30/94 10.456693 8.50% 12/31/92
- -------------------------------------------------------------------------------------------------------
14.432166 12/31/96 12.429517 16.10% 07/04/95
- -------------------------------------------------------------------------------------------------------
22.02832 12/31/96 17.172736 28.26% 12/30/94 10.696606 27.22% 12/31/92
- -------------------------------------------------------------------------------------------------------
13.316689 12/31/96 11.776088 13.07% 07/04/95
- -------------------------------------------------------------------------------------------------------
11.930269 12/31/96 11.453256 4.15% 12/30/94 10.509242 4.31% 12/31/92
- -------------------------------------------------------------------------------------------------------
15.783609 12/31/96 12.475419 26.51% 12/30/94 8.284263 23.96% 12/31/92
- -------------------------------------------------------------------------------------------------------
13.90447 12/31/96 11.401996 21.94% 12/30/94 7.528333 22.68% 12/31/92
- -------------------------------------------------------------------------------------------------------
12.381052 12/31/96 11.238192 10.16% 12/30/94 9.279494 10.08% 12/31/92
- -------------------------------------------------------------------------------------------------------
15.373786 12/31/96 12.539773 22.59% 01/03/95
- -------------------------------------------------------------------------------------------------------
15.410323 12/31/96 13.850114 11.25% 12/30/94 10.318643 14.29% 09/13/93
- -------------------------------------------------------------------------------------------------------
14.990359 12/31/96 12.431432 20.57% 12/30/94 8.790816 19.46% 09/13/93
- -------------------------------------------------------------------------------------------------------
14.393023 12/31/96 13.040435 10.36% 12/30/94 9.885536 13.33% 09/13/93
- -------------------------------------------------------------------------------------------------------
15.414239 12/31/96 12.715698 21.21% 12/30/94 8.454664 22.15% 09/13/93
- -------------------------------------------------------------------------------------------------------
16.744841 12/31/96 13.880465 20.63% 12/30/94 8.658623 24.58% 09/13/93
- -------------------------------------------------------------------------------------------------------
13.895638 12/31/96 13.131679 5.81% 12/30/94 9.078875 15.23% 12/31/92
- -------------------------------------------------------------------------------------------------------
15.219471 11/26/97 11/26/97 11/26/97
- -------------------------------------------------------------------------------------------------------
15.219471 12/31/96 14.109006 7.86% 12/30/94 9.620795 16.51% 12/31/92
- -------------------------------------------------------------------------------------------------------
12.744432 11/26/97 11/26/97 11/26/97
- -------------------------------------------------------------------------------------------------------
12.744432 12/31/96 13.298219 (4.18%) 12/30/94 10.869476 5.44% 12/31/92
- -------------------------------------------------------------------------------------------------------
21.342862 11/26/97 11/26/97 11/26/97
- -------------------------------------------------------------------------------------------------------
21.342862 12/31/96 17.105011 24.76% 12/30/94 12.197718 20.49% 12/31/92
- -------------------------------------------------------------------------------------------------------
17.903087 11/26/97 11/26/97 11/26/97
- -------------------------------------------------------------------------------------------------------
17.903087 12/31/96 16.633095 7.62% 12/30/94 13.37162 10.21% 12/31/92
- -------------------------------------------------------------------------------------------------------
14.400089 11/26/97 11/26/97 11/26/97
- -------------------------------------------------------------------------------------------------------
14.400089 12/31/96 11.369536 26.64% 12/31/94 7.540429 24.06% 12/31/92
- -------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Five Year Five Year Ten Year Ten Year Ten Year Inception Inception Inception
as of AUV w/out DSC as of Date as of AUV w/out DSC Date AUV w/out DSC
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
07/04/95 07/05/95 9.702035 20.35%
- ---------------------------------------------------------------------------------------------------
10.296768 13.01% 04/03/89 04/03/89 7.548552 11.11%
- ---------------------------------------------------------------------------------------------------
10.171407 5.60% 12/31/87 6.265495 7.86%
- ---------------------------------------------------------------------------------------------------
07/04/95 07/05/95 9.751116 17.04%
- ---------------------------------------------------------------------------------------------------
10.377933 16.23% 12/31/87 5.355471 15.18%
- ---------------------------------------------------------------------------------------------------
07/04/95 07/05/95 9.703482 13.54%
- ---------------------------------------------------------------------------------------------------
10.035454 3.51% 12/31/87 7.581047 4.63%
- ---------------------------------------------------------------------------------------------------
6.704793 18.67% 12/31/87 3.806495 15.27%
- ---------------------------------------------------------------------------------------------------
6.466592 16.53% 12/31/87 3.223592 15.73%
- ---------------------------------------------------------------------------------------------------
6.808071 12.69% 12/31/87 5.595032 8.26%
- ---------------------------------------------------------------------------------------------------
01/03/95 01/03/95 7.588726 26.60%
- ---------------------------------------------------------------------------------------------------
09/13/93 09/13/93 7.635468 17.74%
- ---------------------------------------------------------------------------------------------------
09/13/93 09/13/93 8.26399 14.85%
- ---------------------------------------------------------------------------------------------------
09/13/93 09/13/93 10.068172 8.66%
- ---------------------------------------------------------------------------------------------------
09/13/93 09/13/93 8.078691 16.21%
- ---------------------------------------------------------------------------------------------------
09/13/93 09/13/93 7.276124 21.39%
- ---------------------------------------------------------------------------------------------------
8.870361 9.38% 10/14/91 10/14/91 8.521908 8.18%
- ---------------------------------------------------------------------------------------------------
11/26/97 11/28/97 15.410688 (1.25%)
- ---------------------------------------------------------------------------------------------------
9.105831 10.81% 09/21/88 09/21/88 3.405956 17.50%
- ---------------------------------------------------------------------------------------------------
11/26/97 11/28/97 12.995336 (1.94%)
- ---------------------------------------------------------------------------------------------------
10.221688 4.50% 12/31/87 6.255644 7.36%
- ---------------------------------------------------------------------------------------------------
11/26/97 11/28/97 21.038336 1.44%
- ---------------------------------------------------------------------------------------------------
12.325744 11.60% 12/31/87 6.162172 13.22%
- ---------------------------------------------------------------------------------------------------
11/26/97 11/28/97 17.681792 1.24%
- ---------------------------------------------------------------------------------------------------
10.029678 12.28% 12/31/87 6.652999 10.39%
- ---------------------------------------------------------------------------------------------------
11/26/97 11/28/97 14.112187 2.03%
- ---------------------------------------------------------------------------------------------------
6.221655 18.26% 01/09/89 01/09/89 3.205004 18.21%
- ---------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------
Separate
Account Charge Free Out
- --------------------------------------
<S> <C>
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
125 0.1
- --------------------------------------
</TABLE>
