As filed with the Securities and Exchange Registration No. 33-34370*
Commission on February 12, 1998 Registration No. 811-2512
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
- --------------------------------------------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 33 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment to
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
- --------------------------------------------------------------------------------
Variable Annuity Account B of Aetna Life Insurance and Annuity Company
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
Depositor's Telephone Number, including Area Code: (860) 273-4686
Julie E. Rockmore, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
(Name and Address of Agent for Service)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
--------
X on February 17, 1998 pursuant to paragraph (b) of Rule 485
--------
*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 following earlier Registration Statement: 33-87932.
<PAGE>
VARIABLE ANNUITY ACCOUNT B
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
LOCATION - PROSPECTUS DATED NOVEMBER 28, 1997,
FORM N-4 AND AS AMENDED FEBRUARY 17, 1998
ITEM NO. PART A (PROSPECTUS)
<S> <C> <C>
1 Cover Page........................................... Cover Page, and as amended
2 Definitions.......................................... Definitions, and as amended
3 Synopsis............................................. Prospectus Summary, and as amended; Fee Table,
and as amended
4 Condensed Financial Information...................... Condensed Financial Information, and as amended
5 General Description of Registrant, Depositor, and The Company; Variable Annuity Account B; The
Portfolio Companies.................................. Funds, and as amended
6 Deductions and Expenses.............................. Charges and Deductions, and as amended;
Distribution
7 General Description of Variable Annuity Contracts.... Purchase, and as amended; Miscellaneous,
and as amended
8 Annuity Period....................................... Annuity Period, and as amended
9 Death Benefit........................................ Death Benefit During Accumulation Period; Death
Benefit Payable During the Annuity Period
10 Purchases and Contract Value......................... Purchase, and as amended; Contract Valuation,
and as amended
11 Redemptions.......................................... Right to Cancel; Withdrawals, and as amended
12 Taxes................................................ Tax Status, and as amended
13 Legal Proceedings.................................... Miscellaneous - Legal Matters and Proceedings,
and as amended
14 Table of Contents of the Statement of Additional Contents of the Statement of Additional
Information.......................................... Information
<PAGE>
FORM N-4 PART B (STATEMENT OF LOCATION - STATEMENT OF ADDITIONAL INFORMATION
ITEM NO. ADDITIONAL INFORMATION)
15 Cover Page........................................... Cover page
16 Table of Contents.................................... Table of Contents
17 General Information and History...................... General Information and History
18 Services............................................. General Information and History; Independent
Auditors
19 Purchase of Securities Being Offered................. Offering and Purchase of Contracts
20 Underwriters......................................... Offering and Purchase of Contracts
21 Calculation of Performance Data...................... Performance Data; Average Annual Total Return
Quotations
22 Annuity Payments..................................... Annuity Payments
23 Financial Statements................................. Financial Statements
</TABLE>
Part C (Other Information)
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
PARTS A AND B
The Prospectus is incorporated into Part A of this Post-Effective Amendment No.
33 by reference to Post-Effective Amendment No. 31 to the Registration Statement
on Form N-4 (File No. 33-34370), as filed electronically on November 26, 1997
(Accession No. 0000950146-97-001802). A Supplement dated February 17, 1998 to
the Prospectus is included in this Post-Effective Amendment No. 33. The
Statement of Additional Information is included in Part B of this Post-Effective
Amendment No. 33.
<PAGE>
Supplement dated February 17, 1998
to Prospectus Dated November 28, 1997
Aetna Life Insurance and Annuity Company
Variable Annuity Account B
Aetna Marathon Plus
The prospectus dated May 1, 1997 and amended on November 28, 1997, is amended as
follows:
1. The cover page is amended to:
a. Add references to "Roth IRAs" and Section 408A of the Internal Revenue Code,
subject to approval by state regulatory agencies, in (2) of the opening
paragraph.
b. Add "In most states," to the beginning of the second paragraph. Add the
following sentence after the first sentence: "In certain states, Purchase
Payments may be allocated to the Fixed Account when the Guaranteed Account
is not available."
c. Add the following sentence in the paragraph following the list of
investment options: "The Fixed Account is described in a separate Appendix
to this Prospectus."
d. The name of Calvert Responsibly Invested Balanced Portfolio is changed
to Calvert Social Balanced Portfolio.
2. The definitions listed below are added or amended to describe a Contract
offered as a Roth IRA or to describe a Fixed Account.
Contract Year: The number of completed years since the date of the first
payment under an individual Contract or to an Account under a group
Contract.
Fixed Account: A fixed interest option available in certain states which is
described in an Appendix to this Prospectus. Amounts allocated to the Fixed
Account are included in the Account Value.
Individual Retirement Annuity: An individual or group variable deferred
annuity intended to qualify under Code Section 408(b) or 408A.
Qualified Contracts: Contracts available for use with plans entitled to
special federal income tax treatment under Code Sections 401(a), 403(b),
408(b), 408A or 457.
Roth IRA: An Individual Retirement Annuity intended to qualify under Code
Section 408A.
3. The Prospectus Summary is amended as follows:
a. Contracts Offered is amended to add "including Roth IRAs" after
"("IRAs")" in (2) of paragraph one:
b. Free Look Period is amended to add the following sentence at the end of
the paragraph:
If the Purchase Payment to a Roth IRA is a rollover from a contract
issued by the Company or an affiliate where the deferred sales charge
was eliminated or reduced to facilitate the rollover to this Contract,
the Purchase Payment will be restored to the contract from which it
came.
c. Investment Options is amended to add "or Fixed Account" after "Guaranteed
Account" in the first paragraph. A third paragraph is added to read: "The
Fixed Account is an option available under the Contract which allows you
to earn a fixed rate of interest. (See the Appendix to this Prospectus.)"
d. Transfers is amended to add "or Fixed Account" after "Guaranteed Account"
in the first sentence. In the second paragraph, the following sentence is
added after the second sentence: "In a Contract with a Fixed Account, the
Fixed Account is only available for dollar cost averaging from the Fixed
Account to the other investment options over a period not to exceed 12
months."
e. Taxes is amended to read as follows:
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. Special rules apply to
distributions from a Roth IRA. (See "Tax Status.")
X.34370-97-1
<PAGE>
4. The section entitled "Fee Table" is amended to add the following information
applicable to Roth IRAs:
CONTRACT HOLDER TRANSACTION EXPENSES
Deferred Sales Charge for withdrawals under each Contract (as a percentage
of each Purchase Payment withdrawn). If the Purchase Payment is a rollover
from another contract issued by the Company or an affiliate where the
deferred sales charge has been waived, the deferred sales charge is based on
the number of completed Contract Years since the date of the initial payment
to the predecessor contract. The Company reserves the right to not accept
any rollover contribution to an existing Contract.
Completed Contract Years
<TABLE>
<S> <C>
Less than 1 5%
1 or more but less than 2 4%
2 or more but less than 3 3%
3 or more but less than 4 2%
4 or more but less than 5 1%
5 or more 0%
Annual Maintenance Fee(1) $30.00
Transfer Charge(2) $ 0.00
</TABLE>
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>
During the Accumulation Period
Mortality and Expense Risk Charge ...... 1.10%(3)
Administrative Charge .................. 0.15%
Total Subaccount Annual Expenses ...... 1.25%
During the Annuity Period
Mortality and Expense Risk Charge ...... 1.25%
Administrative Charge .................. 0.00%(4)
Total Subaccount Annual Expenses ...... 1.25%
</TABLE>
- ----------
1) The maintenance fee, if applicable, will generally be deducted from each
Account annually and if the full Account Value is withdrawn. The maintenance
fee is waived when the Account Value is $50,000 or more on the date the
maintenance fee is due. The amount shown is the maximum maintenance fee that
can be deducted under the Contract.
2) During the Accumulation Period we currently allow an unlimited number of
transfers without charge. However, we reserve the right to impose a fee of
$10 for each transfer in excess of 12 per year.
3) Under certain Contracts the mortality and expense risk charge during the
Accumulation Period may be reduced. See "Charges and Deductions" in the
prospectus.
4) We currently do not impose an Administrative Charge during the Annuity
Period. However, we reserve the right to deduct a daily charge of not more
than 0.25% per year from the Subaccounts.
ANNUAL EXPENSES OF THE FUNDS--Please refer to Fee Table--2 of the
Prospectus.
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 $30.00 that
can be deducted under the Contract has been converted to a percentage of
assets equal to 0.005%.
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
If you withdraw the entire Account If you do not withdraw the
Value at the end of the periods shown, Account Value, or if you annuitize at
you would pay the following expenses, the end of the periods shown, you would
including any applicable deferred pay the following expenses (no
sales charge: deferred sales charge is reflected)(1):
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 Variable Fund $60 $75 $ 98 $213 $18 $57 $ 98 $213
Aetna Income Shares $59 $72 $ 94 $205 $18 $55 $ 94 $205
Aetna Income Variable Encore Fund $58 $68 $ 87 $191 $16 $51 $ 87 $191
Aetna Investment Advisers Fund, Inc. $60 $76 $ 99 $215 $19 $58 $ 99 $215
Aetna Ascent Variable Portfolio $62 $81 $108 $233 $20 $63 $108 $233
Aetna Crossroads Variable Portfolio $62 $81 $108 $233 $20 $63 $108 $233
Aetna Legacy Variable Portfolio $62 $81 $108 $233 $20 $63 $108 $233
Aetna Variable Capital Appreciation
Portfolio $62 $81 $108 $233 $20 $63 $108 $233
Aetna Variable Growth Portfolio $62 $81 $108 $233 $20 $63 $108 $233
Aetna Variable Index Plus Portfolio $59 $73 $ 95 $207 $18 $55 $ 95 $207
Aetna Variable Small Company Portfolio $63 $85 $116 $249 $22 $67 $116 $249
Calvert Social Balanced Portfolio
(formerly Calvert Responsibly Invested
Balanced Portfolio) $62 $83 $113 $243 $21 $66 $113 $243
Fidelity VIP Equity-Income Portfolio $60 $76 $ 99 $215 $19 $58 $ 99 $215
Fidelity VIP Growth Portfolio $61 $79 $105 $227 $20 $61 $105 $227
Fidelity VIP High Income Portfolio $61 $79 $106 $229 $20 $62 $106 $229
Fidelity VIP Overseas Portfolio $63 $86 $117 $252 $22 $68 $117 $252
Fidelity VIP II Asset Manager Portfolio $61 $80 $108 $232 $20 $63 $108 $232
Fidelity VIP Contrafund Portfolio $61 $80 $108 $232 $20 $63 $108 $232
Fidelity VIP II Index 500 Portfolio $57 $66 $ 84 $183 $16 $49 $ 84 $183
Janus Aspen Aggressive Growth Portfolio $62 $81 $109 $234 $20 $63 $109 $234
Janus Aspen Balanced Portfolio $63 $86 $118 $253 $22 $69 $118 $253
Janus Aspen Flexible Income Portfolio $62 $83 $113 $243 $21 $66 $113 $243
Janus Aspen Growth Portfolio $61 $79 $105 $227 $20 $61 $105 $227
Janus Aspen Worldwide Growth Portfolio $62 $82 $111 $238 $21 $64 $111 $238
MFS Total Return Series $64 $88 $121 $259 $23 $70 $121 $259
MFS World Governments Series $64 $88 $121 $259 $23 $70 $121 $259
Oppenheimer Capital Appreciation Fund $62 $81 $108 $233 $20 $63 $108 $233
Oppenheimer Global Securities Fund $62 $83 $111 $239 $21 $65 $111 $239
Oppenheimer Growth & Income Fund $64 $88 $121 $259 $23 $70 $121 $259
Oppenheimer Strategic Bond Fund $63 $84 $113 $244 $21 $66 $113 $244
Portfolio Partners MFS Emerging Equities
Portfolio $62 $83 $112 $242 $21 $65 $112 $242
Portfolio Partners MFS Research Growth
Portfolio $63 $84 $113 $244 $21 $66 $113 $244
Portfolio Partners MFS Value Equity
Portfolio $63 $85 $116 $249 $22 $67 $116 $249
Portfolio Partners Scudder International
Growth Portfolio $64 $88 $121 $259 $23 $70 $121 $259
Portfolio Partners T. Rowe Price Growth
Equity Portfolio $62 $81 $108 $233 $20 $63 $108 $233
</TABLE>
- ----------
(1)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)
<PAGE>
5. The Funds section of Investment Options on page 1 of the Prospectus is
amended to add ", or an investment in the Fixed Account in certain Contracts
where the Guaranteed Account is not available," after the word "duration"
in the last sentence of the first paragraph.
6. A new section "Fixed Account" is added after Credited Interest Option on
page 5 of the Prospectus. It reads:
"Fixed Account
In certain states, Purchase Payments may be allocated to the Fixed Account.
Through the Fixed Account we guarantee to pay the minimum interest rate
specified in the Contract. (See the Appendix)."
7. The Purchase section of the Prospectus on page 5 is amended to add
"including Roth IRAs" after "Annuities" in the first sentence and to add the
following to the end of the first paragraph:
A Roth IRA Contract is a special form of IRA which can accept nondeductible
annual contributions. Contributions to a Simplified Employee Pension Plan
("SEP") are not permitted in a Roth IRA Contract. The Roth IRA Contract can
also accept transfers and rollovers, but only from an Individual Retirement
Annuity/Individual Retirement Account, subject to ordinary income tax, or
from another Roth IRA. If the Purchase Payment to a Roth IRA is a rollover
from a contract issued by the Company or an affiliate where the deferred
sales charge was eliminated or reduced and the Contract is canceled during
the free look period, the Purchase Payment will be restored to the
predecessor contract.
8. Add the following sentence to the end of Individual Contracts on page 5:
"However, if the Purchase Payment to a Roth IRA is a rollover from a
contract issued by the Company or an affiliate where the deferred sales
charge was eliminated or reduced and the Contract is canceled during the
free look period, the Purchase Payment will be restored to the predecessor
contract."
9. Add "or Fixed Account" after "Guaranteed Account" in Allocation of Purchase
Payments on page 6.
10. In Mortality and Expense Risk Charge on page 6, add the following sentence
after the second sentence:
"If the Contract is issued as a Roth IRA, the mortality and expense risk
charge is equal, on an annual basis, to 1.10% of the daily net assets of the
Subaccounts."
11. The first two paragraphs under Deferred Sales Charge on page 8 are replaced
with the following:
Withdrawals of all or a portion of the Account Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of Purchase
Payments withdrawn from the Subaccounts and the Guaranteed Account or Fixed
Account and, except for Roth IRAs, is based on the number of years which
have elapsed since the Purchase Payment was made. The deferred sales charge
on withdrawals from a Roth IRA is based on the number of years which have
elapsed from the Account effective date. The deferred sales charge for each
Purchase Payment is determined by multiplying the Purchase Payment withdrawn
by the appropriate percentage, in accordance with the schedule set forth in
the tables below. If the Purchase Payment is a rollover from another
contract issued by the Company or an affiliate where the deferred sales
charge has been waived, the deferred sales charge is based on the number of
completed Contract Years since the date of the initial payment to the
predecessor contract. The Company reserves the right to not accept any
rollover contribution to an existing Contract.
Withdrawals are taken first against Purchase Payments, then against any
increase in value. However, the deferred sales charge only applies to the
Purchase Payment (not to any associated changes in value). To satisfy a
partial withdrawal, the deferred sales charge is calculated as if the
Purchase Payments are withdrawn from the Subaccounts in the same order they
were applied to the Account. Partial withdrawals from the Guaranteed Account
or the Fixed Account will be treated as described in the Appendices attached
to this Prospectus and the prospectus for the Guaranteed Account. The total
charge will be the sum of the charges applicable for all of the Purchase
Payments withdrawn.
<PAGE>
The following table applies to Roth IRA Contracts, including those issued in
New York.
<TABLE>
<CAPTION>
Deferred Sales
Completed Contract Years Charge Deduction
<S> <C>
Less than 1 5%
1 or more but less than 2 4%
2 or more but less than 3 3%
3 or more but less than 4 2%
4 or more but less than 5 1%
5 or more 0%
</TABLE>
12. Deferred Sales Charge, page 8. In addition to the list of circumstances
where a deferred sales charge will not be deducted, a deferred sales charge
will not be deducted if the withdrawal is applied as a rollover to certain
Roth Individual Retirement Annuities issued by the Company or an affiliate.
13. In Account Value on page 9, add "or the Fixed Account" to the end of the
paragraph.
14. In Transfers on page 10 add as the third sentence to the first paragraph:
"Transfers may be made from the Fixed Account to any of the investment
options available subject to certain restrictions. Amounts may not be
transferred into the Fixed Account from any of the investment options."
15. In Dollar Cost Averaging on page 10, add "or Fixed Account" after
"Guaranteed Term" in the third sentence. Add as the next to the last
sentence in the first paragraph: "If Dollar Cost Averaging is stopped with
regard to amounts in the Fixed Account, the remaining balance in the Fixed
Account will be transferred to the Aetna Variable Encore Fund Subaccount (a
money market fund)."
16. Add the following to the end of the first paragraph under Withdrawals on
page 10:
Roth IRAs provide for a tax-free withdrawal of all assets in the Contract,
both contributions and earnings, provided the withdrawal is not made within
the 5-taxable year period beginning with the first tax year for which a
contribution was made, and the distribution is made after attainment of age
59-1/2, or on account of death or disability, or for a qualified first-time
home purchase.
Also add "or Fixed Account" after "Guaranteed Account" in the third
paragraph.
17. Under Systematic Distribution Option add the following:
"ECO" is not available under the Roth IRA Contract."
18. Under Annuity Period on page 14, add the following:
For Roth IRAs, the minimum distribution rules do not apply prior to your
death. You are not required to begin taking minimum annual distributions by
April 1 of the calendar year following the calendar year in which you attain
age 70-1/2. The general rule that annuity payments may not extend beyond
your life/life expectancy or beyond the joint lives/joint life expectancies
of you and your beneficiaries does not apply to a Roth IRA. The minimum
distribution rules which apply to the beneficiary at your death and which
are described in the Prospectus continue to apply. The rules differ
depending on whether you die after distributions have begun.
19. Under Individual Retirement Annuities and Simplified Employee Pension Plans
on page 22, add the following:
Section 408A of the Code permits eligible individuals to contribute to a
Roth IRA on an after-tax (nondeductible) basis.
Distributions from other types of qualified plans are not permitted to be
transferred or rolled over to a Roth IRA. A Roth IRA can accept
transfers/rollovers only from an IRA, subject to ordinary income tax, or
from another Roth IRA.
20. Under Withdrawals on page 19, add the following:
Any "qualified" distribution from a Roth IRA is not includible in gross
income. A "qualified" distribution is any distribution made after you have
attained age 59-1/2, or on account of your death or disability, or for a
qualified first-time home purchase. A distribution will not be treated as
"qualified" if it is made within the 5-taxable year period beginning with
the first taxable year for which a contribution was made. If a distribution
is not "qualified",
<PAGE>
the accumulated earnings are includible in income. The 10% premature
distribution penalty will apply to the taxable portion of the distribution
unless one of the exceptions under the Code applies. (See Section 21 of this
Supplement.) A partial distribution will first be treated as a return of
cost basis (i.e. aggregate amount of contributions.)
For Roth IRAs the minimum distribution rules do not apply prior to your
death. (See "Annuity Period" above.)
21. Under Penalty Tax on page 19, replace the language in the fourth paragraph
with the following:
In general, except for (d), the same exceptions described in the preceding
paragraph will apply to distributions made from an Individual Retirement
Annuity, including a distribution from a Roth IRA that is not a "qualified
distribution" or a rollover to a Roth IRA that is not a "qualified rollover"
contribution. Beginning January 1, 1997, the penalty tax is also waived on
distributions made from an IRA to pay for health insurance premiums for
certain unemployed individuals. Beginning January 1, 1998, the penalty tax
is waived if the amounts withdrawn are used for a qualified first-time home
purchase or for higher education expenses.
22. The following information is added as its own subsection to the end of the
section entitled "Miscellaneous" on page 22:
Year 2000
Aetna Inc. (referred to collectively with its subsidiaries and affiliates
as "Aetna"), has developed and is currently executing a plan to make its
computer systems and applications accommodate date-sensitive information
relating to the Year 2000. The plan covers four stages including (i)
inventory, (ii) assessment, (iii) remediation and (iv) testing and
certification. Aetna is currently in the assessment or remediation stages of
its plan for the systems and applications related to the Separate Account,
including those relating to the Company, and Aeltus Investment Management,
Inc., the subadviser to most Aetna affiliated mutual funds. Testing and
certification of these systems is 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 is currently examining its relationships with third
parties as part of its Year 2000 plan. While the Company believes that
United States securities industry participants generally are preparing their
computer systems and applications to accommodate Year 2000 date-sensitive
information, preparation by third parties is outside the Company's control.
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.
<PAGE>
APPENDIX
FIXED ACCOUNT
The Fixed Account is an investment option available during the Accumulation
Period under the Contracts. The following summarizes material information
concerning the Fixed Account that is offered as an option under the Contract.
Additional information may be found in your Contract. Amounts allocated to the
Fixed Account are held in the Company's general account that supports 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 this prospectus regarding the Fixed Account, however, may
be subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of the statements. Disclosure in
this Appendix regarding the Fixed Account has not been reviewed by the SEC.
Fixed Account
Amounts allocated to this option will earn the minimum guaranteed interest rate
specified in the Contract. 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 this option,
the Company assumes the risk of investment gain or loss by guaranteeing Net
Purchase Payment values and promising a minimum interest rate and Annuity
payment.
Amounts applied to the Fixed Account will earn the interest rate declared on the
date the Purchase Payment is received in good order at the Company's Home
Office. The Fixed Account is only available in certain states. If a withdrawal
is made from the Fixed Account, a deferred sales charge may apply. Amounts
allocated to the Fixed Account will count as an option for purposes of the 18
investment option limit. (See the Contract Prospectus).
Dollar Cost Averaging
Amounts invested in the Fixed Account must be transferred into the other
investment options available under the Contract over a period not to exceed 12
months under the Dollar Cost Averaging Program. In the event a Certificate
Holder discontinues dollar cost averaging, the remaining balance in the Fixed
Account will be transferred into the Aetna Variable Encore Fund Subaccount (a
money market fund) unless directed otherwise.
Mortality and Expense Risk Charges
The Fixed Account will reflect a compound interest rate credited by the Company.
The interest rate quoted is an annual effective yield. The Company makes 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 option under
the Contract are allowed in each calendar year during the Accumulation Period.
The amount which may be transferred may vary at the Company's discretion;
however, it will never be less than 10% of the amount held under the Fixed
Account.
By giving notice to the Company at its Home Office at least 30 days before
Annuity payments begin, the Certificate Holder may elect to have amounts which
have accumulated under the Fixed Account transferred to one or more of the
investment options available during the Annuity Period to provide Annuity
payments.
Under certain emergency conditions, we may defer payment of a Fixed Account
withdrawal value (a) for a period of up to six months, or (b) as allowed by
federal law.
Condensed Financial Information--Page AUV History--1 through AUV History--4
The following information supplements the Condensed Financial Information Table
to reflect condensed financial information for investment options available as
of September 30, 1997. Not all investment options shown here are currently
available.
<PAGE>
CONDENSED FINANCIAL INFORMATION
(Selected data for accumulation units outstanding throughout each period)
================================================================================
The condensed financial information presented below for the period ended
September 30, 1997 (unaudited) is supplemental to the Condensed Financial
Information for the ten-year period ended December 31, 1996 (audited) in the
Prospectus.
<TABLE>
<CAPTION>
Period ended
September 30,1997
(Unaudited)
<S> <C>
AETNA VARIABLE FUND
Value at beginning of period $17.181
Value at end of period $22.459
Increase (decrease) in value of accumulation unit(1) 30.72%
Number of accumulation units outstanding at end of period 7,552,902.9
AETNA INCOME SHARES
Value at beginning of period $12.294
Value at end of period $12.948
Increase (decrease) in value of accumulation unit(1) 5.32%
Number of accumulation units outstanding at end of period 1,192,729.1
AETNA VARIABLE ENCORE FUND
Value at beginning of period $11.394
Value at end of period $11.730
Increase (decrease) in value of accumulation unit(1) 2.95%
Number of accumulation units outstanding at end of period 5,815,030.3
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $15.445
Value at end of period $18.349
Increase (decrease) in value of accumulation unit(1) 18.80%
Number of accumulation units outstanding at end of period 2,082,397.4
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period $12.970
Value at end of period $15.537
Increase (decrease) in value of accumulation unit(1) 19.79%
Number of accumulation units outstanding at end of period 759,295.8
AETNA CROSSROADS VARIABLE PORTFOLIO
Value at beginning of period $12.402
Value at end of period $14.480
Increase (decrease) in value of accumulation unit(1) 16.76%
Number of accumulation units outstanding at end of period 919,215.3
AETNA LEGACY VARIABLE PORTFOLIO
Value at beginning of period $11.751
Value at end of period $13.250
Increase (decrease) in value of accumulation unit(1) 12.76%
Number of accumulation units outstanding at end of period 1,088,738.5
AETNA VARIABLE CAPITAL APPRECIATION PORTFOLIO(5)
Value at beginning of period $10.856
Value at end of period $13.367
Increase (decrease) in value of accumulation unit(1) 23.13%
Number of accumulation units outstanding at end of period 95,521.5
AETNA VARIABLE GROWTH PORTFOLIO(5)
Value at beginning of period $11.084
Value at end of period $13.834
Increase (decrease) in value of accumulation unit(1) 24.81%
Number of accumulation units outstanding at end of period 73,859.4
AETNA VARIABLE INDEX PLUS PORTFOLIO
Value at beginning of period $10.919
Value at end of period $14.077
Increase (decrease) in value of accumulation unit(1) 28.92%
Number of accumulation units outstanding at end of period 791,292.9
AETNA VARIABLE SMALL COMPANY PORTFOLIO(5)
Value at beginning of period $10.603
Value at end of period $14.070
Increase (decrease) in value of accumulation unit(1) 32.70%
Number of accumulation units outstanding at end of period 176,064.3
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
Period Ended
September 30, 1997
(Unaudited)
ALGER AMERICAN BALANCED PORTFOLIO (3)
Value at beginning of period $13.673
Value at end of period $16.437
Increase (decrease) in value of
accumulation unit(1) 20.21%
Number of accumulation units outstanding at end of period 378,959.7
ALGER AMERICAN GROWTH PORTFOLIO (2)
Value at beginning of period $14.506
Value at end of period $18.691
Increase (decrease) in value of
accumulation unit(1) 28.85%
Number of accumulation units outstanding at end of period 3,020,580.1
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO (3)
Value at beginning of period $12.578
Value at end of period $16.762
Increase (decrease) in value of
accumulation unit(1) 33.26%
Number of accumulation units outstanding at end of period 867,024.2
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO (3)
Value at beginning of period $13.548
Value at end of period $17.014
Increase (decrease) in value of
accumulation unit(1) 25.58%
Number of accumulation units outstanding at end of period 948,420.4
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO (2)
Value at beginning of period $15.417
Value at end of period $18.916
Increase (decrease) in value of
accumulation unit(1) 22.69%
Number of accumulation units outstanding at end of period 1,579,873.1
ALGER AMERICAN SMALL CAP PORTFOLIO (2)
Value at beginning of period $13.656
Value at end of period $16.053
Increase (decrease) in value of accumulation unit(1) 17.56%
Number of accumulation units outstanding at end of period 3,216,994.6
AMERICAN CENTURY VP BALANCED APPRECIATION (3)
Value at beginning of period $13.410
Value at end of period $15.441
Increase (decrease) in value of accumulation unit(1) 15.15%
Number of accumulation units outstanding at end of period 314,309.3
AMERICAN CENTURY VP CAPITAL APPRECIATION (2)
Value at beginning of period $13.211
Value at end of period $14.528
Increase (decrease) in value of accumulation unit(1) 9.97%
Number of accumulation units outstanding at end of period 962,512.7
AMERICAN CENTURY VP INTERNATIONAL (3)
Value at beginning of period $11.782
Value at end of period $14.357
Increase (decrease) in value of accumulation unit(1) 21.85%
Number of accumulation units outstanding at end of period 487,944.4
FEDERATED AMERICAN LEADERS FUND II (3)
Value at beginning of period $15.548
Value at end of period $19.882
Increase (decrease) in value of accumulation unit(1) 27.88%
Number of accumulation units outstanding at end of period 5,567,700.2
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II (3)
Value at beginning of period $11.099
Value at end of period $11.642
Increase (decrease) in value of accumulation unit(1) 4.89%
Number of accumulation units outstanding at end of period 1,081,708.3
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
Period Ended
September 30, 1997
(Unaudited)
FEDERATED HIGH INCOME BOND FUND II (3)
Value at beginning of period $13.119
Value at end of period $14.480
Increase (decrease) in value of accumulation unit(1) 10.37%
Number of accumulation units outstanding at end of period 3,421,242.7
FEDERATED UTILITY FUND II (3)
Value at beginning of period $13.303
Value at end of period $14.757
Increase (decrease) in value of accumulation unit(1) 10.93%
Number of accumulation units outstanding at end of period 1,546,059.6
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $15.013
Value at end of period $18.655
Increase (decrease) in value of accumulation unit(1) 24.26%
Number of accumulation units outstanding at end of period 5,770,585.4
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $15.734
Value at end of period $19.380
Increase (decrease) in value of accumulation unit(1) 23.17%
Number of accumulation units outstanding at end of period 3,529,641.2
FIDELITY VIP HIGH INCOME PORTFOLIO
Value at beginning of period $12.031
Value at end of period $13.874
Increase (decrease) in value of accumulation unit(1) 15.32%
Number of accumulation units outstanding at end of period 2,149,385.1
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period $12.439
Value at end of period $14.710
Increase (decrease) in value of accumulation unit(1) 18.26%
Number of accumulation units outstanding at end of period 839,007.1
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Value at beginning of period $13.180
Value at end of period $15.402
Increase (decrease) in value of accumulation unit(1) 16.87%
Number of accumulation units outstanding at end of period 658,767.6
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $13.943
Value at end of period $17.350
Increase (decrease) in value of accumulation unit(1) 24.44%
Number of accumulation units outstanding at end of period 4,912,874.6
FIDELITY VIP II INDEX 500 PORTFOLIO
Value at beginning of period $13.728
Value at end of period $17.540
Increase (decrease) in value of accumulation unit(1) 27.77%
Number of accumulation units outstanding at end of period 3,745,095.9
FIDELITY VIP II INVESTMENT GRADE BOND PORTFOLIO (3)
Value at beginning of period $10.784
Value at end of period $11.332
Increase (decrease) in value of accumulation unit(1) 5.08%
Number of accumulation units outstanding at end of period 565,060.3
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $13.879
Value at end of period $15.194
Increase (decrease) in value of accumulation unit(1) 9.48%
Number of accumulation units outstanding at end of period 1,592,521.1
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $13.865
Value at end of period $16.379
Increase (decrease) in value of accumulation unit(1) 18.14%
Number of accumulation units outstanding at end of period 1,388,762.1
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $12.995
Value at end of period $13.930
Increase (decrease) in value of accumulation unit(1) 7.19%
Number of accumulation units outstanding at end of period 403,620.2
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
Period Ended
September 30, 1997
(Unaudited)
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $15.153
Value at end of period $18.604
Increase (decrease) in value of accumulation unit(1) 22.77%
Number of accumulation units outstanding at end of period 1,705,200.0
JANUS ASPEN SHORT-TERM BOND PORTFOLIO (2)
Value at beginning of period $11.036
Value at end of period $11.473
Increase (decrease) in value of accumulation unit(1) 3.96%
Number of accumulation units outstanding at end of period 221,257.7
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $15.701
Value at end of period $19.682
Increase (decrease) in value of accumulation unit(1) 25.36%
Number of accumulation units outstanding at end of period 6,139,679.0
LEXINGTON EMERGING MARKETS FUND, INC. (3)
Value at beginning of period $9.829
Value at end of period $10.823
Increase (decrease) in value of accumulation unit(1) 10.11%
Number of accumulation units outstanding at end of period 386,307.2
LEXINGTON NATURAL RESOURCES TRUST (3)
Value at beginning of period $13.056
Value at end of period $15.959
Increase (decrease) in value of accumulation unit(1) 22.24%
Number of accumulation units outstanding at end of period 255,717.7
MFS EMERGING GROWTH SERIES (2) (4)
Value at beginning of period $10.074
Value at end of period $12.559
Increase (decrease) in value of accumulation unit(1) 24.66%
Number of accumulation units outstanding at end of period 1,996,176.9
MFS RESEARCH SERIES (2) (4)
Value at beginning of period $10.970
Value at end of period $13.327
Increase (decrease) in value of accumulation unit(1) 21.49%
Number of accumulation units outstanding at end of period 2,428,057.0
MFS TOTAL RETURN SERIES (4)
Value at beginning of period $10.894
Value at end of period $12.707
Increase (decrease) in value of accumulation unit(1) 16.63%
Number of accumulation units outstanding at end of period 1,180,088.3
MFS VALUE SERIES (2)(6)
Value at beginning of period $10.334
Value at end of period $12.576
Increase (decrease) in value of accumulation unit(1) 21.69%
Number of accumulation units outstanding at end of period 217,924.6
MFS WORLD GOVERNMENT SERIES (4)
Value at beginning of period $10.471
Value at end of period $10.334
Increase (decrease) in value of accumulation unit(1) (1.30%)
Number of accumulation units outstanding at end of period 115,237.7
OPPENHEIMER CAPITAL APPRECIATION FUND (5)
Value at beginning of period $10.725
Value at end of period $13.267
Increase (decrease) in value of accumulation unit(1) 23.70%
Number of accumulation units outstanding at end of period 116,902.3
OPPENHEIMER GLOBAL SECURITIES FUND (5)
Value at beginning of period $10.457
Value at end of period $11.862
Increase (decrease) in value of accumulation unit(1) 13.44%
Number of accumulation units outstanding at end of period 139,202.2
OPPENHEIMER GROWTH & INCOME FUND (5)
Value at beginning of period $10.497
Value at end of period $12.493
Increase (decrease) in value of accumulation unit(1) 19.01%
Number of accumulation units outstanding at end of period 328,198.4
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
Period Ended
September 30, 1997
(Unaudited)
OPPENHEIMER STRATEGIC BOND FUND (3)
Value at beginning of period $10.167
Value at end of period $10.678
Increase (decrease) in value of accumulation unit(1) 5.03%
Number of accumulation units outstanding at end of period 124,647.8
</TABLE>
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year or
shorter period, 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) These Funds were replaced effective November 28,1997 as described in
prospectus supplement dated August 21,1997.
(3) These Funds were closed effective November 28,1997 as described in
prospectus supplement dated August 21,1997.
(4) Reflects less than a full year of performance activity. Funds were first
received in this option during April 1997.
(5) Reflects less than a full year of performance activity. Funds were first
received in this option during May 1997.
(6) Reflects less than a full year of performance activity. Funds were first
received in this option during June 1997.
X.34370-97-1
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
Statement of Additional Information dated February 17, 1998
Marathon Plus
New York Growth Plus
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 November 28, 1997 and as supplemented on February 17,
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
1-800-531-4547
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the prospectus.
TABLE OF CONTENTS
Page
----
General Information and History.......................................... 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 the Company...................................... F-1
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Life Insurance and Annuity Company (the "Company") is a stock life
insurance company which was organized under the insurance laws of the State of
Connecticut in 1976. Through a merger, it succeeded to the business of Aetna
Variable Annuity Life Insurance Company (formerly Participating Annuity Life
Insurance Company organized in 1954). As of December 31, 1996, the Company had
$30.1 billion invested through its products, including $15.0 billion in its
separate accounts (of which the Company oversees the management of $10.5
billion) and $1.1 billion in its mutual funds offered outside of its separate
accounts. As of December 31, 1995, it ranked among the top 2% of all U.S. life
insurance companies based on assets. The Company is a wholly owned subsidiary of
Aetna Retirement Holdings, Inc., which is in turn a wholly owned subsidiary of
Aetna Retirement Services, Inc., and an indirect wholly owned subsidiary of
Aetna Inc. The Company is engaged in the business of issuing life insurance
policies and annuity contracts in all states of the United States. The Company's
Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156.
In addition to serving as the principal underwriter and the depositor for the
Separate Account, the Company is also a registered investment adviser under the
Investment Advisers Act of 1940, and a registered broker-dealer under the
Securities Exchange Act of 1934. The Company provides investment advice to
several of the registered management investment companies offered as variable
investment options under the Contracts funded by the Separate Account (see
"Variable Annuity Account B" below).
Other than the mortality and expense risk charges and administrative charge
described in the prospectus, all expenses incurred in the operations of the
Separate Account are borne by the Company. See "Charges and Deductions" in the
prospectus. The Company receives reimbursement for certain administrative costs
from some unaffiliated sponsors of the Funds used as funding options under the
Contract. These fees generally range up to 0.25%.
The assets of the Separate Account are held by the Company. The Separate Account
has no custodian. However, the Funds in whose shares the assets of the Separate
Account are invested each have custodians, as discussed in their respective
prospectuses.
VARIABLE ANNUITY ACCOUNT B
Variable Annuity Account B (the "Separate Account") is a separate account
established by the Company for the purpose of funding variable annuity contracts
issued by the Company. The Separate Account is registered with the Securities
and Exchange Commission as a unit investment trust under the Investment Company
Act of 1940, as amended. Purchase Payments made under the Contract may be
allocated to one or more of the Subaccounts. Each Subaccount invests in the
shares of only one of the Funds listed below. The Company may make additions to,
deletions from or substitutions of available investment options as permitted by
law and subject to the conditions of the Contract. The availability of the Funds
is subject to applicable regulatory authorization. Not all Funds are available
in all jurisdictions or under all Contracts.
-2-
<PAGE>
The Funds currently available under the Marathon Plus Contract are as follows:
<TABLE>
<S> <C>
Aetna Variable Fund Fidelity VIP II Index 500 Portfolio
Aetna Income Shares Janus Aspen Aggressive Growth Portfolio
Aetna Variable Encore Fund Janus Aspen Balanced Portfolio
Aetna Investment Advisers Fund, Inc. Janus Aspen Flexible Income Portfolio
Aetna Ascent Variable Portfolio Janus Aspen Growth Portfolio
Aetna Crossroads Variable Portfolio Janus Aspen Worldwide Growth Portfolio
Aetna Legacy Variable Portfolio MFS Total Return Series
Aetna Variable Capital Appreciation Portfolio MFS World Governments Series
Aetna Variable Growth Portfolio Oppenheimer Capital Appreciation Fund
Aetna Variable Index Plus Portfolio Oppenheimer Global Securities Fund
Aetna Variable Small Company Portfolio Oppenheimer Growth & Income Fund
Calvert Social Balanced Portfolio Oppenheimer Strategic Bond Fund
(formerly Calvert Responsibily Portfolio Partners MFS Emerging Equities Portfolio
Invested Balanced Fund) Portfolio Partners MFS Research Growth Portfolio
Fidelity VIP Equity-Income Portfolio Portfolio Partners MFS Value Equity Portfolio
Fidelity VIP Growth Portfolio Portfolio Partners Scudder International
Fidelity VIP High Income Portfolio Growth Portfolio
Fidelity VIP Overseas Portfolio Portfolio Partners T. Rowe Price Growth
Fidelity VIP II Asset Manager Portfolio Equity Portfolio
Fidelity VIP II Contrafund Portfolio
</TABLE>
The Funds currently available under the New York Growth Plus Contract are as
follows:
<TABLE>
<S> <C>
Federated American Leaders Fund II Federated High Income Bond Fund II
Federated Equity Income Fund II Federated International Equity Fund II
Federated Fund for U.S. Government Securities II Federated Prime Money Fund II
Federated Growth Strategies Fund II Federated Utility Fund II
</TABLE>
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 as defined in the prospectus. 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
-3-
<PAGE>
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 the maximum amount of recurring
charges under the Contracts during each period (e.g., 1.25% mortality and
expense risk charge, $30.00 maintenance fee, 0.15% administrative charge, and
deferred sales charges of 7% of Purchase Payments grading down to 0% after 7
years). These charges will be deducted on a pro rata basis in the case of
fractional periods. The maintenance fee is converted to a percentage of assets
based on the average account size under the Contracts described in the
prospectus. The total return figures shown below may be different from the
actual historical total return under your Contract because for periods prior to
1994, the Subaccount's investment performance reflected the investment
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
Fund's inception date and/or the date contributions were first received in the
Fund under the Separate Account.
Investment results of the Subaccounts will fluctuate over time, and any
presentation of the Subaccounts' total return quotations for any prior period
should not be considered as a representation of how the Subaccounts will perform
in any future period. Additionally, the Account Value upon redemption may be
more or less than your original cost.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
The tables shown below reflect the average annual standardized and
non-standardized total return quotation figures for the periods ended September
30, 1997 for the Subaccounts available under the Separate Account as of
September 30, 1997 (not all such Funds are currently available). Table A
reflects the total return quotations for Contracts issued nationwide (other than
Contracts or Certificates issued in New York). Table B reflects the total return
quotations for Marathon Plus and Growth Plus Contracts or Certificates issued in
the state of New York. For those Subaccounts where results are not available for
the full calendar period indicated, the percentage shown is an average annual
return since the date contributions were first received in the Fund under the
Separate Account (in the case of standardized performance) or the Fund's
inception date (in the case of nonstandardized performance). (Percentages
reflecting partial periods are denoted with an asterisk.)
-4-
<PAGE>
<TABLE>
<CAPTION>
TABLE A
-------------------------------------------------------------------------------------------
DATE
CONTRIBUTIONS
FIRST RECEIVED
UNDER FUND
SEPARATE INCEPTION
($30 MAINTENANCE FEE) STANDARDIZED ACCOUNT NON-STANDARDIZED DATE
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio 19.74% 20.93%* 08/31/95 28.75% 23.36%* 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio 15.10% 16.80%* 08/31/95 23.76% 19.28%* 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares(1) 0.18% 4.68% 8.04% N/A 7.72% 7.77% 5.25% 8.04% 05/15/73
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc. 14.91% 12.43% 11.07%* 04/03/89 23.56% 19.04% 12.83% 11.07% 04/03/89
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio 9.73% 12.42%* 08/31/95 17.99% 14.89%* 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Capital Appreciation 13.26%* 05/30/97 41.54%* 12/13/96
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund(1) (3.30%) 2.60% 4.52% N/A 3.98% 4.11% 3.23% 4.52% 08/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Fund(1) 31.74% 17.05% 12.94% N/A 41.65% 27.74% 17.38% 12.94% 05/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Growth Portfolio 16.24%* 05/30/97 39.80%* 12/13/96
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio 25.39%* 10/31/96 39.89% 38.91%* 09/16/96
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Small Company Portfolio 15.66%* 05/30/97 38.32%* 12/27/96
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Balanced Portfolio(2) 13.86% 19.27%* 01/31/95 22.43% 18.06% 12.24% 8.88%* 09/05/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio (3) 23.66% 25.81%* 02/28/95 32.96% 25.76% 21.64% 18.85%* 01/09/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Income & Growth 32.80% 23.18%* 06/30/95 42.79% 27.72% 17.79% 12.47%* 11/15/88
Portfolio(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap 16.43% 23.68%* 06/30/95 25.20% 38.37%* 01/25/95
Portfolio(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth 15.59% 23.48%* 05/03/93 24.29% 25.83% 23.89%* 05/03/93
Portfolio(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap (3) 4.98% 12.65%* 09/30/93 12.88% 20.81% 16.54% 19.00%* 09/21/88
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Balanced(2) 10.67% 13.45%* 07/29/94 19.00% 14.98% 10.33% 10.03%* 05/01/91
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Cap Appreciation(3) (7.16%) 8.22% 8.68%* 08/31/92 (0.18%) 10.63% 8.71% 9.58%* 11/20/87
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP International(2) 19.54% 10.80%* 07/29/94 28.54% 12.54% 11.06%* 05/01/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Utility Fund II(2) 12.87% 12.60%* 09/30/94 21.37% 13.93% 10.25%* 02/10/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated American Leaders Fund II(2) 27.32% 24.72%* 09/30/94 36.90% 25.74% 20.71%* 02/10/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Fund for US Gov't Securities (0.12%) 3.60%* 09/30/94 7.40% 5.22% 4.66%* 03/28/94
II (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II(2) 6.70% 11.84%* 09/30/94 14.74% 13.19% 9.99%* 03/01/94
- ------------------------------------------------------------------------------------------------------------------------------------
-5-
<PAGE>
-------------------------------------------------------------------------------------------
DATE
CONTRIBUTIONS
FIRST RECEIVED
UNDER FUND
SEPARATE INCEPTION
($30 MAINTENANCE FEE) STANDARDIZED ACCOUNT NON-STANDARDIZED DATE
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 22.80% 24.23%* 12/30/94 32.04% 22.55% 19.79% 12.44% 10/09/86
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 16.50% 24.09%* 12/30/94 25.27% 23.82% 19.69% 13.09% 10/09/86
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 9.13% 13.67%* 06/30/95 17.34% 14.93% 12.29% 11.08% 09/19/85
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 14.88% 15.98%* 01/31/95 23.53% 13.69% 11.76% 11.29%* 09/06/89
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 25.22% 23.27%* 06/30/95 34.65% 29.95%* 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 Portfolio 28.21% 26.79%* 06/30/95 37.86% 27.75% 18.73% 18.63%* 08/27/92
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Investment Grade Bond 0.24% 3.13%* 08/31/95 7.79% 7.15% 5.02% 6.70%* 12/05/88
Port(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 14.77% 14.68%* 01/31/95 23.41% 11.57% 12.89% 7.14% 02/13/87
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Aggressive Growth (1.37%) 11.99%* 10/31/94 6.06% 15.49% 18.32%* 09/13/93
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Balanced Portfolio 13.11% 18.96%* 01/31/95 21.63% 17.98% 15.11%* 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Flexible Income 3.71% 10.61%* 10/31/94 11.51% 11.68% 8.30%* 09/13/93
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Growth Portfolio 16.60% 20.46%* 07/29/94 25.38% 22.48% 17.52%* 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Short-Term Bond (1.64%) 3.37%* 01/31/95 5.76% 4.89% 3.38%* 09/13/93
Portfolio(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Worldwide Growth 22.24% 30.87%* 04/28/95 31.44% 25.49% 23.88%* 09/13/93
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc. (0.14%) 1.08%* 07/29/94 7.37% (0.47%) 2.80%* 03/30/94
(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 26.84% 10.85%* 05/28/93 36.39% 17.72% 12.27% 11.04%* 10/14/91
(2)
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Series(3) 13.59% 12.41%* 05/31/96 22.14% 26.73%* 07/24/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Research Series(3) 18.28% 17.28%* 05/31/96 27.18% 24.45%* 07/26/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 14.37% 15.09%* 05/31/96 22.98% 20.10%* 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Value Series(3) 17.28% 22.39%* 08/14/96 26.11% 27.63%* 08/14/96
- ------------------------------------------------------------------------------------------------------------------------------------
MFS World Governments Series (6.42%) (2.36%)* 05/31/96 0.63% 4.87% 4.10%* 06/14/94
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund 10.93%* 05/30/97 15.66% 22.68% 20.66% 13.55% 08/15/86
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund 3.42%* 05/30/97 30.36% 10.09% 17.37% 11.55%* 11/12/90
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth & Income Fund 7.75%* 05/30/97 36.14% 38.54%* 07/06/95
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund (2.84%)* 05/30/97 9.75% 9.34% 6.29%* 05/03/93
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These figures
represent historical performance and should not be considered a projection of
future performance.
(1) These Funds have been available through the Separate Account for more than
ten years.
(2) These Funds were closed effective November 28, 1997 as described in
prospectus supplement dated August 21, 1997.
(3) These Funds were replaced effective November 28, 1997 as described in
prospectus supplement dated August 21, 1997.
-6-
<PAGE>
<TABLE>
<CAPTION>
TABLE B
CONTRACTS OR CERTIFICATES ISSUED IN NEW YORK
-------------------------------------------------------------------------------------------
DATE
CONTRIBUTIONS
FIRST RECEIVED
UNDER FUND
SEPARATE INCEPTION
($30 MAINTENANCE FEE) STANDARDIZED ACCOUNT NON-STANDARDIZED DATE
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Ascent Variable Portfolio 21.02% 21.41%* 08/31/95 28.75% 23.36%* 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio 16.34% 17.29%* 08/31/95 23.76% 19.28%* 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares(1) 1.26% 4.99% 8.04% N/A 7.72% 7.77% 5.25% 8.04% 05/15/73
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc. 16.14% 12.65% 11.07%* 04/03/89 23.56% 19.04% 12.83% 11.07%* 04/03/89
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio 10.91% 12.93%* 08/31/95 17.99% 14.89%* 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Capital Appreciation 13.26%* 05/30/97 41.54%* 12/13/96
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund(1) (2.26%) 2.94% 4.52% N/A 3.98% 4.11% 3.23% 4.52% 08/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Fund(1) 33.15% 17.24% 12.94% N/A 41.65% 27.74% 17.38% 12.94% 05/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Growth Portfolio 16.24%* 05/30/97 39.80%* 12/13/96
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio 25.39%* 10/31/96 39.89% 38.91%* 09/16/96
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Small Company 15.66%* 05/30/97 38.32%* 12/27/96
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Balanced Portfolio(2) 15.09% 19.62%* 01/31/95 22.43% 18.06% 12.24% 8.88%* 09/05/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio(3) 24.99% 26.15%* 02/28/95 32.96% 25.76% 21.64% 18.85%* 01/09/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Income & Growth 34.23% 23.61%* 06/30/95 42.79% 27.72% 17.79% 12.47%* 11/15/88
Portfolio(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap 17.68% 24.11%* 06/30/95 25.20% 38.37%* 01/25/95
Portfolio(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth(3) 16.84% 23.68%* 05/03/93 24.29% 25.83% 23.89%* 05/03/93
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap(3) 6.11% 12.99%* 09/30/93 12.88% 20.81% 16.54% 19.00%* 09/21/88
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Balanced(2) 11.86% 13.93%* 07/29/94 19.00% 14.98% 10.33% 10.03%* 05/01/91
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Cap Appreciation (6.17%) 8.49% 8.94%* 08/31/92 (0.18%) 10.63% 8.71% 9.58%* 11/20/87
(3)
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP International 20.82% 11.30%* 07/29/94 28.54% 12.54% 11.06%* 05/01/94
(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Equity Income Fund II 8.47%* 02/28/97 23.19%* 01/02/97
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Prime Money Fund II (2.82%) 2.06%* 11/30/94 3.39% 3.44%* 11/18/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Utility Fund II(4) 14.09% 13.12%* 09/30/94 21.37% 13.93% 10.25%* 02/10/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated American Leaders Fund II 28.69% 25.15%* 09/30/94 36.90% 25.74% 20.71%* 02/10/94
(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Fund for US Gov't 0.95% 4.21%* 09/30/94 7.40% 5.22% 4.66%* 03/28/94
Securities II(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Growth Strategies Fund II 32.25% 27.82%* 10/02/95 40.69% 29.57%* 10/02/95
- ------------------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II 7.85% 12.37%* 09/30/94 14.74% 13.19% 9.99%* 03/01/94
(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Federated International Equity Fund 8.74% 7.85%* 05/31/95 15.68% 9.14%* 05/08/95
II
- ------------------------------------------------------------------------------------------------------------------------------------
-7-
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
DATE
CONTRIBUTIONS
FIRST RECEIVED
UNDER FUND
SEPARATE INCEPTION
($30 MAINTENANCE FEE) STANDARDIZED ACCOUNT NON-STANDARDIZED DATE
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity VIP Equity-Income Portfolio 24.12% 24.55%* 12/30/94 32.04% 22.55% 19.79% 12.44% 10/09/86
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 17.75% 24.41%* 12/30/94 25.27% 23.82% 19.69% 13.09% 10/09/86
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 10.30% 14.13%* 06/30/95 17.34% 14.93% 12.29% 11.08% 09/19/85
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager 16.12% 16.34%* 01/31/95 23.53% 13.69% 11.76% 11.29%* 09/06/89
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 26.57% 23.70%* 06/30/95 34.65% 29.95%* 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 Portfolio 29.59% 27.20%* 06/30/95 37.86% 27.75% 18.73% 18.63%* 08/27/92
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Investment Grade 1.32% 3.67%* 08/31/95 7.79% 7.15% 5.02% 6.70%* 12/05/88
Bond Port(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 16.00% 15.04%* 01/31/95 23.41% 11.57% 12.89% 7.14% 02/13/87
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Aggressive Growth (0.31%) 12.32%* 10/31/94 6.06% 15.49% 18.32%* 09/13/93
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Balanced Portfolio 14.33% 19.31%* 01/31/95 21.63% 17.98% 15.11%* 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Flexible Income 4.82% 10.95%* 10/31/94 11.51% 11.68% 8.30%* 09/13/93
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Growth Portfolio 17.86% 20.88%* 07/29/94 25.38% 22.48% 17.52%* 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Short-Term (0.58%) 3.78%* 01/31/96 5.76% 4.89% 3.38%* 09/13/93
Bond Fund(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Worldwide Growth 23.55% 31.23%* 04/28/95 31.44% 25.49% 23.88%* 09/13/93
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, 0.93% 1.69%* 07/29/94 7.37% (0.47%) 2.80%* 03/30/94
Inc.(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 26.84% 10.85%* 05/28/93 36.39% 17.72% 12.27% 11.04%* 10/14/91
(2)
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Series 14.81% 13.31% 05/31/96 22.14% 26.73%* 07/24/95
(3)
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Research Series (3) 19.55% 18.17%* 05/31/96 27.18% 24.45%* 07/26/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 15.60% 15.99%* 05/31/96 22.98% 20.10%* 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Value Series (3) 18.64% 23.48%* 08/14/96 26.11% 27.63%* 09/14/86
- ------------------------------------------------------------------------------------------------------------------------------------
MFS World Governments Series (5.41%) (1.45%)* 05/31/96 0.63% 4.87% 4.10%* 06/14/94
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation 10.93% 05/30/97 15.66% 22.68% 20.88% 13.55%* 09/15/86
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund 3.42%* 05/30/97 30.36% 10.09% 17.37% 11.55%* 11/12/90
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth & Income Fund 7.75%* 05/30/97 36.14% 38.54%* 09/06/95
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund (2.84%)* 05/30/97 9.75% 9.34% 6.29%* 05/03/93
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These figures
represent historical performance and should not be considered a projection of
future performance.
(1) These Funds have been available through the Separate Account for more than
ten years.
(2) These Funds were closed effective November 28, 1997 as described in
prospectus supplement dated August 21, 1997.
(3) These Funds were replaced effective November 28, 1997 as described in
prospectus supplement dated August 21, 1997.
(4) These Funds were closed for Marathon Plus only, effective November 28, 1997
as described in prospectus supplement dated August 21, 1997.
-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 Date to the
next; such fluctuations reflect changes in the net investment factor for the
appropriate Subaccount(s) (with a ten Valuation Date lag which gives the Company
time to process Annuity payments) and a mathematical adjustment which offsets
the assumed net investment rate of 3.5% or 5% per annum.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Period.
EXAMPLE:
- --------
Assume that, at the date Annuity payments are to begin, there are 3,000
Accumulation Units credited under a particular Account and that the value of an
Accumulation Unit for the tenth Valuation Date prior to retirement was
$13.650000. This produces a total value of $40,950.
Assume also that no premium tax is payable and that the Annuity table in the
Contract provides, for the option elected, a first monthly variable Annuity
payment of $6.68 per $1000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the Valuation Date on which
the first payment was due was $13.400000. When this value is divided into the
first monthly payment, the number of Annuity Units is determined to be 20.414.
The value of this number of Annuity Units will be paid in each subsequent month.
If the net investment factor with respect to the appropriate Subaccount is
1.0015000 as of the tenth Valuation Date preceding the due date of the second
monthly payment, multiplying this factor by .9999058* (to neutralize the assumed
net investment rate of 3.5% per annum built into the number of Annuity Units
determined above) produces a result of 1.0014057. This is then multiplied by the
Annuity Unit value for the prior Valuation Date (assume such value to be
$13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation
Date on which the second payment is due.
-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 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 Certificate 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 the review of filings made with the
SEC.
-10-
<PAGE>
VARIABLE ANNUITY ACCOUNT B
FINANCIAL STATEMENTS
Index
<TABLE>
<S> <C>
Statement of Assets and Liabilities as of September 30, 1997 (unaudited)........ S-2
Statements of Operations and Changes in Net Assets for the nine-months ended
September 30, 1997 and 1996 (unaudited) ........................................ S-7
Condensed Financial Information for the nine-month period
ended September 30, 1997 (unaudited) ........................................... S-8
Notes to Financial Statements -- September 30, 1997 (unaudited) ................ S-13
Statement of Assets and Liabilities -- December 31, 1996 ....................... S-23
Statements of Operations and Changes in Net Assets for the years ended
December 31, 1996 and 1995 ..................................................... S-27
Notes to Financial Statements -- December 31, 1996 ............................. S-28
Independent Auditors' Report ................................................... S-36
</TABLE>
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - September 30, 1997: (Unaudited):
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 24,918,467 shares (cost $764,295,358) .............................................. $1,021,486,195
Aetna Income Shares; 5,276,734 shares (cost $66,723,075) ................................................ 68,987,201
Aetna Variable Encore Fund; 8,669,124 shares (cost $112,361,264) ........................................ 114,283,916
Aetna Investment Advisers Fund, Inc.; 9,528,146 shares (cost $130,876,706)............................... 157,219,977
Aetna GET Fund, Series B; 1,334,503 shares (cost $14,700,354) ........................................... 21,515,263
Aetna GET Fund, Series C; 890,967 shares (cost $9,010,671)............................................... 11,078,375
Aetna Ascent Variable Portfolio; 1,177,794 shares (cost $15,441,624) .................................... 17,786,236
Aetna Crossroads Variable Portfolio; 1,222,374 shares (cost $15,100,849) ................................ 17,068,085
Aetna Legacy Variable Portfolio; 1,340,522 shares (cost $15,479,606) .................................... 16,945,898
Aetna Variable Portfolio, Inc.:
Capital Appreciation Portfolio; 89,337 shares (cost $1,213,339) ....................................... 1,276,807
Growth Portfolio; 72,270 shares (cost $959,734) ....................................................... 1,021,806
Index Plus Portfolio; 1,386,072 shares (cost $17,812,738) ............................................. 19,695,368
Small Company Portfolio; 179,709 shares (cost $2,342,927) ............................................. 2,512,638
Alger American Funds:
Balanced Portfolio; 570,928 shares (cost $5,631,749) ................................................. 6,228,830
Growth Portfolio; 1,479,045 shares (cost $51,009,458) ................................................. 65,492,097
Income and Growth Portfolio; 1,338,212 shares (cost $11,879,477) ...................................... 14,532,986
Leveraged AllCap Portfolio; 656,756 shares (cost $13,034,622) ......................................... 16,136,504
MidCap Portfolio; 1,146,323 shares (cost $25,800,949) ................................................. 29,884,640
Small Capitalization Portfolio; 1,637,386 shares (cost $67,460,170) ................................... 76,400,411
Calvert Responsibly Invested Balanced Portfolio; 452,874 shares (cost $828,519).......................... 957,829
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 5,166,128 shares (cost $104,445,004) ......................................... 122,953,847
Growth Portfolio; 2,073,979 shares (cost $62,138,049) ................................................. 77,566,808
High Income Portfolio; 2,217,224 shares (cost $26,867,595) ............................................ 29,821,656
Overseas Portfolio; 694,839 shares (cost $12,528,461) ................................................. 14,292,844
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 575,536 shares (cost $9,161,643) ............................................. 10,146,695
Contrafund Portfolio; 5,078,066 shares (cost $80,835,950) ............................................. 102,576,926
Index 500 Portfolio; 590,142 shares (cost $54,900,735) ................................................ 65,688,657
Investment Grade Bond Portfolio; 523,572 shares (cost $6,174,065) ..................................... 6,403,284
Insurance Management Series:
American Leaders Fund II; 5,777,083 shares (cost $82,943,315).......................................... 110,746,673
Equity Income Fund II; 1,192,080 shares (cost $13,835,949)............................................. 14,638,749
Growth Strategies Fund II; 1,247,463 shares (cost $16,403,360)......................................... 21,356,573
High Income Bond Fund II; 4,616,876 shares (cost $46,690,352).......................................... 49,539,085
International Equity Fund II; 1,013,781 shares (cost $11,463,832)...................................... 12,864,883
Prime Money Fund II; 7,809,837 shares (cost $7,809,837)................................................ 7,809,837
U.S. Government Securities Fund II; 1,223,859 shares (cost $12,305,624)................................ 12,593,511
Utility Fund II; 1,803,561 shares (cost $19,882,345)................................................... 22,815,052
Janus Aspen Series:
Aggressive Growth Portfolio; 1,904,763 shares (cost $34,435,652)....................................... 38,438,110
Balanced Portfolio; 1,574,999 shares (cost $23,962,220)................................................ 27,137,241
Flexible Income Portfolio; 717,350 shares (cost $8,057,170)............................................ 8,400,167
Growth Portfolio; 2,030,188 shares (cost $31,587,089).................................................. 38,025,421
Short-Term Bond Portfolio; 380,917 shares (cost $3,857,633)............................................ 3,892,969
Worldwide Growth Portfolio; 6,734,706 shares (cost $136,059,303)....................................... 163,720,698
Lexington Emerging Markets Fund; 372,984 shares (cost $4,190,319)........................................ 4,181,149
Lexington Natural Resources Trust Fund; 514,375 shares (cost $7,282,351)................................. 8,842,103
S-2
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - September 30, 1997:
(Unaudited & continued)
MFS Funds:
Emerging Growth Series; 1,502,965 shares (cost $21,186,215)............................................ $25,069,455
Research Series; 2,007,433 shares (cost $28,100,512)................................................... 32,359,825
Total Return Series; 927,914 shares (cost $13,468,284)................................................. 14,995,092
Value Series; 209,055 shares (cost $2,446,911)......................................................... 2,740,713
Worldwide Government Series; 115,619 shares (cost $1,184,369).......................................... 1,190,874
Neuberger & Berman Advisers Management Trust -
Growth Portfolio; 355,793 shares (cost $9,498,920) .................................................... 11,107,852
Oppenheimer Funds:
Capital Appreciation Fund; 34,954 shares (cost $1,447,911)............................................. 1,550,903
Global Securities Fund; 75,431 shares (cost $1,557,562)................................................ 1,651,188
Growth & Income Fund; 204,100 shares (cost $3,874,090)................................................. 4,100,373
Strategic Bond Fund; 257,943 shares (cost $1,325,228).................................................. 1,330,985
Scudder Variable Life Investment Fund -
International Portfolio; 929,324 shares (cost $11,637,893) ............................................ 13,902,691
American Century Investments:
Balanced Fund; 586,152 shares (cost $4,314,649) ....................................................... 4,853,338
Growth Fund; 3,007,517 shares (cost $29,356,354) ...................................................... 33,443,587
International Fund; 986,683 shares (cost $5,864,286) .................................................. 7,005,453
---------------
NET ASSETS (cost $2,295,044,226).......................................................................... $2,810,266,329
===============
</TABLE>
Net assets represented by:
Reserves for annuity contracts in accumulation and payment period: (Notes 1 and
5)
<TABLE>
<S> <C>
Aetna Variable Fund:
Annuity contracts in accumulation....................................................................... $897,476,513
Annuity contracts in payment period..................................................................... 124,009,682
Aetna Income Shares:
Annuity contracts in accumulation....................................................................... 65,387,658
Annuity contracts in payment period..................................................................... 3,599,543
Aetna Variable Encore Fund:
Annuity contracts in accumulation....................................................................... 114,283,916
Aetna Investment Advisers Fund, Inc.:
Annuity contracts in accumulation....................................................................... 145,761,236
Annuity contracts in payment period..................................................................... 11,458,741
Aetna GET Fund, Series B:
Annuity contracts in accumulation....................................................................... 21,515,263
Aetna GET Fund, Series C:
Annuity contracts in accumulation....................................................................... 11,078,375
Aetna Ascent Variable Portfolio:
Annuity contracts in accumulation....................................................................... 17,786,236
Aetna Crossroads Variable Portfolio:
Annuity contracts in accumulation....................................................................... 17,068,085
Aetna Legacy Variable Portfolio:
Annuity contracts in accumulation....................................................................... 16,297,573
Annuity contracts in payment period..................................................................... 648,325
Aetna Variable Portfolios, Inc.:
Capital Appreciation Portfolio:
Annuity contracts in accumulation....................................................................... 1,276,807
S-3
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - September 30, 1997:
(Unaudited & continued)
Growth Portfolio:
Annuity contracts in accumulation....................................................................... $1,021,806
Index Plus Portfolio:
Annuity contracts in accumulation....................................................................... 19,683,318
Annuity contracts in payment period..................................................................... 12,050
Small Company Portfolio:
Annuity contracts in accumulation....................................................................... 2,477,299
Annuity contracts in payment period..................................................................... 35,339
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation....................................................................... 6,228,830
Growth Portfolio:
Annuity contracts in accumulation....................................................................... 65,492,097
Income and Growth Portfolio:
Annuity contracts in accumulation....................................................................... 14,532,986
Leveraged AllCap Portfolio:
Annuity contracts in accumulation....................................................................... 16,136,504
MidCap Portfolio:
Annuity contracts in accumulation....................................................................... 29,884,640
Small Capitalization Portfolio:
Annuity contracts in accumulation....................................................................... 75,939,936
Annuity contracts in payment period..................................................................... 460,475
Calvert Responsibly Invested Balanced Portfolio:
Annuity contracts in accumulation....................................................................... 957,829
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation....................................................................... 122,953,847
Growth Portfolio:
Annuity contracts in accumulation....................................................................... 77,566,808
High Income Portfolio:
Annuity contracts in accumulation....................................................................... 29,821,656
Overseas Portfolio:
Annuity contracts in accumulation....................................................................... 14,292,844
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation....................................................................... 10,146,694
Contrafund Portfolio:
Annuity contracts in accumulation....................................................................... 102,576,926
Index 500 Portfolio:
Annuity contracts in accumulation....................................................................... 65,688,657
Investment Grade Bond Portfolio:
Annuity contracts in accumulation....................................................................... 6,403,284
Insurance Management Series:
American Leaders Fund II:
Annuity contracts in accumulation....................................................................... 110,698,902
Annuity contracts in payment period..................................................................... 47,771
Equity Income Fund II:
Annuity contracts in accumulation....................................................................... 14,638,749
Growth Strategies Fund II:
Annuity contracts in accumulation....................................................................... 21,356,573
High Income Bond Fund II:
Annuity contracts in accumulation....................................................................... 49,539,085
S-4
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - September 30, 1997:
(Unaudited & continued)
International Equity Fund II:
Annuity contracts in accumulation....................................................................... $12,864,883
Prime Money Fund II:
Annuity contracts in accumulation....................................................................... 7,809,837
U.S. Government Securities Fund II:
Annuity contracts in accumulation....................................................................... 12,593,511
Utility Fund II:
Annuity contracts in accumulation....................................................................... 22,815,052
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation....................................................................... 38,438,110
Balanced Portfolio:
Annuity contracts in accumulation....................................................................... 27,137,241
Flexible Income Portfolio:
Annuity contracts in accumulation....................................................................... 8,400,167
Growth Portfolio:
Annuity contracts in accumulation....................................................................... 37,693,320
Annuity contracts in payment period..................................................................... 332,101
Short-Term Bond Portfolio:
Annuity contracts in accumulation....................................................................... 3,892,969
Worldwide Growth Portfolio:
Annuity contracts in accumulation....................................................................... 161,943,539
Annuity contracts in payment period..................................................................... 1,777,159
Lexington Emerging Markets Fund:
Annuity contracts in accumulation....................................................................... 4,181,149
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation....................................................................... 8,842,103
MFS Funds:
Emerging Growth Series:
Annuity contracts in accumulation....................................................................... 25,069,455
Research Series:
Annuity contracts in accumulation....................................................................... 32,359,825
Total Return Series:
Annuity contracts in accumulation....................................................................... 14,995,092
Value Series:
Annuity contracts in accumulation....................................................................... 2,740,713
Worldwide Government Series:
Annuity contracts in accumulation....................................................................... 1,190,874
Neuberger & Berman Advisers Management Trust - Growth Portfolio:
Annuity contracts in accumulation....................................................................... 10,735,740
Annuity contracts in payment period..................................................................... 372,112
Oppenheimer Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation....................................................................... 1,550,903
Global Securities Fund:
Annuity contracts in accumulation....................................................................... 1,651,188
Growth & Income Fund:
Annuity contracts in accumulation....................................................................... 4,100,373
Strategic Bond Fund:
Annuity contracts in accumulation....................................................................... 1,330,985
Scudder Variable Life Investment Fund - International Portfolio:
Annuity contracts in accumulation....................................................................... 13,902,691
S-5
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - September 30, 1997:
(Unaudited & continued)
American Century Investments:
Balanced Fund:
Annuity contracts in accumulation....................................................................... $4,853,338
Growth Fund:
Annuity contracts in accumulation....................................................................... 33,443,587
International Fund:
Annuity contracts in accumulation....................................................................... 7,005,453
---------------
$2,810,266,329
===============
</TABLE>
See Notes to Financial Statements
S-6
<PAGE>
Variable Annuity Account B
Statements of Operations and Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Period Ended September 30,
1997 1996
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ....................................................... $92,503,676 $41,813,635
Expenses: (Notes 2 and 5)
Valuation Period Deductions ..................................... (20,446,622) (12,198,407)
------------ -----------
Net investment income .............................................. 72,057,054 29,615,228
------------ -----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales .............................................. 407,504,790 255,204,859
Cost of investments sold ......................................... 383,844,129 246,674,035
------------ -----------
Net realized gain .............................................. 23,660,660 8,530,824
Net unrealized gain (loss) on investments: (Note 5)
Beginning of Period .............................................. 122,191,053 28,743,118
End of Period .................................................... 515,222,103 119,911,359
------------ -----------
Net change in unrealized gain .................................. 393,031,050 91,168,241
------------ -----------
Net realized and unrealized gain on investments .................... 416,691,710 99,699,065
------------ -----------
Net increase in net assets resulting from operations ............... 488,748,764 129,314,293
------------ -----------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ........................ 437,102,959 400,911,706
Sales and administrative charges deducted by the Company ........... (11,104) (13,649)
------------ -----------
Net variable annuity contract purchase payments................. 437,091,855 400,898,057
Transfers from the Company for mortality guarantee adjustments ..... (20,263) 622,739
Transfers from the Company's fixed account options ................. 105,550,336 33,667,434
Redemptions by contract holders .................................... (60,162,998) (58,057,423)
Annuity Payments ................................................... (11,288,033) (7,829,125)
Other .............................................................. 1,534,943 (108,980)
------------ -----------
Net increase in net assets from unit transactions (Note 5) ..... 472,705,839 369,192,702
------------ -----------
Change in net assets ............................................... 961,454,603 498,506,995
NET ASSETS:
Beginning of Period ................................................ 1,848,811,724 1,130,935,704
------------ -----------
End of Period ...................................................... $2,810,266,329 $1,629,442,699
============== ==============
</TABLE>
See Notes to Financial Statements
S-7
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1997 (Unaudited):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Value Increase (Decrease) Units
Per Unit in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Variable Fund:
<S> <C> <C> <C> <C> <C>
Non-Qualified 1964 $184.327 $241.237 30.87% 958.7 $231,267
Non-Qualified V 17.173 22.475 30.87% 10,761,725.8 241,866,365
Non-Qualified V (0.75) 17.246 22.655 31.36% 15,022,933.9 340,345,453
Non-Qualified VI 16.061 21.029 30.93% 2,112,904.0 44,432,088
Non-Qualified VII 17.181 22.459 30.72% 7,552,902.9 169,626,363
Non-Qualified IX 17.278 22.448 29.92% (2) 200,241.3 4,494,981
Non-Qualified X 19.527 22.493 15.19% (4) 4,230,703.7 95,159,170
Non-Qualified XI 18.267 21.046 15.21% (4) 62,760.2 1,320,826
Annuity contracts in payment period 124,009,682
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares:
Non-Qualified V $12.493 $13.172 5.44% 1,191,139.0 15,690,073
Non-Qualified V (0.75) 12.546 13.278 5.84% 1,986,262.7 26,373,908
Non-Qualified VI 11.403 12.029 5.49% 52,906.8 636,419
Non-Qualified VII 12.294 12.948 5.32% 1,192,729.1 15,442,517
Non-Qualified IX 12.417 13.156 5.95% (2) 35,275.2 464,100
Non-Qualified X 12.747 13.179 3.39% (4) 513,330.2 6,764,977
Non-Qualified XI 11.639 12.035 3.40% (4) 1,301.6 15,665
Annuity contracts in payment period 3,599,543
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund:
Non-Qualified V $11.453 $11.805 3.08% 1,039,068.9 12,266,715
Non-Qualified V (0.75) 11.502 11.900 3.46% 2,073,314.1 24,673,106
Non-Qualified VI 11.170 11.518 3.12% 78,226.0 901,024
Non-Qualified VII 11.394 11.730 2.95% 5,815,030.3 68,214,539
Non-Qualified IX 11.572 11.791 1.89% (2) 24,802.6 292,456
Non-Qualified X 11.654 11.805 1.30% (4) 667,171.3 7,876,282
Non-Qualified XI 11.368 11.518 1.32% (4) 5,191.4 59,796
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.:
Non-Qualified V $15.698 $18.671 18.94% 3,190,780.9 59,576,963
Non-Qualified V (0.75) 15.765 18.821 19.39% 1,984,142.5 37,344,585
Non-Qualified VI 13.188 15.693 18.99% 49,566.0 777,834
Non-Qualified VII 15.445 18.349 18.80% 2,082,397.4 38,209,055
Non-Qualified IX 15.823 18.649 17.86% (2) 26,426.6 492,837
Non-Qualified X 16.898 18.686 10.58% (4) 494,257.2 9,235,898
Non-Qualified XI 14.199 15.705 10.61% (4) 7,899.4 124,064
Annuity contracts in payment period 11,458,741
- ---------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B:
Non-Qualified V $15.633 $21.181 35.49% 929,864.8 19,695,624
Non-Qualified X 18.061 21.181 17.27% (4) 85,908.3 1,819,638
- ---------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C:
Non-Qualified V $10.241 $12.409 21.17% 225,774.7 2,801,621
Non-Qualified V (0.75) 10.256 12.473 21.62% 626,789.9 7,818,208
Non-Qualified IX 10.413 12.394 19.02% (2) 29,386.4 364,218
Non-Qualified X 11.359 12.409 9.24% (4) 7,601.6 94,328
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio:
Non-Qualified V $12.999 $15.590 19.93% 282,449.4 4,403,452
Non-Qualified V (0.75) 13.055 15.715 20.38% 78,625.8 1,235,636
Non-Qualified VII 12.970 15.537 19.79% 759,295.8 11,796,888
Non-Qualified IX 12.994 15.571 19.83% (2) 863.5 13,446
Non-Qualified X 13.943 15.607 11.93% (4) 21,580.2 336,814
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio:
Non-Qualified V $12.430 $14.530 16.90% 161,731.9 2,349,981
Non-Qualified V (0.75) 12.483 14.647 17.34% 81,837.1 1,198,650
Non-Qualified VII 12.402 14.480 16.76% 919,215.3 13,310,348
Non-Qualified IX 12.428 14.513 16.78% (2) 7,825.3 113,566
Non-Qualified X 13.178 14.546 10.38% (4) 6,568.0 95,540
- ---------------------------------------------------------------------------------------------------------------------------
S-8
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1997 (Unaudited &
continued):
- ---------------------------------------------------------------------------------------------------------------------------
Value Increase (Decrease) Units
Per Unit in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio:
Non-Qualified V $11.776 $13.294 12.89% 104,454.8 $1,388,681
Non-Qualified V (0.75) 11.826 13.401 13.32% 33,372.6 447,238
Non-Qualified VII 11.751 13.250 12.76% 1,088,738.5 14,426,278
Non-Qualified IX 12.076 13.279 9.96% (3) 364.5 4,840
Non-Qualified X 12.335 13.309 7.90% (4) 2,294.3 30,536
Annuity contracts in payment period 648,325
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Variable Portfolios, Inc:
Capital Appreciation Portfolio:
Non-Qualified VII $10.856 $13.367 23.13% (3) 95,521.5 1,276,807
- ---------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified VII $11.084 $13.834 24.81% (3) 73,859.4 1,021,806
- ---------------------------------------------------------------------------------------------------------------------------
Index Plus Portfolio:
Non-Qualified V $10.924 $14.100 29.08% 241,360.3 3,403,267
Non-Qualified V (0.75) 10.940 14.174 29.56% 351,299.6 4,979,379
Non-Qualified VII 10.919 14.077 28.92% 791,292.9 11,138,898
Non-Qualified IX 11.345 14.083 24.13% (2) 11,486.8 161,774
Annuity contracts in payment period 12,050
- ---------------------------------------------------------------------------------------------------------------------------
Small Company Portfolio:
Non-Qualified VII $10.603 $14.070 32.70% (3) 176,064.3 2,477,299
Annuity contracts in payment period 35,339
- ---------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Non-Qualified VII $13.673 $16.437 20.21% 378,959.7 6,228,830
- ---------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V $11.370 $14.667 29.01% 223,059.4 3,271,724
Non-Qualified V (0.75) 11.418 14.785 29.49% 355,424.6 5,255,063
Non-Qualified VII 14.506 18.691 28.85% 3,020,580.1 56,458,113
Non-Qualified IX 11.648 14.650 25.77% (2) 9,542.5 139,797
Non-Qualified X 12.631 14.667 16.12% (4) 25,048.5 367,400
- ---------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio:
Non-Qualified VII $12.578 $16.762 33.26% 867,024.2 14,532,986
- ---------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Non-Qualified VII $13.548 $17.014 25.58% 948,420.4 16,136,504
- ---------------------------------------------------------------------------------------------------------------------------
MidCap Portfolio:
Non-Qualified VII $15.417 $18.916 22.69% 1,579,873.1 29,884,640
- ---------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio:
Non-Qualified V $14.109 $16.606 17.70% 749,115.1 12,439,596
Non-Qualified V (0.75) 14.169 16.739 18.14% 682,555.6 11,425,396
Non-Qualified VII 13.656 16.053 17.56% 3,216,994.6 51,643,544
Non-Qualified IX 12.869 16.586 28.88% (2) 13,929.6 231,034
Non-Qualified X 13.595 16.606 22.15% (4) 12,066.1 200,366
Annuity contracts in payment period 460,475
- ---------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested Balanced Portfolio:
Non-Qualified V $14.992 $17.708 18.11% 19,127.8 338,709
Non-Qualified V (0.75) 15.056 17.850 18.56% 34,684.9 619,120
- ---------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Non-Qualified V $12.475 $15.520 24.41% 313,180.5 4,860,678
Non-Qualified V (0.75) 12.529 15.645 24.87% 648,188.9 10,140,900
Non-Qualified VII 15.013 18.655 24.26% 5,770,585.4 107,648,315
Non-Qualified IX 12.668 15.502 22.37% (2) 6,924.3 107,339
Non-Qualified X 14.017 15.520 10.72% (4) 12,668.2 196,616
- ---------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V $11.402 $14.061 23.32% 216,302.5 3,041,461
Non-Qualified V (0.75) 11.451 14.174 23.78% 419,276.6 5,942,857
Non-Qualified VII 15.734 19.380 23.17% 3,529,641.2 68,406,489
Non-Qualified IX 11.373 14.044 23.49% (2) 8,582.0 120,528
Non-Qualified X 12.498 14.061 12.51% (4) 3,945.1 55,473
- ---------------------------------------------------------------------------------------------------------------------------
S-9
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1997 (Unaudited &
continued):
- ---------------------------------------------------------------------------------------------------------------------------
Value Increase (Decrease) Units
Per Unit in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Non-Qualified VII $12.031 $13.874 15.32% 2,149,385.1 $29,821,656
- ---------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Non-Qualified V $11.238 $13.306 18.40% 48,860.6 650,157
Non-Qualified V (0.75) 11.286 13.413 18.85% 94,804.0 1,271,628
Non-Qualified VII 12.439 14.710 18.26% 839,007.1 12,342,052
Non-Qualified IX 11.356 13.290 17.03% (2) 2,182.5 29,006
- ---------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Non-Qualified VII $13.180 $15.402 16.87% 658,767.6 10,145,694
- ---------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Non-Qualified V $12.540 $15.623 24.59% 420,697.7 6,572,735
Non-Qualified V (0.75) 12.593 15.749 25.06% 660,201.4 10,397,408
Non-Qualified VII 13.943 17.350 24.44% 4,912,874.6 85,240,467
Non-Qualified IX 12.473 15.605 25.11% (2) 14,153.9 220,867
Non-Qualified X 13.535 15.623 15.43% (4) 9,309.6 145,447
- ---------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Non-Qualified VII $13.728 $17.540 27.77% 3,745,095.9 65,688,657
- ---------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Non-Qualified VII $10.784 $11.332 5.08% 565,060.3 6,403,284
- ---------------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II:
Non-Qualified VII $15.548 $19.882 27.88% 5,567,700.2 110,698,902
Annuity contracts in payment period 47,771
- ---------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Non-Qualified VII $10.534 $12.319 16.95% (1) 1,188,295.8 14,638,749
- ---------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Non-Qualified VII $12.596 $16.784 33.25% 1,272,398.8 21,356,573
- ---------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Non-Qualified VII $13.119 $14.480 10.37% 3,421,242.7 49,539,085
- ---------------------------------------------------------------------------------------------------------------------------
International Equity Fund II:
Non-Qualified VII $10.952 $12.338 12.66% 1,042,688.2 12,864,883
- ---------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Non-Qualified VII $10.748 $11.020 2.54% 708,686.7 7,809,837
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Non-Qualified VII $11.099 $11.642 4.89% 1,081,708.3 12,593,511
- ---------------------------------------------------------------------------------------------------------------------------
Utility Fund II:
Non-Qualified VII $13.303 $14.757 10.93% 1,546,059.6 22,815,052
- ---------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Non-Qualified V $13.850 $15.181 9.61% 467,047.3 7,090,059
Non-Qualified V (0.75) 13.909 15.302 10.02% 436,667.3 6,682,143
Non-Qualified VII 13.879 15.194 9.48% 1,592,521.1 24,196,793
Non-Qualified IX 12.282 15.162 23.45% (2) 10,881.1 164,983
Non-Qualified X 13.806 15.181 9.96% (4) 20,034.2 304,132
- ---------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Non-Qualified V $12.431 $14.704 18.28% 171,090.7 2,515,698
Non-Qualified V (0.75) 12.484 14.822 18.72% 117,504.4 1,741,642
Non-Qualified VII 13.865 16.379 18.14% 1,388,762.1 22,746,988
Non-Qualified IX 12.742 14.686 15.26% (2) 7,080.3 103,983
Non-Qualified X 13.554 14.704 8.48% (4) 1,967.5 28,930
- ---------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Non-Qualified V $13.040 $13.995 7.32% 105,753.8 1,480,057
Non-Qualified V (0.75) 13.096 14.108 7.72% 89,551.3 1,263,365
Non-Qualified VII 12.995 13.930 7.19% 403,620.2 5,622,377
Non-Qualified IX 13.043 13.978 7.17% (2) 2,458.6 34,368
- ---------------------------------------------------------------------------------------------------------------------------
S-10
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1997 (Unaudited &
continued):
- ---------------------------------------------------------------------------------------------------------------------------
Value Increase (Decrease) Units
Per Unit in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V $12.716 $15.629 22.91% 185,405.3 $2,897,789
Non-Qualified V (0.75) 12.770 15.755 23.37% 191,126.6 3,011,198
Non-Qualified VII 15.153 18.604 22.77% 1,705,200.0 31,722,694
Non-Qualified IX 12.975 15.611 20.32% (2) 3,197.6 49,917
Non-Qualified X 13.985 15.629 11.76% (4) 750.0 11,722
Annuity contracts in payment period 332,101
- ---------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio:
Non-Qualified V $10.602 $11.035 4.08% 11,346.2 125,204
Non-Qualified V (0.75) 10.648 11.123 4.47% 110,000.3 1,223,590
Non-Qualified VII 11.036 11.473 3.96% 221,257.7 2,538,471
Non-Qualified IX 10.694 11.022 3.07% (2) 517.6 5,705
- ---------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Non-Qualified V $13.880 $17.421 25.51% 911,579.2 15,880,807
Non-Qualified V (0.75) 13.940 17.561 25.98% 1,363,610.4 23,946,434
Non-Qualified VII 15.701 19.682 25.36% 6,139,679.0 120,841,954
Non-Qualified IX 14.460 17.400 20.33% (2) 27,063.1 470,907
Non-Qualified X 15.851 17.421 9.90% (4) 46,118.3 803,437
Annuity contracts in payment period 1,777,159
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Non-Qualified VII $9.829 $10.823 10.11% 386,307.2 4,181,149
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Non-Qualified V $13.132 $16.070 22.38% 164,092.9 2,637,088
Non-Qualified V (0.75) 13.188 16.199 22.84% 107,119.5 1,735,306
Non-Qualified VII 13.056 15.959 22.24% 255,717.7 4,081,117
Non-Qualified IX 12.300 16.051 30.50% (2) 4,569.2 73,343
Non-Qualified X 13.610 16.070 18.07% (4) 19,616.4 315,249
- ---------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Emerging Growth Series:
Non-Qualified VII $10.074 $12.559 24.66% (2) 1,996,176.9 25,069,455
- ---------------------------------------------------------------------------------------------------------------------------
Research Series:
Non-Qualified VII $10.970 $13.327 21.49% (2) 2,428,057.0 32,359,825
- ---------------------------------------------------------------------------------------------------------------------------
Total Return Series:
Non-Qualified VII $10.894 $12.707 16.63% (2) 1,180,088.3 14,995,092
- ---------------------------------------------------------------------------------------------------------------------------
Value Series:
Non-Qualified VII $10.334 $12.576 21.69% (4) 217,924.6 2,740,713
- ---------------------------------------------------------------------------------------------------------------------------
World Government Series:
Non-Qualified VII $10.471 $10.334 (1.30%) (2) 115,237.7 1,190,874
- ---------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust -
Growth Portfolio:
Non-Qualified V $17.105 $22.348 30.65% 297,525.8 6,649,116
Non-Qualified V (0.75) 17.178 22.527 31.14% 158,672.4 3,574,495
Non-Qualified IX 17.881 22.321 24.83% (2) 2,370.9 52,922
Non-Qualified X 19.325 22.348 15.64% (4) 20,548.0 459,207
Annuity contracts in payment period 372,112
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Capital Appreciation Fund:
Non-Qualified VII $10.725 $13.267 23.70% (3) 116,902.3 1,550,903
- ---------------------------------------------------------------------------------------------------------------------------
Global Securities Fund:
Non-Qualified VII $10.457 $11.862 13.44% (3) 139,202.2 1,651,188
- ---------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund:
Non-Qualified VII $10.497 $12.493 19.01% (3) 328,198.4 4,100,373
- ---------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund:
Non-Qualified VII $10.167 $10.678 5.03% (3) 124,647.8 1,330,985
- ---------------------------------------------------------------------------------------------------------------------------
S-11
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1997 (Unaudited &
continued):
- ---------------------------------------------------------------------------------------------------------------------------
Value Increase (Decrease) Units
Per Unit in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio:
Non-Qualified V $16.633 $19.055 14.56% 436,176.9 $8,311,365
Non-Qualified V (0.75) 16.704 19.208 14.99% 280,801.8 5,393,661
Non-Qualified IX 16.632 19.032 14.43% (2) 4,360.9 82,997
Non-Qualified X 18.287 19.055 4.20% (4) 6,017.7 114,668
- ---------------------------------------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund:
Non-Qualified VII $13.410 $15.441 15.15% 314,309.3 4,853,338
- ---------------------------------------------------------------------------------------------------------------------------
Growth Fund:
Non-Qualified V $13.298 $14.641 10.10% 685,936.7 10,042,970
Non-Qualified V (0.75) 13.355 14.759 10.51% 465,399.6 6,868,819
Non-Qualified VI 11.222 12.361 10.15% 12,365.4 152,847
Non-Qualified VII 13.211 14.528 9.97% 962,512.7 13,983,722
Non-Qualified IX 11.682 14.624 25.18% (2) 18,653.9 272,790
Non-Qualified X 12.518 14.641 16.96% (4) 144,417.1 2,114,446
Non-Qualified XI 10.567 12.361 16.98% (4) 646.7 7,993
- ---------------------------------------------------------------------------------------------------------------------------
International Fund:
Non-Qualified VII $11.782 $14.357 21.85% 487,944.4 7,005,453
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Non-Qualified 1964 - Individual contracts issued from December 1, 1964 to
March 14, 1967.
Non-Qualified V - Group Aetna Plus contracts issued in connection with
Deferred Compensation Plans issued since August 28, 1992.
Non-Qualified VI - Certain existing contracts that were converted to ACES, an
adminstrative system (previously valued under
Non-Qualified I).
Non-Qualified VII - Certain individual and group contracts issued as
non-qualified deferred annuity contracts or Individual
Retirement Annuity contracts issued since May 4, 1994.
Non-Qualified IX - Group Aetna Plus contracts issued in connection with
Deferred Compensation Plans having contract modifications
effective April 7, 1997.
Non-Qualified X - Group Aetna Plus contracts issued in connection with
Deferred Compensation Plans having contract modifications
effective May 29, 1997.
Non-Qualified XI - Certain contracts previously valued under Non-Qualified VI
having contract modifications effective May 29, 1997.
Notes to Condensed Financial Information:
(1) - Reflects less than a full year of performance activity.
Funds were first received in this option during February 1997.
(2) - Reflects less than a full year of performance activity.
Funds were first received in this option during April 1997.
(3) - Reflects less than a full year of performance activity.
Funds were first received in this option during May 1997.
(4) - Reflects less than a full year of performance activity.
Funds were first received in this option during June 1997.
See Notes to Financial Statements
S-12
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1997 (Unaudited):
1. Summary of Significant Accounting Policies
Variable Annuity Account B ("Account") is a separate account established by
Aetna Life Insurance and Annuity Company registered under the Investment
Company Act of 1940 as a unit investment trust. The Account is sold
exclusively for use with variable annuity contracts that may be entitled to
tax-deferred treatment under specific sections of the Internal Revenue Code
of 1986, as amended.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Account.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset
value per share as determined by each Fund on September 30, 1997:
<TABLE>
<S> <C>
Aetna Variable Fund Insurance Management Series:
Aetna Income Shares [bullet]American Leaders Fund II
Aetna Variable Encore Fund [bullet][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]Short-Term Bond Portfolio
[bullet]Balanced Portfolio [bullet]Worldwide Growth Portfolio
[bullet]Growth Portfolio Lexington Fund Emerging Markets Fund
[bullet]Income and Growth Portfolio Lexington Natural Resources Trust Fund
[bullet]Leveraged AllCap Portfolio MFS Funds:
[bullet]MidCap Portfolio [bullet]Emerging Growth Series
[bullet]Small Capitalization Portfolio [bullet]Research Series
Calvert Responsibly Invested Balanced Portfolio [bullet]Total Return Series
Fidelity Investments Variable Insurance Products Fund: [bullet]Value Series
[bullet]Equity-Income Portfolio [bullet]World Government Series
[bullet]Growth Portfolio Neuberger & Berman Advisers Management Trust -
[bullet]High Income Portfolio Growth Portfolio
[bullet]Overseas Portfolio Oppenheimer Funds:
Fidelity Investments Variable Insurance Products Fund II: [bullet]Capital Appreciation Fund
[bullet]Asset Manager Portfolio [bullet]Global Securities Fund
[bullet]Contrafund Portfolio [bullet]Growth & Income Fund
[bullet]Index 500 Portfolio [bullet]Strategic Bond Fund
[bullet]Investment Grade Bond Portfolio Scudder Variable Life Investment Fund -
International Portfolio.:
American Century Investments:
[bullet]Balanced Fund
[bullet]Growth Fund
[bullet]International Fund
</TABLE>
S-13
<PAGE>
Notes to Financial Statements - September 30, 1997 (Unaudited & continued):
b. Other
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of Aetna Life Insurance and Annuity Company ("Company") which is
taxed as a life insurance company under the Internal Revenue Code of 1986,
as amended.
d. Annuity Reserves
Annuity reserves held in the Separate Accounts are computed for currently
payable contracts according to the Progressive Annuity, a49, 1971
Individual Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983
Group Annuity Mortality tables using various assumed interest rates not to
exceed seven percent. Mortality experience is monitored by the Company.
Charges to annuity reserves for mortality experience are reimbursed to the
Company if the reserves required are less than originally estimated. If
additional reserves are required, the Company reimburses the Account.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made
in accordance with the terms of the contracts and are paid to the Company.
3. Dividend Income
On an annual basis, the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions to
the Account are automatically reinvested in shares of the Funds. The
Account's proportionate share of each Fund's undistributed net investment
income (distributions in excess of net investment income) and accumulated
net realized gain (loss) on investments is included in net unrealized gain
(loss) in the Statements of Operations and Changes in Net Assets.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended September 30, 1997 and September
30, 1996 aggregated $952,245,003 and $407,504,790; $654,012,777 and
$255,204,859, respectively.
S-14
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1997 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and Changes in
Net Assets - Period Ended September 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $37,724,926 ($6,749,715) $47,355,137 $38,498,270 $8,856,867
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 1,864,035 (551,616) 10,202,086 9,658,871 543,215
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 4,149,350 (1,005,952) 118,254,855 120,485,173 (2,230,318)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 13,237,287 (1,208,043) 9,204,012 7,317,617 1,886,395
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 3,290,890 (207,464) 846,187 546,550 299,637
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 82,970 (87,387) 572,510 520,924 51,586
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 153,346 (109,968) 2,264,765 1,970,575 294,190
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 162,207 (108,443) 1,014,000 837,354 176,646
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 185,742 (114,833) 707,861 637,589 70,272
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Portfolios, Inc:
Capital Appreciation Portfolio: 0 (2,356) 46,820 40,089 6,731
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 0 (2,039) 86,865 73,714 13,151
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Index Plus Portfolio: 0 (82,479) 1,522,575 1,241,685 280,890
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Small Company Portfolio: 0 (3,850) 20,966 18,613 2,353
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 142,299 (52,841) 495,137 690,834 (195,697)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 506,477 (550,331) 11,241,313 9,399,886 1,841,427
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio: 401,543 (105,780) 1,048,281 1,960,099 (911,818)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
S-15
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net
Net Unrealized Net Increase (Decrease)
Gain (Loss) Change in In Net Assets Net Assets
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund: $59,979,314 $257,190,837 $197,211,523 $49,982,347
Annuity contracts in accumulation $644,728,031 $897,476,513
Annuity contracts in payment period 89,732,216 124,009,682
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 379,633 2,264,125 1,884,492 (4,870,961)
Annuity contracts in accumulation 66,534,546 65,387,657
Annuity contracts in payment period 3,583,489 3,599,543
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: (540,607) 1,922,652 2,463,259 4,125,579
Annuity contracts in accumulation 106,781,998 114,283,916
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 15,114,435 26,343,271 11,228,836 4,730,806
Annuity contracts in accumulation 119,402,212 145,761,236
Annuity contracts in payment period 7,942,484 11,458,741
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 4,487,610 6,814,908 2,327,298 (528,437)
Annuity contracts in accumulation 16,333,339 21,515,263
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 144,834 2,067,704 1,922,870 (172,940)
Annuity contracts in accumulation 9,281,276 11,078,375
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 276,453 2,344,612 2,068,159 9,741,842
Annuity contracts in accumulation 5,638,668 17,786,237
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 151,493 1,967,236 1,815,743 9,726,232
Annuity contracts in accumulation 5,295,700 17,068,085
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 46,576 1,466,292 1,419,716 9,198,014
Annuity contracts in accumulation 6,186,987 16,297,573
Annuity contracts in payment period 648,325
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Portfolios, Inc:
Capital Appreciation Portfolio: 0 63,469 63,469 1,208,963
Annuity contracts in accumulation 0 1,276,807
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 0 62,071 62,071 948,623
Annuity contracts in accumulation 0 1,021,806
- ------------------------------------------------------------------------------------------------------------------------------------
Index Plus Portfolio: (4,046) 1,882,631 1,886,677 15,624,908
Annuity contracts in accumulation 1,985,372 19,683,318
Annuity contracts in payment period 12,050
- ------------------------------------------------------------------------------------------------------------------------------------
Small Company Portfolio: 0 169,712 169,712 (132,876)
Annuity contracts in accumulation 0 2,477,299
Annuity contracts in payment period 0 35,339
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: (461,380) 597,081 1,058,461 1,499,317
Annuity contracts in accumulation 3,777,291 6,228,830
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 2,349,936 14,482,639 12,132,703 8,016,818
Annuity contracts in accumulation 43,545,003 65,492,097
- ------------------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio: (828,912) 2,653,508 3,482,420 5,195,034
Annuity contracts in accumulation 6,471,587 14,532,986
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-16
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1997 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and Changes in
Net Assets - Period Ended September 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Leveraged AllCap Portfolio: $0 ($141,769) $4,850,330 $4,352,022 $498,308
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
MidCap Growth Portfolio: 350,028 (245,220) 13,756,518 12,108,774 1,647,744
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 2,260,717 (574,456) 38,096,032 38,127,007 (30,975)
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested Balanced Portfolio: 0 (4,930) 133,837 132,656 1,181
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 7,870,976 (969,238) 11,672,331 10,203,470 1,468,861
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 2,159,319 (671,279) 9,351,302 8,861,132 490,170
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 1,270,071 (223,963) 1,728,249 1,635,705 92,544
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 863,493 (118,612) 2,227,956 1,996,280 231,676
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 761,827 (82,017) 512,532 467,919 44,613
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 1,931,363 (771,940) 8,425,279 6,774,129 1,651,150
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 1,159,193 (520,474) 11,964,110 9,388,443 2,575,667
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 277,920 (55,868) 792,831 797,383 (4,552)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II: 2,033,587 (873,258) 1,238,783 797,309 441,474
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II: 52,763 (47,713) 173,696 153,762 19,934
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 63,162 (135,927) 393,575 294,301 99,274
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 2,232,254 (392,662) 4,297,286 3,984,630 312,656
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 8,680 (91,508) 645,696 561,875 83,821
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
S-17
<PAGE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Net
Net Unrealized Net Increase (Decrease)
Gain (Loss) Change in In Net Assets Net Assets
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leveraged AllCap Portfolio: $220,810 $3,101,881 $2,881,071 $1,479,166
Annuity contracts in accumulation $11,419,728 $16,136,504
- -------------------------------------------------------------------------------------------------------------------------------
MidCap Growth Portfolio: 682,424 4,083,691 3,401,267 4,888,094
Annuity contracts in accumulation 19,842,727 29,884,640
- -------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: (495,260) 8,940,242 9,435,502 6,558,194
Annuity contracts in accumulation 58,751,429 75,939,936
Annuity contracts in payment period 460,475
- -------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested
Balanced Portfolio: (881) 129,310 130,191 234,750
Annuity contracts in accumulation 596,637 957,829
- -------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund:
Equity-Income Portfolio: 5,773,475 18,508,843 12,735,368 29,367,383
Annuity contracts in accumulation 72,480,497 122,953,847
- -------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 3,258,300 15,428,760 12,170,460 5,489,654
Annuity contracts in accumulation 57,928,484 77,566,808
- -------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 814,429 2,954,061 2,139,632 11,833,908
Annuity contracts in accumulation 14,709,464 29,821,656
- -------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 743,689 1,764,382 1,020,693 2,592,323
Annuity contracts in accumulation 9,703,271 14,292,844
- -------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio: 484,182 985,052 500,870 2,989,938
Annuity contracts in accumulation 5,931,464 10,146,695
- -------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 6,210,754 21,740,976 15,530,222 27,697,513
Annuity contracts in accumulation 56,538,618 102,576,926
- -------------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 2,241,040 10,787,921 8,546,881 26,547,020
Annuity contracts in accumulation 27,380,370 65,688,657
- -------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 175,829 229,220 53,391 1,370,716
Annuity contracts in accumulation 4,761,677 6,403,284
- -------------------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II: 8,810,467 27,803,358 18,992,891 29,024,924
Annuity contracts in accumulation 61,127,055 110,698,902
Annuity contracts in payment period 47,771
- -------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II: 0 802,800 802,800 13,810,965
Annuity contracts in accumulation 0 14,638,749
- -------------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 733,393 4,953,212 4,219,819 9,928,067
Annuity contracts in accumulation 7,182,178 21,356,573
- -------------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 1,022,582 2,848,732 1,826,150 18,409,550
Annuity contracts in accumulation 27,151,137 49,539,085
- -------------------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 307,602 1,401,050 1,093,448 5,834,852
Annuity contracts in accumulation 5,935,590 12,864,883
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-18
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1997 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and Changes in
Net Assets - Period Ended September 30, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime Money Fund II: $268,398 ($80,146) $6,315,251 $6,315,251 $0
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 366,225 (102,447) 2,093,431 2,087,121 6,310
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Utility Fund II: 838,523 (205,591) 1,008,992 786,894 222,098
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (299,872) 16,900,783 16,578,039 322,744
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 522,071 (196,229) 1,584,011 1,315,242 268,769
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 275,200 (63,828) 907,455 886,687 20,768
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 857,995 (297,376) 1,713,320 1,361,081 352,239
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: 62,602 (27,084) 6,315,169 6,300,512 14,657
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 1,731,299 (1,113,695) 10,448,820 7,431,111 3,017,709
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 2,717 (41,097) 3,415,868 3,217,637 198,231
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 208,866 (61,151) 2,140,114 1,801,484 338,630
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Emerging Growth Series: 0 (173,298) 9,105,658 8,786,330 319,328
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Research Series: 0 (198,433) 499,881 403,908 95,973
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return Series: 0 (95,582) 379,870 318,795 61,075
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Value Series: 0 (12,606) 124,001 115,348 8,653
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
World Government Series: 15,502 (8,432) 60,435 60,077 358
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust -
Growth Portfolio: 741,183 (73,967) 5,940,393 5,818,022 122,371
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
S-19
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net
Net Unrealized Net Increase (Decrease)
Gain (Loss) Change in In Net Assets Net Assets
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prime Money Fund II: $0 $0 $0 ($122,733)
Annuity contracts in accumulation $7,744,318 $7,809,837
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 73,398 287,888 214,490 4,452,724
Annuity contracts in accumulation 7,656,209 12,593,511
- ------------------------------------------------------------------------------------------------------------------------------------
Utility Fund II: 1,730,892 2,932,707 1,201,815 3,983,713
Annuity contracts in accumulation 16,774,494 22,815,052
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 534,823 4,002,458 3,467,635 3,405,543
Annuity contracts in accumulation 31,542,060 38,438,110
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 373,883 3,175,022 2,801,139 11,967,247
Annuity contracts in accumulation 11,774,244 27,137,241
- ------------------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 73,395 342,998 269,603 2,751,207
Annuity contracts in accumulation 5,147,217 8,400,167
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 1,093,423 6,438,332 5,344,909 10,883,500
Annuity contracts in accumulation 20,884,154 37,693,320
Annuity contracts in payment period 332,101
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: (27,376) 35,336 62,712 1,859,471
Annuity contracts in accumulation 1,920,611 3,892,969
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 5,151,123 27,661,395 22,510,272 71,102,422
Annuity contracts in accumulation 66,472,691 161,943,539
Annuity contracts in payment period 1,777,159
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: (66,591) (9,170) 57,421 1,447,917
Annuity contracts in accumulation 2,515,960 4,181,149
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 538,139 1,559,752 1,021,613 2,582,361
Annuity contracts in accumulation 4,751,784 8,842,103
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Emerging Growth Series: (85,796) 3,883,240 3,969,036 11,956,381
Annuity contracts in accumulation 8,998,008 25,069,455
- ------------------------------------------------------------------------------------------------------------------------------------
Research Series: 204,764 4,259,313 4,054,549 21,631,224
Annuity contracts in accumulation 6,776,512 32,359,825
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Series: 72,010 1,526,807 1,454,797 9,358,432
Annuity contracts in accumulation 4,216,370 14,995,092
- ------------------------------------------------------------------------------------------------------------------------------------
Value Series: 935 293,802 292,867 2,242,958
Annuity contracts in accumulation 208,841 2,740,713
- ------------------------------------------------------------------------------------------------------------------------------------
World Government Series: 9,304 6,505 (2,799) 778,332
Annuity contracts in accumulation 407,913 1,190,874
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Growth Portfolio: (6,666) 1,608,933 1,615,599 460,092
Annuity contracts in accumulation 8,242,574 10,735,740
Annuity contracts in payment period 372,112
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-20
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1997 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and Changes in
Net Assets - Period Ended September 30, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oppenheimer Funds:
Capital Appreciation Fund: $0 ($2,803) $127,799 $112,717 $15,082
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Global Securities Fund: 0 (4,457) 9,001 8,335 666
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund: 8,331 (8,349) 644 620 24
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund: 30,655 (3,793) 46,134 45,691 443
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio: 275,557 (102,024) 3,385,477 2,622,924 762,553
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
American Century Investments.:
Balanced Fund: 199,265 (42,207) 306,825 276,661 30,164
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth Fund: 725,963 (305,218) 17,987,339 21,422,740 (3,435,402)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
International Fund: 176,899 (63,006) 1,544,406 1,236,262 308,144
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $92,503,676 ($20,446,622) $407,504,790 $383,844,129 $23,660,660
================================================================================================================================
S-21
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net
Net Unrealized Net Increase (Decrease)
Gain (Loss) Change in In Net Assets Net Assets
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Oppenheimer Funds:
Capital Appreciation Fund: $0 $102,992 $102,992 $1,435,632
Annuity contracts in accumulation $0 $1,550,903
- ------------------------------------------------------------------------------------------------------------------------------------
Global Securities Fund: 0 93,626 93,626 1,561,353
Annuity contracts in accumulation 0 1,651,188
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund: 0 226,283 226,283 3,874,084
Annuity contracts in accumulation 0 4,100,373
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund: 0 5,757 5,757 1,297,923
Annuity contracts in accumulation 0 1,330,985
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio: 1,510,449 2,264,798 754,349 162,129
Annuity contracts in accumulation 12,050,127 13,902,691
- ------------------------------------------------------------------------------------------------------------------------------------
American Century Investments.:
Balanced Fund: 145,325 538,689 393,364 1,281,396
Annuity contracts in accumulation 2,991,356 4,853,338
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Fund: (1,588,390) 4,087,234 5,675,624 (13,586,542)
Annuity contracts in accumulation 44,369,162 33,443,587
- ------------------------------------------------------------------------------------------------------------------------------------
International Fund: 375,835 1,141,167 765,332 1,111,490
Annuity contracts in accumulation 4,706,594 7,005,453
- ------------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $122,191,053 $515,222,103 $393,031,050 $470,228,540 $1,848,811,724 $2,810,266,329
====================================================================================================================================
</TABLE>
S-22
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1996:
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 22,674,496 shares (cost $674,480,933) .............................................. $ 734,460,247
Aetna Income Shares; 5,554,723 shares (cost $69,738,402) ................................................ 70,118,035
Aetna Variable Encore Fund; 8,093,492 shares (cost $107,322,605) ........................................ 106,781,998
Aetna Investment Advisers Fund, Inc; 8,423,410 shares (cost $112,230,262) ............................... 127,344,696
Aetna GET Fund, Series B; 1,148,634 shares (cost $11,845,728) ........................................... 16,333,339
Aetna GET Fund, Series C; 907,283 shares (cost $9,136,442) .............................................. 9,281,276
Aetna Ascent Variable Portfolio; 446,824 shares (cost $5,362,215) ....................................... 5,638,668
Aetna Crossroads Variable Portfolio; 442,088 shares (cost $5,144,208) ................................... 5,295,700
Aetna Legacy Variable Portfolio; 549,727 shares (cost $6,140,411) ....................................... 6,186,987
Aetna Variable Index Plus Portfolio; 182,043 shares (cost $1,989,418) ................................... 1,985,372
Alger American Funds:
Balanced Portfolio; 408,798 shares (cost $4,238,672) .................................................. 3,777,291
Growth Portfolio; 1,268,424 shares (cost $41,195,068) ................................................. 43,545,003
Income and Growth Portfolio; 768,597 shares (cost $7,300,499) ......................................... 6,471,587
Leveraged AllCap Portfolio; 589,862 shares (cost $11,198,918) ......................................... 11,419,728
MidCap Portfolio; 929,402 shares (cost $19,160,303) ................................................... 19,842,727
Small Capitalization Portfolio; 1,436,114 shares (cost $59,246,689) ................................... 58,751,429
Calvert Responsibly Invested Balanced Portfolio; 336,323 shares (cost $597,518) ......................... 596,637
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 3,446,529 shares (cost $66,707,023) .......................................... 72,480,497
Growth Portfolio; 1,860,260 shares (cost $54,670,184) ................................................. 57,928,484
High Income Portfolio; 1,174,877 shares (cost $13,895,035) ............................................ 14,709,464
Overseas Portfolio; 515,036 shares (cost $8,959,583) .................................................. 9,703,271
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 350,352 shares (cost $5,447,282) ............................................. 5,931,464
Contrafund Portfolio; 3,414,168 shares (cost $50,327,864) ............................................. 56,538,618
Index 500 Portfolio; 307,196 shares (cost $25,139,330) ................................................ 27,380,370
Investment Grade Bond Portfolio; 389,026 shares (cost $4,585,849) ..................................... 4,761,677
Insurance Management Series:
American Leaders Fund II; 4,005,705 shares (cost $52,316,587) ......................................... 61,127,055
Growth Strategies Fund II; 561,108 shares (cost $6,448,785) ........................................... 7,182,178
High Income Bond Fund II; 2,651,478 shares (cost $26,128,555) ......................................... 27,151,137
International Equity Fund II; 531,863 shares (cost $5,627,988) ........................................ 5,935,590
Prime Money Fund II; 7,744,318 shares (cost $7,744,318) ............................................... 7,744,318
US Government Securities Fund II; 758,792 shares (cost $7,582,811) .................................... 7,656,209
Utility Fund II; 1,420,364 shares (cost $15,043,602) .................................................. 16,774,494
Janus Aspen Series:
Aggressive Growth Portfolio; 1,729,280 shares (cost $31,007,236) ...................................... 31,542,060
Balanced Portfolio; 797,173 shares (cost $11,400,361) ................................................. 11,774,244
Flexible Income Portfolio; 457,937 shares (cost $5,073,822) ........................................... 5,147,217
Growth Portfolio; 1,346,496 shares (cost $19,790,729) ................................................. 20,884,154
Short-Term Bond Portfolio; 192,639 shares (cost $1,947,988) ........................................... 1,920,611
Worldwide Growth Portfolio; 3,419,377 shares (cost $61,321,568) ....................................... 66,472,691
Lexington Emerging Markets Fund; 249,599 shares (cost $2,582,550) ....................................... 2,515,960
Lexington Natural Resources Trust Fund; 332,525 shares (cost $4,213,645) ................................ 4,751,784
MFS Funds:
Emerging Growth Series; 679,608 shares (cost $9,083,804) .............................................. 8,998,008
Research Series; 516,109 shares (cost $6,571,748) ..................................................... 6,776,512
Total Return Series; 307,540 shares (cost $4,144,359) ................................................. 4,216,370
Value Series; 19,591 shares (cost $207,906) ........................................................... 208,841
Worldwide Government Series; 38,555 shares (cost $398,609) ............................................ 407,913
Neuberger & Berman Advisers Management Trust -
Growth Portfolio; 319,727 shares (cost $8,249,239) .................................................... 8,242,574
Scudder Variable Life Investment Fund -
International Portfolio; 909,444 shares (cost $10,539,678) ............................................ 12,050,127
</TABLE>
S-23
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
TCI Portfolios, Inc:
Balanced Fund; 396,732 shares (cost $2,846,031) ....................................................... $ 2,991,356
Growth Fund; 4,332,926 shares (cost $45,957,552) ...................................................... 44,369,162
International Fund; 789,697 shares (cost $4,330,759) .................................................. 4,706,594
--------------
NET ASSETS (cost $1,726,620,671) ......................................................................... $1,848,811,724
==============
Net assets represented by:
Reserves for annuity contracts in accumulation and payment period: (Notes 1 and 5)
Aetna Variable Fund:
Annuity contracts in accumulation ...................................................................... $ 644,728,031
Annuity contracts in payment period .................................................................... 89,732,216
Aetna Income Shares:
Annuity contracts in accumulation ...................................................................... 66,534,546
Annuity contracts in payment period .................................................................... 3,583,489
Aetna Variable Encore Fund:
Annuity contracts in accumulation ...................................................................... 106,781,998
Aetna Investment Advisers Fund, Inc:
Annuity contracts in accumulation ...................................................................... 119,402,212
Annuity contracts in payment period .................................................................... 7,942,484
Aetna GET Fund, Series B:
Annuity contracts in accumulation ...................................................................... 16,333,339
Aetna GET Fund, Series C:
Annuity contracts in accumulation ...................................................................... 9,281,276
Aetna Ascent Variable Portfolio:
Annuity contracts in accumulation ...................................................................... 5,638,668
Aetna Crossroads Variable Portfolio:
Annuity contracts in accumulation ...................................................................... 5,295,700
Aetna Legacy Variable Portfolio:
Annuity contracts in accumulation ...................................................................... 6,186,987
Aetna Variable Index Plus Portfolio:
Annuity contracts in accumulation ...................................................................... 1,985,372
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation ...................................................................... 3,777,291
Growth Portfolio:
Annuity contracts in accumulation ...................................................................... 43,545,003
Income and Growth Portfolio:
Annuity contracts in accumulation ...................................................................... 6,471,587
Leveraged AllCap Portfolio:
Annuity contracts in accumulation ...................................................................... 11,419,728
MidCap Portfolio:
Annuity contracts in accumulation ...................................................................... 19,842,727
Small Capitalization Portfolio:
Annuity contracts in accumulation ...................................................................... 58,751,429
Calvert Responsibly Invested Balanced Portfolio:
Annuity contracts in accumulation ...................................................................... 596,637
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation ...................................................................... 72,480,497
Growth Portfolio:
Annuity contracts in accumulation ...................................................................... 57,928,484
High Income Portfolio:
Annuity contracts in accumulation ...................................................................... 14,709,464
Overseas Portfolio:
Annuity contracts in accumulation ...................................................................... 9,703,271
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation ...................................................................... 5,931,464
</TABLE>
S-24
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
Contrafund Portfolio:
Annuity contracts in accumulation ....................................................................... $ 56,538,618
Index 500 Portfolio:
Annuity contracts in accumulation ....................................................................... 27,380,370
Investment Grade Bond Portfolio:
Annuity contracts in accumulation ....................................................................... 4,761,677
Insurance Management Series:
American Leaders Fund II:
Annuity contracts in accumulation ....................................................................... 61,127,055
Growth Strategies Fund II:
Annuity contracts in accumulation ....................................................................... 7,182,178
High Income Bond Fund II:
Annuity contracts in accumulation ....................................................................... 27,151,137
International Equity Fund II:
Annuity contracts in accumulation ....................................................................... 5,935,590
Prime Money Fund II:
Annuity contracts in accumulation ....................................................................... 7,744,318
US Government Securities Fund II:
Annuity contracts in accumulation ....................................................................... 7,656,209
Utility Fund II:
Annuity contracts in accumulation ....................................................................... 16,774,494
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation ....................................................................... 31,542,060
Balanced Portfolio:
Annuity contracts in accumulation ....................................................................... 11,774,244
Flexible Income Portfolio:
Annuity contracts in accumulation ....................................................................... 5,147,217
Growth Portfolio:
Annuity contracts in accumulation ....................................................................... 20,884,154
Short-Term Bond Portfolio:
Annuity contracts in accumulation ....................................................................... 1,920,611
Worldwide Growth Portfolio:
Annuity contracts in accumulation ....................................................................... 66,472,691
Lexington Emerging Markets Fund:
Annuity contracts in accumulation ....................................................................... 2,515,960
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation ....................................................................... 4,751,784
MFS Funds:
Emerging Growth Series:
Annuity contracts in accumulation ....................................................................... 8,998,008
Research Series:
Annuity contracts in accumulation ....................................................................... 6,776,512
Total Return Series:
Annuity contracts in accumulation ....................................................................... 4,216,370
Value Series:
Annuity contracts in accumulation ....................................................................... 208,841
Worldwide Government Series:
Annuity contracts in accumulation ....................................................................... 407,913
Neuberger & Berman Advisers Management Trust - Growth Portfolio:
Annuity contracts in accumulation ....................................................................... 8,242,574
Scudder Variable Life Investment Fund - International Portfolio:
Annuity contracts in accumulation ....................................................................... 12,050,127
TCI Portfolios, Inc:
Balanced Fund:
Annuity contracts in accumulation ....................................................................... 2,991,356
</TABLE>
S-25
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
Growth Fund:
Annuity contracts in accumulation ......................................................................... $ 44,369,162
International Fund:
Annuity contracts in accumulation ......................................................................... 4,706,594
--------------
$1,848,811,724
==============
</TABLE>
See Notes to Financial Statements
S-26
<PAGE>
Variable Annuity Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ..................................................................... $ 120,367,178 $ 112,097,675
Expenses: (Notes 2 and 5)
Valuation Period Deductions ................................................... (17,483,870) (11,786,592)
--------------- ---------------
Net investment income ............................................................ 102,883,308 100,311,083
--------------- ---------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ............................................................ 365,025,974 495,934,611
Cost of investments sold ....................................................... 347,598,566 463,921,121
--------------- ---------------
Net realized gain ............................................................ 17,427,408 32,013,490
Net unrealized gain (loss) on investments: (Note 5)
Beginning of year .............................................................. 28,746,944 (44,356,052)
End of year .................................................................... 122,191,053 28,746,944
--------------- ---------------
Net change in unrealized gain ................................................ 93,444,109 73,102,996
--------------- ---------------
Net realized and unrealized gain on investments .................................. 110,871,517 105,116,486
--------------- ---------------
Net increase in net assets resulting from operations ............................. 213,754,825 205,427,569
--------------- ---------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ...................................... 538,586,667 178,474,387
Sales and administrative charges deducted by the Company ......................... (17,370) (34,250)
--------------- ---------------
Net variable annuity contract purchase payments .............................. 538,569,297 178,440,137
Transfers from the Company for mortality guarantee adjustments ................... 690,779 1,565,140
Transfers from the Company's fixed account options ............................... 50,549,121 4,144,061
Redemptions by contract holders .................................................. (73,738,526) (46,390,791)
Annuity Payments ................................................................. (12,108,943) (9,198,421)
Other ............................................................................ 159,467 1,143,373
--------------- ---------------
Net increase in net assets from unit transactions (Note 5) ................... 504,121,195 129,703,499
--------------- ---------------
Change in net assets ............................................................. 717,876,020 335,131,068
NET ASSETS:
Beginning of year ................................................................ 1,130,935,704 795,804,636
--------------- ---------------
End of year ...................................................................... $ 1,848,811,724 $ 1,130,935,704
=============== ===============
</TABLE>
See Notes to Financial Statements
S-27
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996
1. Summary of Significant Accounting Policies
Variable Annuity Account B ("Account") is a separate account established by
Aetna Life Insurance and Annuity Company registered under the Investment
Company Act of 1940 as a unit investment trust. The Account is sold
exclusively for use with variable annuity contracts that may be entitled to
tax-deferred treatment under specific sections of the Internal Revenue Code
of 1986, as amended.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Account.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset
value per share as determined by each Fund on December 31, 1996:
<TABLE>
<S> <C>
Aetna Variable Fund Insurance Management Series:
Aetna Income Shares [bullet]American Leaders Fund II
Aetna Variable Encore Fund [bullet]Growth Strategies Fund II
Aetna Investment Advisers Fund, Inc. [bullet]High Income Bond Fund II
Aetna GET Fund, Series B [bullet]International Equity Fund II
Aetna GET Fund, Series C [bullet]Prime Money Fund II
Aetna Ascent Variable Portfolio [bullet]U.S. Government Securities Fund II
Aetna Crossroads Variable Portfolio [bullet]Utility Fund II
Aetna Legacy Variable Portfolio Janus Aspen Series:
Aetna Variable Index Plus Portfolio [bullet]Aggressive Growth Portfolio
Alger American Funds: [bullet]Balanced Portfolio
[bullet]Balanced Portfolio [bullet]Flexible Income Portfolio
[bullet]Growth Portfolio [bullet]Growth Portfolio
[bullet]Income and Growth Portfolio [bullet]Short-Term Bond Portfolio
[bullet]Leveraged AllCap Portfolio [bullet]Worldwide Growth Portfolio
[bullet]MidCap Portfolio Lexington Fund Emerging Markets Fund
[bullet]Small Capitalization Portfolio Lexington Natural Resources Trust Fund
Calvert Responsibly Invested Balanced Portfolio MFS Funds:
Fidelity Investments Variable Insurance Products Fund: [bullet]Emerging Growth Series
[bullet]Equity-Income Portfolio [bullet]Research Series
[bullet]Growth Portfolio [bullet]Total Return Series
[bullet]High Income Portfolio [bullet]Value Series
[bullet]Overseas Portfolio [bullet]World Government Series
Fidelity Investments Variable Insurance Products Fund II: Neuberger & Berman Advisers Management Trust -
[bullet]Asset Manager Portfolio [bullet]Growth Portfolio
[bullet]Contrafund Portfolio Scudder Variable Life Investment Fund -
[bullet]Index 500 Portfolio [bullet]International Portfolio
[bullet]Investment Grade Bond Portfolio [bullet]TCI Portfolios, Inc.:
[bullet]Balanced Fund
[bullet]Growth Fund
[bullet]International Fund
</TABLE>
S-28
<PAGE>
Notes to Financial Statements - December 31, 1996 (continued):
b. Other
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of Aetna Life Insurance and Annuity Company ("Company") which is
taxed as a life insurance company under the Internal Revenue Code of 1986,
as amended.
d. Annuity Reserves
Annuity reserves held in the Separate Accounts are computed for currently
payable contracts according to the Progressive Annuity, a49, 1971
Individual Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983
Group Annuity Mortality tables using various assumed interest rates not to
exceed seven percent. Mortality experience is monitored by the Company.
Charges to annuity reserves for mortality experience are reimbursed to the
Company if the reserves required are less than originally estimated. If
additional reserves are required, the Company reimburses the Account.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made
in accordance with the terms of the contracts and are paid to the Company.
3. Dividend Income
On an annual basis, the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions to
the Account are automatically reinvested in shares of the Funds. The
Account's proportionate share of each Fund's undistributed net investment
income (distributions in excess of net investment income) and accumulated
net realized gain (loss) on investments is included in net unrealized gain
(loss) in the Statements of Operations and Changes in Net Assets.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended December 31, 1996 and December
31, 1995 aggregated $972,030,476 and $365,025,974; $725,949,193 and
$495,934,611, respectively.
S-29
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets - Year Ended December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $77,000,986 ($7,148,689) $96,146,932 $97,318,697 ($1,171,765)
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 4,527,825 (813,024) 19,585,006 18,826,116 758,890
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 5,358,925 (1,043,955) 78,888,315 76,637,102 2,251,213
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 11,247,847 (1,372,478) 16,403,009 13,386,571 3,016,438
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 1,055,590 (226,340) 915,330 681,610 233,720
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 46,499 (14,753) 361,353 354,510 6,843
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 235,037 (27,609) 317,740 277,917 39,823
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 257,055 (29,943) 362,140 312,870 49,270
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 363,749 (38,623) 406,948 384,407 22,541
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 10,290 (2,403) 139,030 133,438 5,592
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 775,351 (33,904) 244,368 332,405 (88,037)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 758,872 (394,360) 6,990,444 6,528,212 462,232
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio: 2,009,995 (55,929) 390,051 732,537 (342,486)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 61,186 (116,503) 4,991,495 4,605,949 385,546
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
MidCap Portfolio: 190,158 (166,087) 3,198,308 3,039,709 158,599
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 184,900 (588,663) 31,506,275 29,929,826 1,576,449
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested 44,676 (3,984) 141,022 137,780 3,242
Balanced Portfolio:
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund:
Equity-Income Portfolio: 940,850 (608,164) 4,030,269 3,343,817 686,452
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 1,412,110 (540,670) 2,600,136 2,280,711 319,425
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 178,909 (112,363) 1,318,057 1,318,142 (85)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-30
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Net
Net Unrealized Increase
Gain (Loss) Net (Decrease) Net Assets
----------- Change in In Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund: ($8,051,873) $59,979,314 $68,031,187 $4,966,306
Annuity contracts in accumulation $530,231,821 $644,728,031
Annuity contracts in payment period 62,550,401 89,732,216
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 3,224,044 379,633 (2,844,411) ($9,600,618)
Annuity contracts in accumulation 74,693,652 66,534,546
Annuity contracts in payment period 3,395,721 3,583,489
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 2,487,618 (540,607) (3,028,225) $22,111,260
Annuity contracts in accumulation 81,132,780 106,781,998
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 12,419,220 15,114,435 2,695,215 $602,270
Annuity contracts in accumulation 104,415,595 119,402,212
Annuity contracts in payment period 6,739,809 7,942,484
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 2,566,580 4,487,610 1,921,030 ($650,835)
Annuity contracts in accumulation 14,000,174 16,333,339
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 0 144,834 144,834 $9,097,853
Annuity contracts in accumulation 0 9,281,276
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 5,570 276,453 270,883 $4,773,151
Annuity contracts in accumulation 347,383 5,638,668
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 8,209 151,493 143,284 $4,409,627
Annuity contracts in accumulation 466,407 5,295,700
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 1,609 46,576 44,967 $5,470,774
Annuity contracts in accumulation 323,579 6,186,987
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 0 (4,046) (4,046) $1,975,940
Annuity contracts in accumulation (1) 1,985,372
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 1,644 (461,380) (463,024) $2,897,855
Annuity contracts in accumulation 689,050 3,777,291
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: (63,817) 2,349,936 2,413,753 $29,514,421
Annuity contracts in accumulation 10,790,085 43,545,003
- ------------------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio: (6,769) (828,912) (822,143) $4,660,630
Annuity contracts in accumulation 1,021,520 6,471,587
- ------------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 32,561 220,810 188,249 $8,946,454
Annuity contracts in accumulation 1,954,796 11,419,728
- ------------------------------------------------------------------------------------------------------------------------------------
MidCap Portfolio: 7,193 682,424 675,231 $15,727,261
Annuity contracts in accumulation 3,257,565 19,842,727
- ------------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 46,283 (495,260) (541,543) $32,655,969
Annuity contracts in accumulation 25,464,317 58,751,429
- ------------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested (13,512) (881) 12,631 $193,226
Balanced Portfolio:
Annuity contracts in accumulation 346,846 596,637
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund:
Equity-Income Portfolio: 966,600 5,773,475 4,806,875 $51,230,275
Annuity contracts in accumulation 15,424,209 72,480,497
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: (34,190) 3,258,300 3,292,490 $38,219,867
Annuity contracts in accumulation 15,225,262 57,928,484
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 15,029 814,429 799,400 $12,636,277
Annuity contracts in accumulation 1,207,326 14,709,464
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-31
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets - Year Ended December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Overseas Portfolio: $75,181 ($91,010) $880,668 $813,434 $67,234
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio: 119,231 (54,259) 540,553 465,407 75,146
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 146,164 (428,708) 5,044,449 4,308,117 736,332
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 143,406 (203,362) 6,086,685 5,356,843 729,842
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 45,797 (42,799) 882,619 925,636 (43,017)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II: 857,970 (631,122) 6,368,961 4,596,688 1,772,273
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 405 (44,481) 119,084 103,727 15,357
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 1,647,290 (260,987) 5,863,283 5,644,702 218,581
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 10,567 (51,003) 250,169 236,027 14,142
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II: 289,134 (87,958) 12,400,851 12,398,826 2,025
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 367,608 (86,361) 5,011,311 5,085,345 (74,034)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Utility Fund II: 547,259 (186,219) 1,034,753 867,262 167,491
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 243,931 (266,292) 6,134,481 4,875,603 1,258,878
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 181,099 (68,277) 2,812,822 2,536,688 276,134
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 304,512 (43,754) 1,127,628 1,090,808 36,820
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 324,844 (141,840) 1,249,735 1,041,911 207,824
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: 79,326 (23,159) 2,910,009 2,872,811 37,198
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 642,050 (384,732) 4,899,145 3,899,490 999,655
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 0 (27,131) 1,463,410 1,431,864 31,546
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 15,653 (38,378) 2,192,808 1,809,743 383,065
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-32
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ------------------------------------------------------------------------------------------------------------------
Net Unrealized
Gain (Loss) Net
----------- Change in
Beginning End Unrealized
of Year of Year Gain (Loss)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Overseas Portfolio: $51,434 $743,689 $692,255
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio: 98,360 484,182 385,822
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 122,841 6,210,754 6,087,913
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 70,864 2,241,040 2,170,176
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 11,466 175,829 164,363
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II: 2,916,888 8,810,467 5,893,579
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 3,614 733,393 729,779
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 229,008 1,022,582 793,574
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 43,172 307,602 264,430
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Prime Money Fund II: (1,182) 0 1,182
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 75,600 73,398 (2,202)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Utility Fund II: 799,746 1,730,892 931,146
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 1,164,909 534,823 (630,086)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 26,040 373,883 347,843
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 29,809 73,395 43,586
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 84,852 1,093,423 1,008,571
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: 1,330 (27,376) (28,706)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 253,639 5,151,123 4,897,484
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: (4,024) (66,591) (62,567)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 188,717 538,139 349,422
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ----------------------------------------------------------------------------------------------------------------
Net
Increase
(Decrease) Net Assets
In Net Assets ------------------------------------
from Unit Beginning End
Transactions of Year of Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Overseas Portfolio: $6,948,020
Annuity contracts in accumulation $2,011,591 $9,703,271
- ----------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio: $4,043,035
Annuity contracts in accumulation 1,362,489 5,931,464
- ----------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: $38,043,675
Annuity contracts in accumulation 11,953,242 56,538,618
- ----------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: $22,367,490
Annuity contracts in accumulation 2,172,818 27,380,370
- ----------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: $3,931,632
Annuity contracts in accumulation 705,701 4,761,677
- ----------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II: $26,548,788
Annuity contracts in accumulation 26,685,567 61,127,055
- ----------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: $6,301,239
Annuity contracts in accumulation 179,879 7,182,178
- ----------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: $12,876,189
Annuity contracts in accumulation 11,876,490 27,151,137
- ----------------------------------------------------------------------------------------------------------------
International Equity Fund II: $4,073,916
Annuity contracts in accumulation 1,623,538 5,935,590
- ----------------------------------------------------------------------------------------------------------------
Prime Money Fund II: $1,765,443
Annuity contracts in accumulation 5,774,492 7,744,318
- ----------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: $2,942,870
Annuity contracts in accumulation 4,508,328 7,656,209
- ----------------------------------------------------------------------------------------------------------------
Utility Fund II: $6,514,735
Annuity contracts in accumulation 8,800,082 16,774,494
- ----------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: $19,085,222
Annuity contracts in accumulation 11,850,407 31,542,060
- ----------------------------------------------------------------------------------------------------------------
Balanced Portfolio: $10,311,561
Annuity contracts in accumulation 725,884 11,774,244
- ----------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: $3,237,811
Annuity contracts in accumulation 1,568,242 5,147,217
- ----------------------------------------------------------------------------------------------------------------
Growth Portfolio: $16,916,813
Annuity contracts in accumulation 2,567,942 20,884,154
- ----------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: $1,106,654
Annuity contracts in accumulation 749,298 1,920,611
- ----------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: $54,723,321
Annuity contracts in accumulation 5,594,913 66,472,691
- ----------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: $2,232,953
Annuity contracts in accumulation 341,159 2,515,960
- ----------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: $2,162,813
Annuity contracts in accumulation 1,879,209 4,751,784
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
S-33
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets - Year Ended December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of
Period from Investments
Dividends Deductions Sales Sold
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Funds:
Emerging Growth Series: $73,635 ($33,243) $190,630 $186,959
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Research Series: 94,710 (22,219) 253,406 258,774
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return Series: 87,973 (13,218) 140,628 132,113
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Value Series: 4,089 (372) 496 486
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
World Government Series: 0 (1,705) 19,663 19,513
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust-
Growth Portfolio: 770,877 (98,063) 3,864,131 3,857,033
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life
Investment Fund-
International Portfolio: 276,128 (136,107) 4,557,311 4,016,790
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.:
Balanced Fund: 67,198 (24,832) 247,893 231,495
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Growth Fund: 6,228,055 (611,968) 19,145,021 17,607,144
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
International Fund: 62,276 (41,867) 397,143 365,001
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $120,367,178 ($17,483,870) $365,025,974 $347,598,566
==================================================================================================================================
</TABLE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized
Gain (Loss) Net
Net ----------- Change in
Realized Beginning End Unrealized
Gain (Loss) of Year of Year Gain (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Funds:
Emerging Growth Series: $3,671 $0 ($85,796) ($85,796)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Research Series: (5,368) 0 204,764 204,764
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return Series: 8,515 0 72,010 72,010
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Value Series: 10 0 935 935
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
World Government Series: 150 0 9,304 9,304
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust-
Growth Portfolio: 7,098 77,158 (6,666) (83,824)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life
Investment Fund-
International Portfolio: 540,521 652,411 1,510,449 858,038
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.:
Balanced Fund: 16,398 16,540 145,325 128,785
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Growth Fund: 1,537,877 8,206,103 (1,588,390) (9,794,493)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
International Fund: 32,142 15,650 375,835 360,185
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $17,427,408 $28,746,944 $122,191,053 $93,444,109
==================================================================================================================================
</TABLE>
S-34
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ------------------------------------------------------------------------------------------------------------------
Net
Increase
(Decrease) Net Assets
In Net Assets ------------------------------------
from Unit Beginning End
Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MFS Funds:
Emerging Growth Series: $9,039,741
Annuity contracts in accumulation $0 $8,998,008
- ------------------------------------------------------------------------------------------------------------------
Research Series: $6,504,625
Annuity contracts in accumulation 0 6,776,512
- ------------------------------------------------------------------------------------------------------------------
Total Return Series: $4,061,090
Annuity contracts in accumulation 0 4,216,370
- ------------------------------------------------------------------------------------------------------------------
Value Series: $204,179
Annuity contracts in accumulation 0 208,841
- ------------------------------------------------------------------------------------------------------------------
World Government Series: $400,164
Annuity contracts in accumulation 0 407,913
- ------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust-
Growth Portfolio: ($710,088)
Annuity contracts in accumulation 8,356,574 8,242,574
- ------------------------------------------------------------------------------------------------------------------
Scudder Variable Life
Investment Fund-
International Portfolio: ($54,117)
Annuity contracts in accumulation 10,565,664 12,050,127
- ------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.:
Balanced Fund: $2,313,929
Annuity contracts in accumulation 489,878 2,991,356
- ------------------------------------------------------------------------------------------------------------------
Growth Fund: ($7,301,710)
Annuity contracts in accumulation 54,311,401 44,369,162
- ------------------------------------------------------------------------------------------------------------------
International Fund: $3,691,239
Annuity contracts in accumulation 602,619 4,706,594
- ------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $504,121,195 $1,130,935,704 $1,848,811,724
==================================================================================================================
</TABLE>
S-35
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and Contract
Owners of Variable Annuity Account B:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account B (the "Account") as
of December 31, 1996, and the related statements of operations and changes in
net assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1996. These financial
statements and condensed financial information are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements and condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of Aetna Life Insurance and Annuity Company Variable Annuity Account B
as of December 31, 1996, the results of its operations and the changes in its
net assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 14, 1997
S-36
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Statements of Income for the three and nine months ended September 30, 1997
and 1996 (unaudited) ................................................................. F-2
Consolidated Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996 F-3
Consolidated Statements of Changes in Shareholder's Equity for the nine months ended
September 30, 1997 and 1996 (unaudited) ............................................. F-4
Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and
1996 (unaudited) ...................................................................... F-5
Condensed Notes to Consolidated Financial Statements as of September 30, 1997 (unaudited) F-7
Independent Auditors' Report ............................................................ F-10
Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and 1994 F-11
Consolidated Balance Sheets as of December 31, 1996 and 1995 ........................... F-12
Consolidated Statements of Changes in Shareholder's Equity for the Years Ended December
31, 1996, 1995 and 1994 .............................................................. F-13
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and F-14
1994
Notes to Consolidated Financial Statements ............................................. F-16
</TABLE>
F-1
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
----------------- ------------------
(unaudited) (unaudited)
1997 1996 1997 1996
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue:
Premiums $ 68.2 $ 35.5 $ 200.1 $ 99.9
Charges assessed against policyholders 127.7 99.1 350.2 289.3
Net investment income 269.5 259.7 804.9 771.8
Net realized capital gains 8.8 0.1 17.9 17.2
Other income 9.6 9.4 28.8 34.6
------- ------- --------- ---------
Total revenue 483.8 403.8 1,401.9 1,212.8
Benefits and expenses:
Current and future benefits 286.5 245.6 853.4 719.1
Operating expenses 84.5 84.6 247.3 261.3
Amortization of deferred policy acquisition costs 40.1 17.9 92.4 46.6
Severance and facilities charges -- 47.3 -- 61.3
------- ------- --------- ---------
Total benefits and expenses 411.1 395.4 1,193.1 1,088.3
Income before income taxes 72.7 8.4 208.8 124.5
Income taxes 21.3 1.4 63.9 34.3
------- ------- --------- ---------
Net income $ 51.4 $ 7.0 $ 144.9 $ 90.2
======= ======= ========= =========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------- -------------
Assets (unaudited)
- ----------------------------------------------------------------- ---------------
<S> <C> <C>
Investments:
Debt securities available for sale, at fair value
(amortized cost:$12,736.4 and $12,539.1) $13,257.1 $12,905.5
Equity securities, available for sale:
Nonredeemable preferred stock (cost: $143.4 and $107.6) 166.5 119.0
Investment in affiliated mutual funds (cost: $42.0 and $77.3) 55.1 81.1
Common stock .8 .3
Short-term investments 111.8 34.8
Mortgage loans 12.9 13.0
Policy loans 453.7 399.3
---------- ----------
Total investments 14,057.9 13,553.0
Cash and cash equivalents 614.2 459.1
Accrued investment income 183.0 159.0
Premiums due and other receivables 37.3 26.6
Deferred policy acquisition costs 1,620.6 1,515.3
Reinsurance loan to affiliate 474.4 628.3
Other assets 40.1 33.7
Separate accounts assets 21,494.5 15,318.3
---------- ----------
Total assets $38,522.0 $31,693.3
========== ==========
Liabilities and Shareholder's Equity
- ----------------------------------------------------------------
Liabilities:
Future policy benefits $ 3,757.8 $ 3,617.0
Unpaid claims and claim expenses 28.0 28.9
Policyholders' funds left with the Company 11,074.5 10,663.7
---------- ----------
Total insurance reserve liabilities 14,860.3 14,309.6
Other liabilities 295.2 354.7
Income taxes:
Current 37.1 20.7
Deferred 74.8 80.5
Separate accounts liabilities 21,468.6 15,318.3
---------- ----------
Total liabilities 36,736.0 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
Net unrealized capital gains 96.7 60.5
Retained earnings 1,268.5 1,128.2
---------- ----------
Total shareholder's equity 1,786.0 1,609.5
---------- ----------
Total liabilities and shareholder's equity $38,522.0 $31,693.3
========== ==========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
9 Months Ended September 30,
----------------------------
(unuadited) (unaudited)
1997 1996
---------- -------------
Shareholder's equity, beginning of year $1,609.5 $ 1,583.0
Net change in unrealized capital gains (losses) 36.2 (93.4)
Net income 144.9 90.2
Common stock dividends (8.3) (1.5)
Other changes 3.7 --
-------- ----------
Shareholder's equity, end of period $1,786.0 $ 1,578.3
======== ==========
See Condensed Notes to Consolidated Financial Statements.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
9 Months Ended September 30,
----------------------------
(unaudited) (unaudited)
1997 1996
------------ -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 144.9 $ 90.2
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Increase in accrued investment income (24.0) (13.0)
Increase in premiums due and other receivables (8.8) (2.3)
Increase in policy loans (54.4) (29.5)
Increase in deferred policy acquisition costs (105.3) (127.2)
Decrease in reinsurance loan to affiliate 153.9 22.1
Net increase in universal life account balances 224.1 172.5
Decrease in other insurance reserve liabilities (165.5) (125.2)
Net (decrease) increase in other liabilities and other assets (122.4) 126.8
Decrease in income taxes (3.9) (23.5)
Net accretion of discount on investments (51.9) (51.1)
Net realized capital gains (17.9) (17.2)
---------- ----------
Net cash (used for) provided by operating activities (31.2) 22.6
---------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 3,828.5 3,830.6
Equity securities 61.3 114.5
Mortgage loans 0.1 8.6
Investment maturities and collections of:
Debt securities available for sale 966.8 681.8
Short-term investments 43.2 21.5
Cost of investment purchases in:
Debt securities available for sale (4,811.0) (4,996.5)
Equity securities (53.6) (63.7)
Short-term investments (120.1) (35.5)
Other, net -- (9.1)
---------- ----------
Net cash used for investing activities (84.8) (447.8)
---------- ----------
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows (Continued)
(millions)
<TABLE>
<CAPTION>
9 Months Ended September 30,
----------------------------
(unaudited) (unaudited)
1997 1996
----------- --------------
<S> <C> <C>
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts $1,230.2 $ 1,140.6
Withdrawals of investment contracts (925.8) (860.7)
Dividends paid to shareholder (8.3) (1.5)
Capital contribution to Separate Account (25.0) --
-------- ----------
Net cash provided by financing activities 271.1 278.4
-------- ----------
Net increase (decrease) in cash and cash equivalents 155.1 (146.8)
Cash and cash equivalents, beginning of period 459.1 568.8
-------- ----------
Cash and cash equivalents, end of period $ 614.2 $ 422.0
-------- ----------
Supplemental cash flow information:
Income taxes paid, net $ 68.7 $ 61.4
======== ==========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Unaudited Consolidated Financial Statements
1. Basis of Presentation
The consolidated financial statements include Aetna Life Insurance and Annuity
Company and its wholly owned subsidiaries, Aetna Insurance Company of America
and Aetna Private Capital, Inc. (collectively, the "Company"). 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").
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and are unaudited. Certain
reclassifications have been made to 1996 financial information to conform to
the 1997 presentation. These interim statements necessarily rely heavily on
estimates, including assumptions as to annualized tax rates. In the opinion of
management, all adjustments necessary for a fair statement of results for the
interim periods have been made. All such adjustments are of a normal, recurring
nature. The accompanying condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and related
notes as presented in the Company's 1996 Annual Report on Form 10-K. Certain
financial information that is normally included in annual financial statements
prepared in accordance with generally accepted accounting principles, but that
is not required for interim reporting purposes, has been condensed or omitted.
2. Future Application of Accounting Standards
Financial Accounting Standard ("FAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was issued in
June 1996 and provides accounting and reporting standards for transfers of
financial assets and extinguishments of liabilities.
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.
FAS No. 130, Reporting Comprehensive Income, was issued in June 1997 and
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 owners) and includes net income, net unrealized capital
gains or losses on available for sale securities. As this new standard only
requires additional information in a financial statement, it will not affect
the Company's financial position or results of operations. FAS No. 130 is
effective for fiscal years beginning after December 15, 1997, with earlier
application permitted. The Company is currently evaluating the presentation
alternatives permitted by the statement.
F-7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Unaudited Consolidated Financial Statements (Continued)
2. Future Application of Accounting Standards (Continued)
FAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, was issued in June 1997 and establishes standards for the
reporting of information relating to operating segments in annual financial
statements, as well as disclosure of selected information in interim financial
reports. This statement supersedes FAS No. 14, Financial Reporting for Segments
of a Business Enterprise, which requires reporting segment information by
industry and geographic area (industry approach). Under FAS No. 131, operating
segments are defined as components of a company for which separate financial
information is available and is used by management to allocate resources and
assess performance (management approach). This statement is effective for
year-end 1998 financial statements. Interim financial information will be
required beginning in 1999 (with comparative 1998 information). The Company
does not anticipate that this standard will significantly impact the
composition of its current operating segments, which are consistent with the
management approach.
3. Financial Instruments
The Company engages in hedging activities to manage interest rate and price
risks. Such hedging activities have principally consisted of using off-balance
sheet instruments such as futures and forward contracts and interest rate swap
agreements. There were no such contracts or agreements open as of September 30,
1997.
4. Severance and Facilities Charges
In the second quarter of 1996, the Company was allocated severance and
facilities reserves from Aetna to reflect actions taken or to be taken to
reduce the level of corporate expenses and other costs previously absorbed by
Aetna's property-casualty operations.
In the third quarter of 1996, the Company established severance and facilities
reserves in the Financial Services and Individual Life Insurance segments to
reflect actions taken or to be taken in order to make its businesses more
competitive.
Activity for the nine months ended September 30, 1997 within the severance and
facilities reserves (pretax, in millions) and positions eliminated related to
such actions were as follows:
Reserve Positions
---------- ----------
Balance at December 31, 1996 ...... $ 47.9 524
Actions taken (1) .................. (19.5) (129)
-------- -----
Balance at September 30, 1997 ...... $ 28.4 395
======== =====
(1) Includes $9.9 million of severance-related actions and $7.0 million of
corporate allocation-related actions.
The Company's severance actions are expected to be substantially completed by
March 31, 1998. The corporate allocation actions and vacating of certain leased
office space are expected to be substantially completed in 1997.
F-8
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Unaudited Consolidated Financial Statements (Continued)
5. Related Party Transactions
Effective December 31, 1988, the Company entered into a reinsurance agreement
with Aetna Life Insurance Company ("Aetna Life") in which substantially all of
the nonparticipating individual life and annuity business written by Aetna Life
prior to 1981 was assumed by the Company. 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.
6. 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.
7. Dividends
On June 27, 1997 and August 15, 1997, the Company paid a $5.3 million and $3.0
million, respectively, dividend to HOLDCO. The additional amount of dividends
that may be paid by the Company to HOLDCO in 1997 without prior approval by the
Insurance Commissioner of the State of Connecticut is $62.8 million.
F-9
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in
shareholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aetna Life
Insurance and Annuity Company and Subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
February 4, 1997
F-10
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Revenue:
Premiums $ 133.6 $ 212.7 $ 191.6
Charges assessed against policyholders 396.5 318.9 279.0
Net investment income 1,045.6 1,004.3 917.2
Net realized capital gains 19.7 41.3 1.5
Other income 45.4 42.0 10.3
--------- --------- ---------
Total revenue 1,640.8 1,619.2 1,399.6
Benefits and expenses:
Current and future benefits 968.6 997.2 921.5
Operating expenses 342.2 310.8 225.7
Amortization of deferred policy acquisition costs 69.8 48.0 31.5
Severance and facilities charges 61.3 -- --
--------- --------- ---------
Total benefits and expenses 1,441.9 1,356.0 1,178.7
--------- --------- ---------
Income before income taxes 198.9 263.2 220.9
Income taxes 57.8 87.3 75.6
--------- --------- ---------
Net income $ 141.1 $ 175.9 $ 145.3
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)--
<TABLE>
<CAPTION>
December 31,
-------------------------
Assets 1996 1995
- ------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
Investments:
Debt securities, available for sale:
(amortized cost: $12,539.1 and $11,923.7) $12,905.5 $12,720.8
Equity securities, available for sale:
Non-redeemable preferred stock (cost: $107.6 and $51.3) 119.0 57.6
Investment in affiliated mutual funds (cost: $77.3 and $173.4) 81.1 191.8
Common stock (cost: $0.0 and $6.9) 0.3 8.2
Short-term investments 34.8 15.1
Mortgage loans 13.0 21.2
Policy loans 399.3 338.6
---------- -----------
Total investments 13,553.0 13,353.3
Cash and cash equivalents 459.1 568.8
Accrued investment income 159.0 175.5
Premiums due and other receivables 26.6 37.3
Deferred policy acquisition costs 1,515.3 1,341.3
Reinsurance loan to affiliate 628.3 655.5
Other assets 33.7 26.2
Separate Accounts assets 15,318.3 10,987.0
---------- -----------
Total assets $31,693.3 $27,144.9
========== ===========
Liabilities and Shareholder's Equity
- -----------------------------------------------------------------
Liabilities:
Future policy benefits $ 3,617.0 $ 3,594.6
Unpaid claims and claim expenses 28.9 27.2
Policyholders' funds left with the Company 10,663.7 10,500.1
---------- -----------
Total insurance reserve liabilities 14,309.6 14,121.9
Other liabilities 354.7 257.2
Income taxes:
Current 20.7 26.2
Deferred 80.5 169.6
Separate Accounts liabilities 15,318.3 10,987.0
---------- -----------
Total liabilities 30,083.8 25,561.9
---------- -----------
Shareholder's equity:
Common stock, par value $50 (100,000 shares authorized; 55,000
shares issued and outstanding) 2.8 2.8
Paid-in capital 418.0 407.6
Net unrealized capital gains 60.5 132.5
Retained earnings 1,128.2 1,040.1
---------- -----------
Total shareholder's equity 1,609.5 1,583.0
---------- -----------
Total liabilities and shareholder's equity $31,693.3 $27,144.9
========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1996 1995 1994
---------- ------------- -------------
<S> <C> <C> <C>
Shareholder's equity, beginning of year $1,583.0 $ 1,088.5 $ 1,246.7
Capital contributions 10.4 -- --
Net change in unrealized capital gains (losses) (72.0) 321.5 (303.5)
Net income 141.1 175.9 145.3
Other changes (49.5) -- --
Common stock dividends declared (3.5) (2.9) --
-------- ---------- ----------
Shareholder's equity, end of year $1,609.5 $ 1,583.0 $ 1,088.5
======== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-13
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 141.1 $ 175.9 $ 145.3
Adjustments to reconcile net income to net cash
(used for) provided by operating activities:
Decrease (increase) in accrued investment income 16.5 (33.3) (17.5)
Decrease in premiums due and other receivables 1.6 25.4 1.3
Increase in policy loans (60.7) (89.9) (46.0)
Increase in deferred policy acquisition costs (174.0) (177.0) (105.9)
Decrease in reinsurance loan to affiliate 27.2 34.8 27.8
Net increase in universal life account balances 243.2 393.4 164.7
(Decrease) increase in other insurance reserve liabilities (211.5) 79.0 75.1
Net increase in other liabilities and other assets 3.1 13.0 52.5
Decrease in income taxes (26.7) (4.5) (10.3)
Net accretion of discount on investments (68.0) (66.4) (77.9)
Net realized capital gains (19.7) (41.3) (1.5)
Other, net 1.1 -- (1.0)
---------- ---------- ----------
Net cash (used for) provided by operating activities (126.8) 309.1 206.6
---------- ---------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 5,182.2 4,207.2 3,593.8
Equity securities 190.5 180.8 93.1
Mortgage loans 8.7 10.7 --
Limited partnership -- 26.6 --
Investment maturities and collections of:
Debt securities available for sale 885.2 583.9 1,289.2
Short-term investments 35.0 106.1 30.4
Cost of investment purchases in:
Debt securities available for sale (6,534.3) (6,034.0) (5,621.4)
Equity securities (118.1) (170.9) (162.5)
Short-term investments (54.7) (24.7) (106.1)
Mortgage loans -- (21.3) --
Limited partnership -- -- (25.0)
Other, net (17.6) -- --
---------- ---------- ----------
Net cash used for investing activities (423.1) (1,135.6) (908.5)
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-14
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows (Continued)
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,579.5 1,884.5 1,737.8
Withdrawals of investment contracts (1,146.2) (1,109.6) (948.7)
Additional capital contributions 10.4 -- --
Dividends paid to shareholder (3.5) (2.9) --
---------- ---------- ---------
Net cash provided by financing activities 440.2 772.0 789.1
---------- ---------- ---------
Net (decrease) increase in cash and cash equivalents (109.7) (54.5) 87.2
Cash and cash equivalents, beginning of year 568.8 623.3 536.1
---------- ---------- ---------
Cash and cash equivalents, end of year $ 459.1 $ 568.8 $ 623.3
========== ========== =========
Supplemental cash flow information:
Income taxes paid, net $ 85.5 $ 92.8 $ 85.9
========== ========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries
(collectively, the "Company") is a provider of financial services and life
insurance products in the United States. The Company has two business segments:
financial services and individual life insurance.
Financial services products include annuity contracts that offer a variety of
funding and payout options for individual and employer-sponsored retirement
plans qualified under Internal Revenue Code Sections 401, 403, 408 and 457, and
non-qualified annuity contracts. These contracts may be deferred or immediate
("payout annuities"). Financial services also include investment advisory
services, financial planning and pension plan administrative services.
Individual life insurance products include universal life, variable universal
life, traditional whole life and term insurance.
Basis of Presentation
The consolidated financial statements include Aetna Life Insurance and Annuity
Company and its wholly owned subsidiaries, Aetna Insurance Company of America
and Aetna Private Capital, Inc. Aetna Life Insurance and Annuity Company is a
wholly owned subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO"). HOLDCO
is a wholly owned subsidiary of Aetna Retirement Services, Inc., whose ultimate
parent is Aetna Inc. ("Aetna").
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. Certain reclassifications have been
made to 1995 and 1994 financial information to conform to the 1996
presentation.
Future Application of Accounting Standards
Financial Accounting Standard ("FAS") No. 125 , Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was issued in
June 1996. This statement provides accounting and reporting standards for
transfers of financial assets and extinguishments of liabilities. Transactions
covered by this statement would include securitizations, sales of partial
interests in assets, repurchase agreements and securities lending. This
statement requires that after a transfer of financial assets, an entity would
recognize any assets it controls and liabilities it has incurred. An entity
would not recognize assets when control has been surrendered or liabilities
have been satisfied. Portions of this statement are effective for each of 1997
and 1998 financial statements and early adoption is not permitted. The Company
does not expect adoption of this statement to have a material effect on its
financial position or results of operations.
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.
F-16
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity of 90 days or less when purchased.
Investments
All of the Company's debt and equity securities are classified as available for
sale and carried at fair value. These securities are written down (as realized
capital losses) for other than temporary declines in value. Unrealized capital
gains and losses related to available for sale 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.
Purchases and sales of debt and equity securities are recorded on the trade
date.
The investment in affiliated mutual funds primarily represents an investment in
the Aetna Series Fund, Inc., a retail mutual fund which has been seeded by the
Company, and is carried at fair value.
Mortgage loans and policy loans are carried at unpaid principal balances, net
of impairment reserves. Sales of mortgage loans are recorded on the closing
date.
Short-term investments, consisting primarily of money market instruments and
other debt issues purchased with a maturity of 91 days to one year, are
considered available for sale and are carried at fair value, which approximates
amortized cost.
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.
F-17
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Swap agreements which are designated as interest rate risk management
instruments at inception are accounted for using the accrual method.
Accordingly, the difference between amounts paid and received on such
agreements is reported in net investment income. There is no recognition in the
Consolidated Balance Sheets for changes in the fair value of the agreement.
Deferred Policy Acquisition Costs
Certain costs of acquiring insurance business are deferred. These costs, all of
which vary with and are primarily related to the production of new and renewal
business, consist principally of commissions, certain expenses of underwriting
and issuing contracts, and certain agency expenses. For fixed ordinary life
contracts, such costs are amortized over expected premium-paying periods (up to
20 years). For universal life and certain annuity contracts, such costs are
amortized in proportion to estimated gross profits and adjusted to reflect
actual gross profits over the life of the contracts (up to 20 years).
Deferred policy acquisition costs are written off to the extent that it is
determined that future policy premiums and investment income or gross profits
are not adequate to cover related losses and expenses.
Insurance Reserve Liabilities
Future Policy Benefits include reserves for universal life, immediate annuities
with life contingent payouts and traditional life insurance contracts. Reserves
for universal life contracts are equal to cumulative deposits less charges and
withdrawals plus credited interest thereon. Reserves for immediate annuities
with life contingent payouts and traditional life insurance contracts are
computed on the basis of assumed investment yield, mortality, and expenses,
including a margin for adverse deviations. Such assumptions generally vary by
plan, year of issue and policy duration. Reserve interest rates range from
2.25% to 12.00%. Investment yield is based on the Company's experience.
Mortality and withdrawal rate assumptions are based on relevant Aetna
experience and are periodically reviewed against both industry standards and
experience.
Policyholders' Funds Left With the Company include reserves for deferred
annuity investment contracts and immediate annuities without life contingent
payouts. Reserves on such contracts are equal to cumulative deposits less
charges and withdrawals plus credited interest thereon (rates range from 4.00%
to 7.00%), net of adjustments for investment experience that the Company is
entitled to reflect in future credited interest. Reserves on contracts subject
to experience rating reflect the rights of contractholders, plan participants
and the Company.
Unpaid claims for all lines of insurance include benefits for reported losses
and estimates of benefits for losses incurred but not reported.
Premiums, Charges Assessed Against Policyholders, Benefits and Expenses
For universal life and certain annuity contracts, charges assessed against
policyholders' funds for the cost of insurance, surrender charges, actuarial
margin and other fees are recorded as revenue in
F-18
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
charges assessed against policyholders. Other amounts received for these
contracts are reflected as deposits and are not recorded as revenue. Life
insurance premiums, other than premiums for universal life and certain annuity
contracts, are recorded as premium revenue when due. Related policy benefits
are recorded in relation to the associated premiums or gross profit so that
profits are recognized over the expected lives of the contracts. When annuity
payments begin under contracts with life contingent payouts that were initially
investment contracts, the accumulated balance in the account is treated as a
single premium for the purchase of an annuity, reflected as an offsetting
amount in both premiums and current and future benefits in the Consolidated
Statements of Income.
Separate Accounts
Assets held under variable universal life and variable annuity contracts are
segregated in Separate Accounts and are invested, as designated by the
contractholder or participant under a contract, in shares of Aetna Variable
Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment
Advisers Fund, Inc., Aetna GET Fund, the Aetna Series Fund Inc., or the Aetna
Generation Funds (collectively, "Funds"), which are managed by the Company, or
other selected mutual funds not managed by the Company.
Separate Accounts assets and liabilities are carried at fair value except for
those relating to a guaranteed interest option. Since the Company bears the
investment risk where the contract is held to maturity, the assets of the
Separate Account supporting the guaranteed interest option are carried at an
amortized cost of $515.6 million for 1996 (fair value $523.0 million) and
$322.2 million for 1995 (fair value $343.9 million). Reserves relating to the
guaranteed interest option are maintained at fund value and reflect interest
credited at rates ranging from 4.10% to 8.00% in 1996 and 4.50% to 8.38% in
1995.
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-19
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments
Debt securities available for sale as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ ----------
(millions)
<S> <C> <C> <C> <C>
U.S. government and government agencies and
authorities $ 1,072.4 $ 20.5 $ 4.5 $ 1,088.4
States, municipalities and political subdivisions 6.0 1.2 -- 7.2
U.S. corporate securities:
Financial 2,143.4 43.1 9.7 2,176.8
Food & fiber 198.2 4.6 1.3 201.5
Healthcare & consumer products 735.9 20.2 6.3 749.8
Media & broadcast 274.9 7.0 2.8 279.1
Natural resources 187.7 4.5 0.4 191.8
Transportation & capital goods 521.9 22.0 1.8 542.1
Utilities 448.8 14.8 2.8 460.8
Other 141.5 3.0 -- 144.5
---------- ------- ------ ----------
Total U.S. corporate securities 4,652.3 119.2 25.1 4,746.4
Foreign Securities:
Government 758.6 36.0 5.7 788.9
Utilities 187.8 16.1 -- 203.9
Other 945.5 30.9 6.3 970.1
---------- ------- ------ ----------
Total foreign securities 1,891.9 83.0 12.0 1,962.9
Residential mortgage-backed securities:
Pass-throughs 792.2 78.3 3.1 867.4
Collateralized mortgage obligations 2,227.8 94.9 13.7 2,309.0
---------- ------- ------ ----------
Total residential mortgage-backed securities 3,020.0 173.2 16.8 3,176.4
Commercial/Multifamily mortgage-backed securities 1,008.7 24.8 5.6 1,027.9
Other asset-backed securities 887.8 10.7 2.2 896.3
---------- ------- ------ ----------
Total Debt Securities $12,539.1 $432.6 $66.2 $12,905.5
========== ======= ====== ==========
</TABLE>
F-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Debt securities available for sale as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ -----------
(millions)
<S> <C> <C> <C> <C>
U.S. government and government agencies and
authorities $ 539.5 $ 47.5 $ -- $ 587.0
States, municipalities and political subdivisions 41.4 12.4 -- 53.8
U.S. Corporate securities:
Financial 2,764.4 110.3 2.1 2,872.6
Food & fiber 310.8 20.8 0.6 331.0
Healthcare & consumer products 766.0 59.2 0.2 825.0
Media & broadcast 191.7 10.0 -- 201.7
Natural resources 186.9 12.6 0.2 199.3
Transportation & capital goods 602.4 46.7 0.2 648.9
Utilities 454.4 27.8 1.0 481.2
Other 119.9 10.2 -- 130.1
---------- ------- ------ -----------
Total U.S. corporate securities 5,396.5 297.6 4.3 5,689.8
Foreign securities:
Government 316.4 26.1 2.0 340.5
Utilities 236.3 32.9 -- 269.2
Other 749.9 60.5 3.5 806.9
---------- ------- ------ -----------
Total foreign securities 1,302.6 119.5 5.5 1,416.6
Residential mortgage-backed securities:
Pass-throughs 556.7 99.2 1.8 654.1
Collateralized mortgage obligations 2,383.9 167.6 2.2 2,549.3
---------- ------- ------ -----------
Total residential mortgage-backed securities 2,940.6 266.8 4.0 3,203.4
Commercial/multifamily mortgage-backed securities 741.9 32.3 0.2 774.0
Other asset-backed securities 961.2 35.5 0.5 996.2
---------- ------- ------ -----------
Total Debt Securities $11,923.7 $811.6 $14.5 $ 12,720.8
========== ======= ====== ===========
</TABLE>
At December 31, 1996 and 1995, net unrealized appreciation of $366.4 million
and $797.1 million, respectively, on available for sale debt securities
included $288.5 million and $619.1 million, respectively, related to experience
rated contracts, which were not reflected in shareholder's equity but in Future
Policy Benefits and Policyholders' Funds Left With the Company.
F-21
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
The amortized cost and fair value of debt securities for the year ended
December 31, 1996 are shown below by contractual maturity. Actual maturities
may differ from contractual maturities because securities may be restructured,
called, or prepaid.
Amortized Fair
Cost Value
----------- ----------
(millions)
Due to mature:
One year or less ........................ $ 424.4 $ 425.7
After one year through five years ...... 2,162.4 2,194.2
After five years through ten years ...... 2,467.4 2,509.6
After ten years ........................ 2,568.4 2,675.4
Mortgage-backed securities ............... 4,028.7 4,204.3
Other asset-backed securities ............ 887.8 896.3
---------- ----------
Total ................................. $12,539.1 $12,905.5
========== ==========
The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time.
Collateral, primarily cash, which is in excess of the market value of the
loaned securities, is deposited by the borrower with a lending agent, and
retained and invested by the lending agent to generate additional income for
the Company. The market value of the loaned securities is monitored on a daily
basis with additional collateral obtained or refunded as the market value
fluctuates. At December 31, 1996 and 1995, the Company had loaned securities
(which are reflected as invested assets) with a market value of approximately
$444.7 million and $264.5 million, respectively.
At December 31, 1996 and 1995, debt securities carried at $7.6 million and $7.4
million, respectively, were on deposit as required by regulatory authorities.
The carrying value of non-income producing investments was $0.9 million and
$0.1 million at December 31, 1996 and 1995, respectively.
The Company did not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10% of
the Company's shareholder's equity at December 31, 1996.
Included in the Company's total debt securities were residential collateralized
mortgage obligations ("CMOs") supporting the following:
F-22
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
<TABLE>
<CAPTION>
1996 1995
-------------------------- ------------------------
Fair Amortized Fair Amortized
Value Cost Value Cost
------------ ----------- ----------- ----------
(millions)
<S> <C> <C> <C> <C>
Total residential CMOs (1) $2,309.0 $2,227.8 $2,549.4 $2,383.9
=========== ========= =========== =========
Percentage of total:
Supporting experience rated products 84.2% 85.3%
Supporting remaining products 15.8% 14.7%
----------- -----------
100.0% 100.0%
=========== ===========
</TABLE>
(1) At December 31, 1996 and 1995, approximately 71% and 81%, respectively, of
the Company's residential CMO holdings were backed by government agencies
such as GNMA, FNMA, FHLMC.
There are various categories of CMOs which are subject to different degrees of
risk from changes in interest rates and, for nonagency-backed CMOs, defaults.
The principal risks inherent in holding CMOs are prepayment and extension risks
related to dramatic decreases and increases in interest rates resulting in the
repayment of principal from the underlying mortgages either earlier or later
than originally anticipated.
At December 31, 1996 and 1995, approximately 68% and 79%, respectively, of the
Company's CMO holdings were in planned amortization class ("PAC") and
sequential structure tranches, which are subject to less prepayment and
extension risk than other types of CMO instruments. At December 31, 1996 and
1995, approximately 3% of the Company's CMO holdings were in the interest-only
("IOs") and principal-only ("POs") tranches, which are subject to more
prepayment and extension risks than other types of CMO instruments. Remaining
CMO holdings are in other tranches that have prepayment and extension risks
which fall between the degree of risk associated with PACs and sequentials, and
IOs and POs.
Investments in available for sale equity securities were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ --------
(millions)
1996
- -----------------
Equity Securities $184.9 $16.3 $0.8 $ 200.4
------- ------ ----- --------
1995
- -----------------
Equity Securities $231.6 $27.2 $1.2 $ 257.6
------- ------ ----- --------
F-23
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments
Estimated Fair Value
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------- -----------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ---------- ----------
(millions)
<S> <C> <C> <C> <C>
Assets:
Mortgage loans $ 13.0 $ 13.2 $ 21.2 $ 21.9
Liabilities:
Investment contract liabilities:
With a fixed maturity $ 1,014.1 $ 1,028.8 $ 989.1 $1,001.2
Without a fixed maturity 9,649.6 9,427.6 9,511.0 9,298.4
</TABLE>
Fair value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument, such as
estimates of timing and amount of future cash flows. Such estimates do not
reflect any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial instrument, nor do
they consider the tax impact of the realization of unrealized gains or losses.
In many cases, the fair value estimates cannot be substantiated by comparison
to independent markets, nor can the disclosed value be realized in immediate
settlement of the instrument. In evaluating the Company's management of
interest rate, price and liquidity risks, the fair values of all assets and
liabilities should be taken into consideration, not only those presented above.
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Mortgage loans: Fair values are estimated by discounting expected mortgage loan
cash flows at market rates which reflect the rates at which similar loans would
be made to similar borrowers. The rates reflect management's assessment of the
credit quality and the remaining duration of the loans.
Investment contract liabilities (included in Policyholders' Funds Left With the
Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Without a fixed maturity: Fair value is estimated as the amount payable to the
contractholder upon demand. However, the Company has the right under such
contracts to delay payment of withdrawals which may ultimately result in paying
an amount different than that determined to be payable on demand.
Off-Balance-Sheet and Other Financial Instruments (including Derivative
Financial Instruments)
The Company uses off-balance-sheet and other financial instruments primarily to
manage portfolio risks, including interest rate, prepayment/call, credit,
price, and liquidity risks. In 1996, Treasury
F-24
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
futures contracts were used to manage interest rate risk in the Company's bond
portfolio and stock index futures contracts were used to manage price risk in
the Company's equity portfolio. In 1996 and 1995, interest rate swaps and
forward commitments to enter into interest rate swaps, respectively, were also
used to manage interest rate risk in the Company's bond portfolio.
Futures Contracts:
Futures contracts represent commitments to either purchase or sell underlying
assets at a specified future date. Futures contracts trade on organized
exchanges and, therefore, have minimal credit risk. Cash settlements are made
daily based on changes in the prices of the underlying assets. There were no
futures contracts open as of December 31, 1996 and 1995.
Interest Rate Swaps:
Under interest rate swaps, the Company agrees with other parties to exchange
interest amounts calculated by reference to an agreed notional principal
amount. Generally, no cash is exchanged at the outset of the contract and no
principal payments are made. A single net payment is usually made by one
counterparty at each due date or upon termination of the contract. The Company
would be exposed to credit-related losses in the event of nonperformance by
counterparties to financial instruments, however, the Company controls its
exposure to credit risk through credit approvals, credit limits and regular
monitoring procedures. The credit exposure of interest rate swaps is
represented by the fair value (market value) of contracts with a positive fair
value (market value) at the reporting date. There were no interest rate swap
agreements open as of December 31, 1996. At December 31, 1995, the Company had
an open forward swap agreement with a notional amount of $100.0 million and a
fair value of $0.1 million.
During 1995, the Company received $0.4 million for writing call options on
underlying securities. The Company did not write any call options in 1996. As
of December 31, 1996 and 1995, there were no option contracts outstanding.
The Company also had investments in certain debt instruments with derivative
characteristics, including those whose market value is at least partially
determined by, among other things, levels of or changes in domestic and/or
foreign interest rates (short or long term), exchange rates, prepayment rates,
equity markets or credit ratings/spreads. The amortized cost and fair value of
these securities, included in the debt securities portfolio, as of December 31,
1996 was as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- ----------
(millions)
<S> <C> <C>
Residential collateralized mortgage obligations ..................... $ 2,227.8 $2,309.0
Principal-only strips (included above) .............................. 44.5 53.3
Interest-only strips (included above) .............................. 10.3 22.8
Other structured securities with derivative characteristics (1) ...... 126.3 129.2
</TABLE>
(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-25
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
4. Net Investment Income
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
(millions)
<S> <C> <C> <C>
Debt securities $ 945.3 $ 891.5 $ 823.9
Preferred stock 5.9 4.2 3.9
Investment in affiliated mutual funds 14.3 14.9 5.2
Mortgage loans 2.2 1.4 1.4
Policy loans 18.4 13.7 11.5
Reinsurance loan to affiliate 44.1 46.5 51.5
Cash equivalents 29.4 38.9 29.5
Other 2.1 8.4 6.7
--------- --------- --------
Gross investment income 1,061.7 1,019.5 933.6
Less investment expenses (16.1) (15.2) (16.4)
--------- --------- --------
Net investment income $ 1,045.6 $ 1,004.3 $ 917.2
========= ========= ========
</TABLE>
Net investment income includes amounts allocable to experience rated
contractholders of $787.6 million, $744.2 million and $677.1 million for the
years ended December 31, 1996, 1995 and 1994, respectively. Interest credited
to contractholders is included in Current and Future Benefits.
5. Dividend Restrictions and Shareholder's Equity
The Company paid $3.5 million in cash dividends to HOLDCO in 1996. In 1995, the
Company dividended $2.9 million in the form of two of its subsidiaries,
Systematized Benefits Administrators, Inc. and Aetna Investment Services, Inc.,
to Aetna Retirement Services, Inc. (the Company's former parent).
The amount of dividends that may be paid to the shareholder in 1997 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$71.1 million.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's capital and surplus those amounts
determined in conformity with statutory accounting practices prescribed or
permitted by the Department, which differ in certain respects from generally
accepted accounting principles. Statutory net income was $57.8 million, $70.0
million and $64.9 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Statutory capital and surplus was $713.6 million and $670.7
million as of December 31, 1996 and 1995, respectively.
As of December 31, 1996 the Company does not utilize any statutory accounting
practices which are not prescribed by state regulatory authorities that,
individually or in the aggregate, materially affect statutory capital and
surplus.
Realized capital gains or losses are the difference between the carrying value
and sale proceeds of specific investments sold.
F-26
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations (Continued)
Net realized capital gains on investments were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ------
(millions)
<S> <C> <C> <C>
Debt securities $ 11.1 $ 32.8 $ 1.0
Equity securities 8.6 8.3 0.2
Mortgage loans -- 0.2 0.3
------- ------- ------
Pretax realized capital gains $ 19.7 $ 41.3 $ 1.5
------- ------- ------
After tax realized capital gains $ 13.0 $ 25.8 $ 1.0
======= ======= ======
</TABLE>
Net realized capital gains of $53.1 million and $61.1 million for 1996 and
1995, respectively, and net realized capital losses of $29.1 million for 1994,
allocable to experience rated contracts, were deducted from net realized
capital gains (losses) and an offsetting amount was reflected in policy-holder
funds' left with the Company. Net unamortized gains were $53.3 million and $7.3
million at December 31, 1996 and 1995, respectively.
Changes to the mortgage loan valuation reserve and writedowns on debt
securities for other than temporary declines in value are included in net
realized capital gains (losses) and amounted to $(3.3) million, $3.1 million
and $1.1 million, of which $(3.2) million, $2.2 million and $0.8 million were
allocable to experience rated contractholders, for the years ended December 31,
1996, 1995 and 1994, respectively. There was no valuation reserve for mortgage
loans at December 31, 1996 or at December 31, 1995.
Proceeds from the sale of available for sale debt securities and the related
gross gains and losses were as follows:
1996 1995 1994
----------- ----------- ----------
(millions)
Proceeds on Sales $ 5,182.2 $ 4,207.2 $3,593.8
Gross gains 24.3 44.6 26.6
Gross losses 13.2 11.8 25.6
Changes in shareholder's equity related to changes in unrealized capital gains
(losses), (excluding those related to experience rated contractholders), were
as follows:
F-27
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations (Continued)
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------- ------------
(millions)
<S> <C> <C> <C>
Debt securities $ (100.1) $ 255.9 $ (242.1)
Equity securities (10.5) 27.3 (13.3)
Limited partnership -- 1.8 (1.8)
---------- -------- ---------
(110.6) 285.0 (257.2)
Deferred income taxes (See Note 8) (38.6) (36.5) 46.3
---------- -------- ---------
Net change in unrealized capital gains (losses) $ (72.0) $ 321.5 $ (303.5)
========== ======== =========
</TABLE>
Net unrealized capital gains allocable to experience rated contracts of $245.2
million and $43.3 million at December 31, 1996 and $515.0 million and $104.1
million at December 31, 1995 are reflected on the Consolidated Balance Sheets
in Policyholders' Funds Left With the Company and Future Policy Benefits,
respectively, and are not included in shareholder's equity.
Shareholder's equity included the following unrealized capital gains (losses),
which are net of amounts allocable to experience rated contractholders, at
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
(millions)
<S> <C> <C> <C>
Debt securities
Gross unrealized capital gains $ 101.7 $ 179.3 $ 27.4
Gross unrealized capital losses (23.8) (1.3) (105.2)
-------- -------- ---------
77.9 178.0 (77.8)
Equity securities
Gross unrealized capital gains 16.3 27.2 6.5
Gross unrealized capital losses (0.8) (1.2) (7.9)
-------- -------- ---------
15.5 26.0 (1.4)
Limited Partnership -- -- --
Gross unrealized capital gains -- -- --
Gross unrealized capital losses -- -- (1.8)
-------- -------- ---------
-- -- (1.8)
Deferred income taxes (See Note 8) 32.9 71.5 108.0
-------- -------- ---------
Net unrealized capital gains (losses) $ 60.5 $ 132.5 $ (189.0)
======== ======== =========
</TABLE>
F-28
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
7. Severance and Facilities Charges
Severance and facilities charges during 1996, as described below, included the
following (pretax):
<TABLE>
<CAPTION>
Vacated
Asset Leased Corporate
(Millions) Severance Write-Off Property Other Allocation Total
- --------------------------- ----------- ----------- ---------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Financial Services $ 29.1 $ 1.0 $ 1.3 $ 1.7 $ -- $ 33.1
Individual Life Insurance 12.5 0.4 0.5 0.8 -- 14.2
Corporate Allocation -- -- -- -- 14.0 14.0
------- ------ ------ ------ ------ -------
Total Company $ 41.6 $ 1.4 $ 1.8 $ 2.5 $14.0 $ 61.3
- -------------------------- ------- ------ ------ ------ ------ -------
</TABLE>
In the third quarter of 1996, the Company recorded a $30.7 million after tax
($47.3 million pretax) charge principally related to actions taken or expected
to be taken to improve its cost structure relative to its competitors. The
severance portion of the charge is based on a plan to eliminate 702 positions
(primarily customer service, sales and information technology support staff).
The facilities portion of the charge is based on a plan to consolidate
sales/service field offices.
In addition to the above charge, Aetna recorded a facilities and severance
charge in the second quarter of 1996, primarily as a result of actions taken or
expected to be taken to reduce the level of corporate expenses and other costs
previously absorbed by Aetna's property-casualty operations. The cost allocated
to the Company associated with this charge was $9.1 million after tax ($14.0
million pretax).
The activity during 1996 within the severance and facilities reserve (pretax,
in millions) and the number of positions eliminated related to such actions
were as follows:
Reserve Positions
- --------------------------------- --------- ----------
Beginning of year $ -- --
Severance and facilities charges 47.3 702
Corporate Allocation 14.0 --
Actions taken (1) (13.4) (178)
------- -----
End of year $ 47.9 524
- --------------------------------- ------- -----
(1) Includes $8.0 million of severance-related actions and $4.1 million of
corporate allocation-related actions.
The Company's severance actions are expected to be substantially completed by
March 31, 1998. The corporate allocation actions and the vacating of the leased
office space are expected to be substantially completed in 1997.
8. Income Taxes
The Company is included in the consolidated federal income tax return and
combined Connecticut and New York state income tax returns of Aetna. Aetna
allocates to each member an amount approximating the
F-29
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
tax it would have incurred were it not a member of the consolidated group, and
credits the member for the use of its tax saving attributes used in the
consolidated returns.
Income taxes for the years ended December 31, consist of:
1996 1995 1994
------- ------- ------
(millions)
Current taxes (benefits):
Income Taxes:
Federal $ 50.9 $ 82.9 $ 78.7
State 3.7 3.2 4.4
Net realized capital gains (losses) 25.3 28.5 (33.2)
------ ------ ------
79.9 114.6 49.9
------ ------ ------
Deferred taxes (benefits):
Income Taxes:
Federal ( 3.5) (14.4) ( 8.0)
Net realized capital gains (losses) (18.6) (12.9) 33.7
------ ------ ------
(22.1) (27.3) 25.7
------ ------ ------
Total $ 57.8 $ 87.3 $ 75.6
====== ====== ======
Income taxes were different from the amount computed by applying the federal
income tax rate to income before income taxes for the following reasons:
1996 1995 1994
------- ------- -------
(millions)
Income before income taxes $198.9 $263.2 $220.9
Tax rate 35% 35% 35%
------ ------ ------
Application of the tax rate 69.6 92.1 77.3
------ ------ ------
Tax effect of:
State income tax, net of federal benefit 2.4 2.1 2.9
Excludable dividends (8.7) (9.3) (8.6)
Other, net (5.5) 2.4 4.0
------ ------ ------
Income taxes $ 57.8 $ 87.3 $ 75.6
====== ====== ======
F-30
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
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:
<TABLE>
<CAPTION>
1996 1995
------- -----
(millions)
<S> <C> <C>
Deferred tax assets:
Insurance reserves $344.6 $290.4
Unrealized gains allocable to experience rated contracts 100.8 216.7
Investment losses 7.5 7.3
Postretirement benefits other than pensions 27.0 7.7
Deferred compensation 25.0 18.9
Pension 7.6 5.7
Other 29.3 9.2
------ ------
Total gross assets 541.8 555.9
Deferred tax liabilities:
Deferred policy acquisition costs 482.1 433.0
Market discount 6.8 4.4
Net unrealized capital gains 133.7 288.2
Other (0.3) (0.1)
------ ------
Total gross liabilities 622.3 725.5
------ ------
Net deferred tax liability $ 80.5 $169.6
====== ======
</TABLE>
Net unrealized capital gains and losses are presented in shareholder's equity
net of deferred taxes. Valuation allowances are provided when it is not
considered more likely than not that deferred tax assets will be realized. As
of December 31, 1996 and 1995, no valuation allowances were required for
unrealized capital gains and losses.
The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that has
not been subject to taxation. As of December 31, 1983, no further additions
could be made to the Policyholders' Surplus Account for tax return purposes
under the Deficit Reduction Act of 1984. The balance in such account was
approximately $17.2 million at December 31, 1996. This amount would be taxed
only under certain conditions. No income taxes have been provided on this
amount since management believes the conditions under which such taxes would
become payable are remote.
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.
F-31
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
9. Benefit Plans
Employee Pension Plans--The Company, in conjunction with Aetna, has
noncontributory defined benefit pension plans covering substantially all
employees. The plans provide pension benefits based on years of service and
average annual compensation (measured over 60 consecutive months of highest
earnings in a 120-month period). Contributions are determined using the
Projected Unit Credit Method and, for qualified plans subject to ERISA
requirements, are limited to the amounts that are tax-deductible. As of
December 31, 1996, Aetna's accrued pension cost has been allocated to its
subsidiaries, including the Company, under an allocation based on eligible
salaries. Data on a separate company basis regarding the proportionate share of
the projected benefit obligation and plan assets is not available. The
accumulated benefit obligation and plan assets are recorded by Aetna. As of the
measurement date (i.e., September 30), the accumulated plan assets exceeded
accumulated plan benefits. Allocated pretax charges to operations for the
pension plan (based on the Company's total salary cost as a percentage of
Aetna's total salary cost) were $4.3 million, $6.1 million and $5.5 million for
the years ended December 31, 1996, 1995 and 1994, respectively.
Employee Postretirement Benefits--In addition to providing pension benefits,
Aetna currently provides certain health care and life insurance benefits,
subject to certain caps, for retired employees. A comprehensive medical and
dental plan is offered to all full-time employees retiring at age 50 with 15
years of service or at age 65 with 10 years of service. Retirees are generally
required to contribute to the plans based on their years of service with Aetna.
The costs to the Company associated with the Aetna postretirement plans for
1996, 1995 and 1994 were $1.8 million, $1.4 million and $1.0 million,
respectively.
As of December 31, 1996, Aetna transferred to the Company approximately $77.7
million of accrued liabilities, primarily related to the pension and
postretirement benefit plans described above, that had been previously recorded
by Aetna. The after tax amount of this transfer (approximately $50.5 million)
is reported as a reduction in retained earnings.
Agent Pension Plans--The Company, in conjunction with Aetna, has a
non-qualified pension plan covering certain agents. The plan provides pension
benefits based on annual commission earnings. As of the measurement date (i.e.,
September 30), the accumulated plan assets exceeded accumulated plan benefits.
Agent Postretirement Benefits--The Company, in conjunction with Aetna, also
provides certain postretirement health care and life insurance benefits for
certain agents. The costs to the Company associated with the agents'
postretirement plans for 1996, 1995 and 1994 were $0.7 million, $0.8 million
and $0.7 million, respectively.
Incentive Savings Plan--Substantially all employees are eligible to participate
in a savings plan under which designated contributions, which may be invested
in common stock of Aetna or certain other investments, are matched, up to 5% of
compensation, by Aetna. Pretax charges to operations for the incentive savings
plan were $5.4 million, $4.9 million and $3.3 million in 1996, 1995 and 1994,
respectively.
F-32
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
9. Benefit Plans (Continued)
Stock Plans--Aetna has a stock incentive plan that provides for stock options,
deferred contingent common stock or equivalent cash awards or restricted stock
to certain key employees. Executive and middle management employees may be
granted options to purchase common stock of Aetna at or above the market price
on the date of grant. Options generally become 100% vested three years after
the grant is made, with one-third of the options vesting each year. Aetna does
not recognize compensation expense for stock options granted at or above the
market price on the date of grant under its stock incentive plans. In addition,
executives may be granted incentive units which are rights to receive common
stock or an equivalent value in cash. The incentive units may vest within a
range from 0% to 175% at the end of a four year period based on the attainment
of performance goals. The costs to the Company associated with the Aetna stock
plans for 1996, 1995 and 1994, were $8.1 million, $6.3 million and $1.7
million, respectively. As of December 31, 1996, Aetna transferred to the
Company approximately $1.1 million of deferred tax benefits related to stock
options. This amount is reported as an increase in retained earnings.
10. Related Party Transactions
The Company is compensated by the Separate Accounts for bearing mortality and
expense risks pertaining to variable life and annuity contracts. Under the
insurance contracts, the Separate Accounts pay the Company a daily fee which,
on an annual basis, ranges, depending on the product, from .10% to 1.90% of
their average daily net assets. The Company also receives fees from the
variable life and annuity mutual funds and The Aetna Series Fund for serving as
investment adviser. Under the advisory agreements, the Funds pay the Company a
daily fee which, on an annual basis, ranges, depending on the fund, from .25%
to .85% of their average daily net assets. The Company also receives fees
(expressed as a percentage of the average daily net assets) from the variable
life and annuity mutual funds and The Aetna Series Fund for providing
administration services, and from The Aetna Series Fund for providing
shareholder services and promoting sales. The amount of compensation and fees
received from the Separate Accounts and Funds, included in Charges Assessed
Against Policyholders, amounted to $185.4 million, $128.1 million and $104.6
million in 1996, 1995 and 1994, respectively. The Company may waive advisory
fees at its discretion.
The Company acts as an investment adviser for its affiliated mutual funds.
Since August 1996, Aeltus Investment Management, Inc. ("Aeltus"), a wholly
owned subsidiary of HOLDCO and an affiliate of the Company, has been acting as
Subadvisor of all affiliated mutual funds and of most of the General Account
assets. Fees paid by the Company to Aeltus, included in both Charges Assessed
Against Policyholders and Net Investment Income, on an annual basis, range from
.06% to .55% of the average daily net assets under management. For the year
ended December 31, 1996, the Company paid $16.0 million in such fees.
The Company may, from time to time, make reimbursements to a Fund for some or
all of its operating expenses. Reimbursement arrangements may be terminated at
any time without notice.
F-33
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
Since 1981, all domestic individual non-participating life insurance of Aetna
and its subsidiaries has been issued by the Company. Effective December 31,
1988, the Company entered into a reinsurance agreement with Aetna Life
Insurance Company ("Aetna Life") in which substantially all of the non-
participating individual life and annuity business written by Aetna Life prior
to 1981 was assumed by the Company. A $108.0 million commission, paid by the
Company to Aetna Life in 1988, was capitalized as deferred policy acquisition
costs. An additional $6.1 million commission, paid by the Company to Aetna Life
in 1996, was capitalized as deferred policy acquisition costs. The Company
maintained insurance reserves of $628.3 million and $655.5 million as of
December 31, 1996 and 1995, respectively, relating to the business assumed. In
consideration for the assumption of this business, a loan was established
relating to the assets held by Aetna Life which support the insurance reserves.
The loan is being reduced in accordance with the decrease in the reserves. The
fair value of this loan was $625.3 million and $663.5 million as of December
31, 1996 and 1995, respectively, and is based upon the fair value of the
underlying assets. Premiums of $25.3 million, $28.0 million and $32.8 million
and current and future benefits of $39.5 million, $43.0 million and $43.8
million were assumed in 1996, 1995 and 1994, respectively.
Investment income of $44.1 million, $46.5 million and $51.5 million was
generated from the reinsurance loan to affiliate in 1996, 1995 and 1994,
respectively. Net income of approximately $8.1 million, $18.4 million and $25.1
million resulted from this agreement in 1996, 1995 and 1994, respectively.
On December 16, 1988, the Company assumed $25.0 million of premium revenue from
Aetna Life for the purchase and administration of a life contingent single
premium variable payout annuity contract. In addition, the Company also is
responsible for administering fixed annuity payments that are made to
annuitants receiving variable payments. Reserves of $28.9 million and $28.0
million were maintained for this contract as of December 31, 1996 and 1995,
respectively.
Effective February 1, 1992, the Company increased its retention limit per
individual life to $2.0 million and entered into a reinsurance agreement with
Aetna Life to reinsure amounts in excess of this limit, up to a maximum of $8.0
million on any new individual life business, on a yearly renewable term basis.
Premium amounts related to this agreement were $5.2 million, $3.2 million and
$1.3 million for 1996, 1995 and 1994, respectively.
The Company received a capital contribution of $10.4 million in cash from
HOLDCO in 1996. The Company received no capital contributions in 1995 or 1994.
The Company paid $3.5 million in cash dividends to HOLDCO in 1996. In 1995, the
Company dividended $2.9 million in the form of two of its subsidiaries,
Systematized Benefits Administrators, Inc. and Aetna Investment Services, Inc.,
to Aetna Retirement Services, Inc. (the Company's former parent).
Premiums due and other receivables include $2.8 million and $5.7 million due
from affiliates in 1996 and 1995, respectively. Other liabilities include $10.7
million and $12.4 million due to affiliates for 1996 and 1995, respectively.
F-34
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
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.
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>
1996
- ----
Premiums:
Life Insurance $ 34.6 $ 11.2 $ 25.3 $ 48.7
Accident and Health Insurance 6.3 6.3 -- --
Annuities 84.3 -- 0.6 84.9
-------- ------- ------- --------
Total earned premiums $ 125.2 $ 17.5 $ 25.9 $ 133.6
======== ======= ======= ========
1995
- ----
Premiums:
Life Insurance $ 28.8 $ 8.6 $ 28.0 $ 48.2
Accident and Health Insurance 7.5 7.5 -- --
Annuities 164.0 -- 0.5 164.5
-------- ------- ------- --------
Total earned premiums $ 200.3 $ 16.1 $ 28.5 $ 212.7
======== ======= ======= ========
1994
- ----
Premiums:
Life Insurance $ 27.3 $ 6.0 $ 32.8 $ 54.1
Accident and Health Insurance 9.3 9.3 -- --
Annuities 137.3 -- 0.2 137.5
-------- ------- ------- --------
Total earned premiums $ 173.9 $ 15.3 $ 33.0 $ 191.6
======== ======= ======= ========
</TABLE>
F-35
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
12. Commitments and Contingent Liabilities
Commitments
Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a specified
future date and at a specified price or yield. The inability of counterparties
to honor these commitments may result in either higher or lower replacement
cost. Also, there is likely to be a change in the value of the securities
underlying the commitments. At December 31, 1996, the Company had commitments
to purchase investments of $17.9 million. The fair value of the investments at
December 31, 1996 approximated $18.3 million.
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:
(Millions) 1996 1995 1994
- ------------------------------------ ----------- ----------- ----------
Revenue:
Financial Services $ 1,195.1 $ 1,211.3 $1,013.5
Individual Life Insurance 445.7 407.9 386.1
---------- ---------- ----------
Total revenue $ 1,640.8 $ 1,619.2 $1,399.6
- ----------------------------------- ---------- ---------- ----------
Income before income taxes: (2)
Financial Services $ 129.9 $ 160.1 $ 122.5
Individual Life Insurance 83.0 103.1 98.4
---------- ---------- ----------
Total income before income taxes $ 212.9 $ 263.2 $ 220.9
- ----------------------------------- ---------- ---------- ----------
Net income: (2)
Financial Services $ 94.3 $ 113.8 $ 85.5
Individual Life Insurance 55.9 62.1 59.8
---------- ---------- ----------
Net income $ 150.2 $ 175.9 $ 145.3
- ----------------------------------- ---------- ---------- ----------
F-36
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
13. Segment Information (1) (Continued)
Assets under management: (3)
Financial Services $ 27,268.1 $ 22,534.4 $18,122.9
Individual Life Insurance 2,830.5 2,590.9 2,220.5
- -------------------------------- ----------- ----------- -----------
Total assets under management $ 30,098.6 $ 25,125.3 $20,343.4
- -------------------------------- ----------- ----------- -----------
(1) The 1996 results include severance and facilities charges of $30.7
million, after tax. Of this charge $21.5 million related to the Financial
Services segment and $9.2 million related to the Individual Life Insurance
segment.
(2) Excludes any effect of the corporate facilities and severance charge
recorded in 1996 which is not directly allocable to the Financial Services and
Individual Life Insurance segments. (Refer to Note 7).
(3) Excludes net unrealized capital gains (losses) of $366.4 million, $797.1
million and $(386.4) million at December 31, 1996, 1995 and 1994, respectively.
F-37
<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,
1996
- Statements of Operations and Changes in Net Assets for the
years ended December 31, 1996 and 1995
- Notes to Financial Statements
- Independent Auditors' Report
- Unaudited Statement of Assets and Liabilities as of
September 30, 1997
- Unaudited Statements of Operations for the nine-month
periods ended September 30, 1997 and 1996
- Unaudited Statement of Changes in Net Assets for the
nine-month period ended September 30, 1997
Financial Statements of the Depositor:
- Independent Auditors' Report
- Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994
- Consolidated Balance Sheets as of December 31, 1996 and
1995
- Consolidated Statements of Changes in Shareholder's Equity
for the years ended December 31, 1996, 1995 and 1994
- Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
- Notes to Consolidated Financial Statements
- Unaudited Consolidated Balance Sheets as of September 30,
1997
- Unaudited Consolidated Statements of Income for the three-
and nine-month periods ended September 30, 1997 and 1996
- Unaudited Consolidated Statements of Changes in
Shareholder's Equity for the nine-month periods ended
September 30, 1997 and 1996
- Unaudited Consolidated Statements of Cash Flows for the
nine-month periods ended September 30, 1997 and 1996
- Condensed 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) Selling Agreement(2)
<PAGE>
(3.2) Alternative Form of Wholesaling Agreement and Related Selling
Agreement(3)
(3.3) Federated Broker Dealer Agreement (9/2/94)(4)
(4.1) Variable Annuity Contract G-CDA-97(NY)(5)
(4.2) Variable Annuity Contract Certificate GMCC-97(NY) to
Contract G-CDA-97(NY)(5)
(4.3) Variable Annuity Contract G-MP1(5/97)(6)
(4.4) Variable Annuity Contract Certificate MP1CERT(5/97)(6)
(4.5) Variable Annuity Contract I-MP1(5/97)(6)
(4.6) Variable Annuity Contract G-MP1(5/96)(7)
(4.7) Variable Annuity Contract Certificate MP1CERT(5/96)(7)
(4.8) Variable Annuity Contract I-MP1(5/96)(7)
(4.9) Variable Annuity Contract G-CDA-96(NY)(7)
(4.10) Variable Annuity Contract Certificate GMCC-96(NY)(7)
(4.11) Variable Annuity Contracts and Certificates G-CDA-IC(NQ),
G-CDA-IC(IR), I-CDA-IC(NQ/MP), I-CDA-IC(IR/MP), GMCC-IC(NQ)(8)
(4.12) Variable Annuity Contracts and Certificates G-CDA-IC(IR/NY),
GMCC-IC(IR/NY), G-CDA-IC(NQ/NY), and GMCC-IC(NQ/NY)(9)
(4.13) Endorsements MP1IRA(5/97) and I-MP1IRA(5/97) to Contract
G-MP1(5/96) and Certificate MP1CERT(5/96)(7)
(4.14) Endorsements MP1QP(5/97) and I-MP1QP(5/97) to Contract
G-MP1(5/96) and Certificate MP1CERT(5/96)(7)
(4.15) Endorsements MP1TDA(5/97) and I-MP1TDA(5/97) to Contract
G-MP1(5/96) and Certificate MP1CERT(5/96)(7)
(4.16) Endorsements MP1DC(5/97) and I-MP1DC(5/97) to Contract
G-MP1(5/96) and Certificate MP1CERT(5/96)(7)
(4.17) Endorsement G-MP1IRA(11/96) to Contract G-CDA-96(NY) and
Certificate GMCC-96(NY)(7)
(4.18) Endorsement I-MP1END(9/97) to Contract I-MP1(5/96)(6)
(4.19) Endorsement E1-MPROTH-97 to Contract G-MP1(5/97)(5)
(4.20) Endorsement EI1MPROTH-97 to Contract I-MP1(5/97)(5)
(4.21) Endorsement MP1IRA(11/97) to Contract G-MP1(5/97)(5)
(4.22) Endorsement I-MP1IRA(11/97) to Contract I-MP1(5/97)(5)
(4.23) Endorsement MP1END(9/97) to Contract G-MP1(5/97) and
Certificate MP1CERT(5/97)
(4.24) Endorsement I-MP1END(9/97) to Contract I-MP1(5/97)
(4.25) Contract Schedule I Accumulation Period (G-MP1(11/97)-5) to
Group Contract (G-MP1(5/97))(5)
(4.26) Contract Schedule I Accumulation Period (I-MP1(11/97)-5) to
Individual Contract (I-MP1(5/97))(5)
(4.27) Variable Annuity Contract Application MPAPPNY(1/96)(5)
<PAGE>
(5.1) Variable Annuity Contract Application (300-MAR-IB)(10)
(5.2) Variable Annuity Contract Application (710.6.13)(10)
(6.1) Certificate of Incorporation of Aetna Life Insurance and
Annuity Company(11)
(6.2) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(12)
(6.3) By-Laws as amended September 17, 1997 of Aetna Life Insurance
and Annuity Company(13)
(7) Not applicable
(8.1) Fund Participation Agreement (Amended and Restated) between
Aetna Life Insurance and Annuity Company, Alger American Fund
and Fred Alger Management, Inc. dated as of March 31, 1995(3)
(8.2) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Calvert Asset Management Company (Calvert
Responsibly Invested Balanced Portfolio, formerly Calvert
Socially Responsible Series) dated March 13, 1989 and amended
December 27, 1993(3)
(8.3) Second Amendment dated January 1, 1996 to Fund Participation
Agreement between Aetna Life Insurance and Annuity Company and
Calvert Asset Management Company (Calvert Responsibly Invested
Balanced Portfolio, formerly Calvert Socially Responsible
Series) dated March 13, 1989 and amended December 27, 1993(14)
(8.4) Third Amendment dated February 11, 1997 to Fund Participation
Agreement between Aetna Life Insurance and Annuity Company and
Calvert Asset Management Company (Calvert Responsibly Invested
Balanced Portfolio, formerly Calvert Socially Responsible
Series) dated March 13, 1989 and amended December 27, 1993 and
January 1, 1996(15)
(8.5) Fourth Amendment dated February 28, 1997 to Fund Participation
Agreement between Aetna Life Insurance and Annuity Company and
Calvert Asset Management Company (Calvert Responsibly Invested
Balanced Portfolio, formerly Calvert Socially Responsible
Series) dated March 13, 1989 and amended December 27, 1993,
January 1, 1996, and February 11, 1997(16)
(8.6) Fund Participation Agreement by and among Aetna Life Insurance
and Annuity Company, Insurance Management Series and Federated
Advisors dated July 1, 1994(17)
(8.7) 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(12)
(8.8) Fifth Amendment, dated as of May 1, 1997, to the Fund
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund and Fidelity
Distributors Corporation dated February 1, 1994 and
<PAGE>
amended on December 15, 1994, February 1, 1995, May 1, 1995,
January 1, 1996 and March 1, 1996(6)
(8.9) 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(18)
(8.10) 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(12)
(8.11) 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(6)
(8.12) Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investments Institutional Operations
Company dated as of November 1, 1995(14)
(8.13) 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(6)
(8.14) Fund Participation Agreement among Janus Aspen Series and
Aetna Life Insurance and Annuity Company and Janus Capital
Corporation dated December 8, 1997(19)
(8.15) Service Agreement between Janus Capital Corporation and Aetna
Life Insurance and Annuity Company dated December 8, 1997(19)
(8.16) 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(3)
(8.17) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Lexington Emerging Markets Fund, Inc. and
Lexington Management Corporation (its investment advisor)
dated April 28, 1994(2)
(8.18) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Oppenheimer Variable Annuity Account Funds
and Oppenheimer Funds, Inc. dated March 11, 1997(17)
(8.19) Service Agreement between Oppenheimer Funds, Inc. and Aetna
Life Insurance and Annuity Company dated March 11, 1997(17)
(8.20) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Investors Research Corporation and TCI
Portfolios, Inc. dated July 29, 1992 and amended December 22,
1992 and June 1, 1994(3)
<PAGE>
(8.21) Administrative Service Agreement between Aetna Life Insurance
and Annuity Company and Agency, Inc.(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(20)
(14) Not applicable
(15.1) Powers of Attorney(21)
(15.2) Authorization for Signatures(3)
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. 22 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on April 22, 1996 (Accession No. 0000912057-96-006805).
3. 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).
4. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-79122), as filed electronically on
August 16, 1995 (Accession No. 0000950109-95-003265).
5. Incorporated by reference to Post-Effective Amendment No. 32 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on December 16, 1997 (Accession No. 0000950146-97-001918).
6. 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).
7. Incorporated by reference to Post-Effective Amendment No. 26 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on February 21, 1997 (Accession No. 0000950146-97-000226).
8. Incorporated by reference to Post-Effective Amendment No. 15 to
Registration Statement on Form N-4 (File No. 33-34370), as filed on April
19, 1994.
9. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 33-87932), as filed electronically on
September 19, 1995 (Accession No. 0000950109-95-003821).
10. Incorporated by reference to Post-Effective Amendment No. 29 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on August 18, 1997 (Accession No. 0000950146-97-001290).
<PAGE>
11. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-60477), as filed electronically on April
15, 1996 (Accession No. 0000950146-96-000534).
12. 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).
13. 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).
14. 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).
15. Incorporated by reference to Post-Effective Amendment No. 4 to Registration
Statement on Form N-4 (File No. 333-01107), as filed electronically on
February 26, 1997 (Accession No. 0000950146-97-000241).
16. 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).
17. Incorporated by reference to Post-Effective Amendment No. 27 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on April 16, 1997 (Accession No. 0000950146-97-000617).
18. 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).
19. 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).
20. Incorporated by reference to Post-Effective Amendment No. 24 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on September 16, 1996 (Accession No. 0000912057-96-020393).
21. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form S-6 (File No. 333-27337), as filed electronically on
December 9, 1996 (Accession No. 0000950146-97-001872).
<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
Timothy A. Holt Director, Senior Vice President and Chief Financial
Officer
J. Scott Fox Director and Senior Vice President
John Y. Kim Director and Senior Vice President
Shaun P. Mathews Director and Senior Vice President
Thomas P. Waldron Director
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.
16 to the Registration Statement on Form N-4 (File No. 33-75964), as filed
electronically on February 9, 1998 (Accession No. 0000950146-98-179).
Item 27. Number of Contract Owners
As of December 31, 1997, there were 61,284 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,
<PAGE>
directors, employees and agents against "liability" (defined as the obligation
to pay a judgment, settlement, penalty, fine, excise tax in the case of an
employee benefit plan or reasonable expenses incurred with respect to a
proceeding). In the case of a proceeding by or in the right of the corporation,
indemnification is limited to reasonable expenses incurred in connection with
the proceeding against the corporation to which the individual was named a
party. The corporation's obligation to provide such indemnification does not
apply unless (1) the individual has met the standard of conduct set forth in
Section 33-771; and (2) a determination is made (by majority vote of a quorum of
the board of directors who were not parties to the proceeding, or if a quorum
cannot be obtained, by a committee of the board selected as described in Section
33-775(b)(2); by special legal counsel selected by the board of directors or
members thereof as described in Section 33-775(b)(3); by shareholders) that the
individual met the standard set forth in Section 33-771; or (3) the court, upon
application by the individual, determines in view of all the circumstances that
such person is reasonably entitled to be indemnified. Also, unless limited by
its Certificate of Incorporation, a corporation must indemnify an individual who
was wholly successful on the merits or otherwise against reasonable expenses
incurred by him in connection with a proceeding to which he was a party because
of his relationship as director, officer, employee or agent of the corporation.
The statute does specifically authorize a corporation to procure indemnification
insurance on behalf of an individual who is or was a director, officer, employer
or agent of the corporation. Consistent with the statute, Aetna Inc. has
procured insurance from Lloyd's of London and several major United States excess
insurers for its directors and officers and the directors and officers of its
subsidiaries, including the Depositor.
Item 29. Principal Underwriter
(a) In addition to serving as the principal underwriter and depositor for
the Registrant, Aetna Life Insurance and Annuity Company (Aetna) also
acts as the investment adviser, only, for Aetna Series Fund, Inc., and
the principal underwriter and investment adviser for Portfolio
Partners, Inc., Aetna Variable Encore Fund, Aetna Variable Fund, Aetna
Generation Portfolios, Inc., Aetna Income Shares, Aetna Investment
Advisers Fund, Inc., Aetna GET Fund, and Aetna Variable Portfolios,
Inc. (all management investment companies registered under the
Investment Company Act of 1940 (1940 Act)). Additionally, Aetna acts as
the principal underwriter and depositor for Variable Life Account B of
Aetna, Variable Annuity Account C of Aetna and Variable Annuity Account
G of Aetna (separate accounts of Aetna registered as unit investment
trusts under the 1940 Act). Aetna is also the principal underwriter for
Variable Annuity Account I of Aetna Insurance Company of America (AICA)
(a separate account of AICA registered as a unit investment trust under
the 1940 Act).
(b) See Item 25 regarding the Depositor.
(c) Compensation as of December 31, 1996:
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation on
Principal Discounts and Redemption or Brokerage
Underwriter Commissions Annuitization Commissions Compensation*
- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Aetna Life Insurance $288,029 $17,661,810
and Annuity Company
</TABLE>
* Compensation shown in column 5 includes deductions for mortality and
expense risk guarantees and contract charges assessed to cover costs
incurred in the sales and administration of the contracts issued under
Variable Annuity Account B.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules under it relating to the securities
described in and issued under this Registration Statement are located at the
home office of the Depositor as follows:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Item 31. Management Services
Not applicable
Item 32. Undertakings
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement on
Form N-4 as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than
sixteen months old for as long as payments under the variable annuity
contracts may be accepted;
(b) to include as part of any application to purchase a contract offered by
a prospectus which is part of this registration statement on Form N-4,
a space that an applicant can check to request a Statement of
Additional Information; and
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
<PAGE>
(d) The Company hereby represents that it is relying upon and will comply
with the provisions of Paragraphs (1) through (4) of the SEC Staff's
No-Action Letter dated November 22, 1988 with respect to language
concerning withdrawal restrictions applicable to plans established
pursuant to Section 403(b) of the Internal Revenue Code. See American
Counsel of Life Insurance; SEC No-Action Letter, [1989 Transfer Binder]
Fed. SEC. L. Rep. (CCH) [PARAGRAPH]. 78,904 at 78,523 (November 22,
1988).
(e) 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.
(f) 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. 33-34370) and has duly caused this
Post-Effective Amendment to its Registration Statement on Form N-4 (File No.
33-34370) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hartford, State of Connecticut, on the 12th day of
February, 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. 33 to the Registration Statement on Form N-4 (File No. 33-34370) has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C> <C>
Thomas J. McInerney* Director and President )
- ------------------------------------ (principal executive officer) )
Thomas J. McInerney )
)
Timothy A. Holt* Director, Senior Vice President and Chief )
- ------------------------------------ Financial Officer )
Timothy A. Holt )
) February
J. Scott Fox* Director ) 12, 1998
- ------------------------------------ )
J. Scott Fox )
)
John Y. Kim* Director )
- ------------------------------------ )
John Y. Kim )
<PAGE>
Shaun P. Mathews* Director )
- ------------------------------------ )
Shaun P. Mathews )
)
Thomas P. Waldron* Director )
- ------------------------------------ )
Thomas P. Waldron )
)
Deborah Koltenuk* Vice President and Treasurer, Corporate Controller )
- ------------------------------------ )
Deborah Koltenuk )
</TABLE>
By: /s/ Julie E. Rockmore
-----------------------------------------------------------
Julie E. Rockmore
*Attorney-in-Fact
<PAGE>
VARIABLE ANNUITY ACCOUNT B
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
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 Selling Agreement *
99-B.3.2 Alternative Form of Wholesaling Agreement and Related Selling Agreement *
99-B.3.3 Federated Broker Dealer Agreement (9/2/94) *
99-B.4.1 Variable Annuity Contract G-CDA-97(NY) *
99-B.4.2 Variable Annuity Contract Certificate GMCC-97(NY) to Contract G-CDA-97(NY) *
99-B.4.3 Variable Annuity Contract G-MP1(5/97) *
99-B.4.4 Variable Annuity Contract Certificate MP1CERT(5/97) *
99-B.4.5 Variable Annuity Contract I-MP1(5/97) *
99-B.4.6 Variable Annuity Contract G-MP1(5/96) *
99-B.4.7 Variable Annuity Contract Certificate MP1CERT(5/96) *
99-B.4.8 Variable Annuity Contract I-MP1(5/96) *
99-B.4.9 Variable Annuity Contract G-CDA-96(NY) *
99-B.4.10 Variable Annuity Contract Certificate GMCC-96(NY) *
99-B.4.11 Variable Annuity Contracts and Certificates *
G-CDA-IC(NQ), G-CDA-IC(IR), I-CDA-IC(NQ/MP),
I-CDA-IC(IR/MP), GMCC-IC(NQ)
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-B.4.12 Variable Annuity Contracts and Certificates *
G-CDA-IC(IR/NY), GMCC-IC(IR/NY), G-CDA-IC(NQ/NY), and GMCC-IC(NQ/NY)
99-B.4.13 Endorsements MP1IRA(5/97) and I-MP1IRA(5/97) to Contract G-MP1(5/96) and *
Certificate MP1CERT(5/96)
99-B.4.14 Endorsements MP1QP(5/97) and I-MP1QP(5/97) to Contract *
G-MP1(5/96) and Certificate MP1CERT(5/96)
99-B.4.15 Endorsements MP1TDA(5/97) and I-MP1TDA(5/97) to Contract G-MP1(5/96) and *
Certificate MP1CERT(5/96)
99-B.4.16 Endorsements MP1DC(5/97) and I-MP1DC(5/97) to Contract G-MP1(5/96) and *
Certificate MP1CERT(5/96)
99-B.4.17 Endorsement G-MP1IRA(11/96)) to Contract *
G-CDA-96(NY) and Certificate GMCC-96(NY)
99-B.4.18 Endorsement I-MP1END(9/97) to Contract I-MP1(5/96) *
99-B.4.19 Endorsement E1-MPROTH-97 to Contract G-MP1(5/97) *
99-B.4.20 Endorsement EI1MPROTH-97 to Contract I-MP1(5/97) *
99-B.4.21 Endorsement MP1IRA(11/97) to Contract G-MP1(5/97) *
99-B.4.22 Endorsement I-MP1IRA(11/97) to Contract I-MP1(5/97) *
99-B.4.23 Endorsement MP1END(9/97) to Contract G-MP1(5/97) and Certificate
MP1CERT(5/97)
-----------------
99-B.4.24 Endorsement I-MP1END(9/97) to Contract I-MP1(5/97)
-----------------
99-B.4.25 Contract Schedule I Accumulation Period (G-MP1(11/97)-5) to Group Contract *
(G-MP1(5/97))
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-B.4.26 Contract Schedule I Accumulation Period (I-MP1(11/97)-5) to Individual *
Contract (I-MP1(5/97))
99-B.4.27 Variable Annuity Contract Application MPAPPNY(1/96) *
99-B.5.1 Variable Annuity Contract Application (300-MAR-IB) *
99-B.5.2 Variable Annuity Contract Application (710.6.13) *
99-B.6.1 Certificate of Incorporation of Aetna Life Insurance and Annuity Company *
99-B.6.2 Amendment of Certificate of Incorporation of Aetna Life Insurance and *
Annuity Company
9-B.6.3 By-Laws as amended September 17, 1997 of Aetna Life Insurance and Annuity *
Company
99-B.8.1 Fund Participation Agreement (Amended and Restated) between Aetna Life *
Insurance and Annuity Company, Alger American Fund and Fred Alger
Management, Inc. dated as of March 31, 1995
99-B.8.2 Fund Participation Agreement between Aetna Life Insurance *
and Annuity Company and Calvert Asset Management Company (Calvert
Responsibly Invested Balanced Portfolio, formerly Calvert Socially
Responsible Series) dated March 13, 1989 and amended December 27, 1993
99-B.8.3 Second Amendment dated January 1, 1996 to Fund Participation Agreement *
between Aetna Life Insurance and Annuity Company and Calvert Asset
Management Company (Calvert Responsibly Invested Balanced Portfolio,
formerly Calvert Socially Responsible Series) dated March 13, 1989 and
amended December 27, 1993
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-B.8.4 Third Amendment dated February 11, 1997 to Fund Participation Agreement *
between Aetna Life Insurance and Annuity Company and Calvert Asset
Management Company (Calvert Responsibly Invested Balanced Portfolio,
formerly Calvert Socially Responsible Series) dated March 13, 1989 and
amended December 27, 1993 and January 1, 1996
99-B.8.5 Fourth Amendment dated February 28, 1997 to Fund Participation Agreement *
between Aetna Life Insurance and Annuity Company and Calvert Asset
Management Company (Calvert Responsibly Invested Balanced Portfolio,
formerly Calvert Socially Responsible Series) dated March 13, 1989 and
amended December 27, 1993, January 1, 1996, and February 11, 1997
99-B.8.6 Fund Participation Agreement by and among Aetna Life Insurance and Annuity *
Company, Insurance Management Series and Federated Advisors dated
July 1, 1994
99-B.8.7 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.8.8 Fifth Amendment, dated as of May 1, 1997, to the Fund Participation *
Agreement between Aetna Life Insurance and Annuity Company, Variable
Insurance Products Fund 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
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-B.8.9 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.8.10 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.8.11 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-8.12 Service Agreement between Aetna Life Insurance and Annuity Company and *
Fidelity Investments Institutional Operations Company dated as of
November 1, 1995
99-B.8.13 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.8.14 Fund Participation Agreement among Janus Aspen Series and Aetna Life *
Insurance and Annuity Company and Janus Capital Corporation dated December
8, 1997
99-B.8.15 Service Agreement between Janus Capital Corporation and Aetna Life Insurance *
and Annuity Company dated December 8, 1997
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-B.8.16 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company and Lexington Management Corporation regarding Natural Resources
Trust dated December 1, 1988 and amended February 11, 1991
99-B.8.17 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company, Lexington Emerging Markets Fund, Inc. and Lexington Management
Corporation (its investment advisor) dated April 28, 1994
99-B.8.18 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company and Oppenheimer Variable Annuity Account Funds and Oppenheimer
Funds, Inc. dated March 11, 1997
99-B.8.19 Service Agreement between Oppenheimer Funds, Inc. and Aetna Life Insurance *
and Annuity Company dated March 11, 1997
99-B.8.20 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company, Investors Research Corporation and TCI Portfolios, Inc. dated July
29, 1992 and amended December 22, 1992 and June 1, 1994
99-B.8.21 Administrative Service Agreement between Aetna Life Insurance and Annuity *
Company and Agency, Inc.
99-B.9 Opinion and Consent of Counsel
-----------------
99-B.10 Consent of Independent Auditors
-----------------
99-B.13 Schedule for Computation of Performance Data *
99-B.15.1 Powers of Attorney *
99-B.15.2 Authorization for Signatures *
</TABLE>
*Incorporated by reference
Aetna Life Insurance and Annuity Company
Endorsement
The Contract and Certificate are endorsed as follows.
1. On Contract Schedule I, delete Annual Waiver of Surrender Fee, and
replace it with the following.
Annual Waiver of Surrender Fee
As provided in 3.14(d), the total amount that may be withdrawn each
calendar year without a Surrender Fee cannot exceed [10%] of the Current
Value less any amounts distributed, and/or requested for distribution
under an SDO, during the calendar year. The amount available is based on
the Account's Current Value [as of the date the surrender request is
processed].
2. On Contract Schedule I, add the following.
Maximum Age for the Minimum Guaranteed Death Benefit: [85] years
3. On Contract Schedule I, add the following.
Fund for Allocation of Excess [Aetna Variable Encore Fund
Guaranteed Death Benefit (the money market fund)]
Amount
4. On Contract Schedule I, delete Systematic Withdrawal Option (SWO).
5. Add the following to Contract Schedule II under Separate Account.
Transfers
When a Variable Annuity has been elected, [four] free transfers are
allowed each calendar year among the Funds available during the Annuity
Period. Aetna reserves the right to allow additional transfers.
6. Delete Section 1.12, Current Value, and replace it with the following.
As of the most recent Valuation Period, the Current Value is equal to the
total of the Net Purchase Payment(s) made to the Account;
(a) Plus or minus the investment experience for the amount, if any,
allocated to one or more of the Funds;
(b) Plus interest added to the amount, if any, allocated to the AG
Account,
(c) Plus any additional amount deposited to the Account pursuant to
Section 3.11;
(d) Less the amount of any Maintenance Fees deducted;
(e) Less any additional fee(s) deducted;
(f) Less any amount(s) surrendered; and
(g) Less any amount(s) applied to an Annuity option.
MP1END(9/97)
<PAGE>
7. Delete Section 1.14, Dollar Cost Averaging, and replace it with the
following.
A program that permits the Certificate Holder to systematically transfer
amounts from one of the available Funds, or an available AG Account
Guaranteed Term, to one or more of the Funds. If the Certificate Holder
elects an AG Account Guaranteed Term available for Dollar Cost Averaging,
no MVA applies to amounts transferred under Dollar Cost Averaging. If
Dollar Cost Averaging from an AG Account Guaranteed Term is discontinued
before the end of the Dollar Cost Averaging period elected, Aetna will
automatically transfer the balance to a Guaranteed Term of the same
duration and an MVA will apply. The Certificate Holder may initiate a
transfer to another investment option and an MVA will apply. If a
Guaranteed Term of the same duration is not available, Aetna will
transfer the amount to the Guaranteed Term with the next shortest
duration. Aetna reserves the right to establish and change terms and
conditions governing Dollar Cost Averaging.
8. Add the following to Section 1.16, Fund(s).
The Funds, and the number of Funds, available during the Accumulation
Period may be different from those available during the Annuity Period.
Aetna reserves the right to limit the number of Funds available at any
one time and to limit the number of Funds the Certificate Holder may
select during the Accumulation Period and/or during the Annuity Period.
9. Add the following to Section 1.18, Guaranteed Rate -- AG Account.
Aetna may offer more than one Guaranteed Term of the same duration and
credit one with a higher rate contingent upon use only with Dollar Cost
Averaging (see 1.14).
10. Delete Section 1.33, Valuation Period (Period), and replace it with the
following.
1.33 Valuation Period (Period):
The date and time for which a Fund calculates its net asset value,
usually from 4:00 p.m. Eastern time each day the New York Stock Exchange
is open, to 4:00 p.m. the next such business day.
11. Add the following to I. General Definitions
Claim Date
The date when proof of death and the Beneficiary's claim for the death
benefit are received in good order at Aetna's home office.
Surrender Fee
A fee assessed to recover sales and administrative expenses incurred in
connection with the Contract. Also called the deferred sales charge.
12. Delete the first sentence in Section 2.07, Designation of Beneficiary and
replace it with the following.
Each Certificate Holder shall name his or her Beneficiary and when
designating the Beneficiary may elect to specify in writing the form of
payment to the Beneficiary.
2
<PAGE>
13. Delete subsection (a) in Section 3.06, Market Value Adjustment, and
replace it with the following.
(a) A Transfer (including a Transfer from an AG Account Guaranteed Term
if Dollar Cost Averaging is discontinued); except for Transfers under
Dollar Cost Averaging, or as specified in 1.24, Matured Term Value
Transfer;
14. Delete the last paragraph in Section 3.07, Transfer of Current Value from
the Funds or AG Account During the Accumulation Period, and replace it
with the following.
Amounts allocated to AG Account Guaranteed Terms may not be transferred
to the Funds or to another Guaranteed Term during a Deposit Period or for
90 days after the close of a Deposit Period except for:
(a) Matured Term Value(s) during the calendar month following the Term's
Maturity Date;
(b) Amounts applied to an Annuity option;
(c) Amounts transferred under the Dollar Cost Averaging program;
(d) Amounts distributed under a Systematic Distribution Option; and
(e) Amounts transferred by Aetna if Dollar Cost Averaging is
discontinued.
15. Delete Section 3.11, Death Benefit Amount, and replace it with the
following.
3.11 Death Benefit During the Accumulation Period
If the Certificate Holder or Annuitant die before Annuity payments start,
the Beneficiary is entitled to a death benefit. If the Account is owned
jointly, the death benefit applies at the death of the first joint
Certificate Holder to die. The amount of the death benefit is determined
as follows.
(a) At the death of the Annuitant: the death benefit is the greater of:
(1) The minimum guaranteed death benefit (described below) as of the
date of death, plus any Purchase Payments made, and less any
amount(s) surrendered, applied to an Annuity option or deducted
from the Account, since the minimum guaranteed death benefit was
determined, or
(2) The Current Value on the Claim Date.
The minimum guaranteed death benefit is determined as follows: On the
Effective Date, the minimum guaranteed death benefit equals the
amount of the initial Purchase Payment. On each Effective Date
anniversary before the Annuitant reaches the maximum age shown on
Contract Schedule I, the minimum guaranteed death benefit is the
greater of:
(1) The prior minimum guaranteed death benefit, plus any Purchase
Payments made, and less any amount(s) surrendered, applied to an
Annuity option or deducted from the Account, since the minimum
guaranteed death benefit was previously determined, or
(2) The Current Value on the Effective Date anniversary.
3
<PAGE>
After the Annuitant reaches the maximum age shown on Contract
Schedule I, the minimum guaranteed death benefit is equal to the
minimum guaranteed death benefit determined on the Effective Date
anniversary immediately preceding the date the Annuitant attained the
maximum age shown on Contract Schedule I, plus any Purchase Payments
made, and less any amounts surrendered, applied to an Annuity option
or deducted from the Account.
On the Claim Date, if the minimum guaranteed death benefit is greater
than the Account's Current Value, the amount by which the minimum
guaranteed death benefit exceeds the Current Value is allocated to
the Fund shown on Contract Schedule I. The Beneficiary may elect a
death benefit option as permitted in Section 3.12.
(b) At the death of the Certificate Holder if the Certificate Holder is
not the Annuitant: the death benefit amount is the Account's Adjusted
Current Value on the Claim Date. A Surrender Fee may apply to any
full or partial surrender (see 3.14 and Contract Schedule I). The
Beneficiary may elect a death benefit option as permitted in Section
3.12.
(c) For a spousal Beneficiary of the original Certificate
Holder/Annuitant who becomes the successor Certificate Holder/
Annuitant: the initial minimum guaranteed death benefit equals the
Current Value on the Claim Date for the death benefit of the original
Certificate Holder/Annuitant. Thereafter, the guaranteed minimum
death benefit is determined as in (a) above.
16. Delete the last sentence of the first paragraph in Section 3.12, Death
Benefit Options Available to the Beneficiary, and replace it with the
following:
If the Certificate Holder has specified the form of payment to the
Beneficiary, the death benefit will be paid as elected by the Certificate
Holder in the Beneficiary designation. If the Certificate Holder has not
specified a form of payment, the Beneficiary may elect one of the
following options.
17. Delete subsection (d) in Section 3.14, Surrender Fee, and replace it with
the following.
(d) Each calendar year, an amount not to exceed the amount shown on
Contract Schedule I under Annual Waiver of Surrender Fee, or if
larger, the amount taken to meet the minimum distribution required by
the Code for the Account.
18. Add the following as Section 3.17.
3.17 Reinstatement
If allowed by state law, the Certificate Holder may reinstate the
proceeds of a full surrender, subject to terms and conditions established
by Aetna.
19. Delete the last sentence in the third paragraph in Section 4.01, Choices,
and replace it with the following.
If a Variable Annuity is chosen, the initial Annuity payment for the
option elected reflects the assumed annual return rate elected (see
Contract Schedule II). The Certificate Holder must allocate specified
amounts among the Funds available during the Annuity Period. Aetna
reserves
4
<PAGE>
the right to limit the number of Funds available at one time and to limit
the number of Funds the Certificate Holder may select during the
Accumulation Period and/or the Annuity Period. Subject to terms and
conditions established by Aetna, the Certificate Holder may transfer all
or any portion of the amount allocated to a Fund to another Fund. The
number of Transfers allowed without charge each year is shown on Contract
Schedule II.
20. Delete subsections (a) and (b) in Section 4.03, Death of
Annuitant/Beneficiary, and replace them with the following.
(a) Certificate Holder is the Annuitant: When the Certificate Holder is
the Annuitant and the Annuitant dies under option 1 or 2(b), or both
the Annuitant and the second Annuitant die under option 3(d), any
remaining payments will continue to the Beneficiary, or if elected by
the Beneficiary and not prohibited by the Certificate Holder in the
Beneficiary designation, the present value of any remaining payments
will be paid in one sum to the Beneficiary. If option 3 has been
elected and the Certificate Holder dies, the remaining payments will
continue to the successor payee. If no successor payee has been
designated, the Beneficiary will be treated as the successor payee.
If the Account has joint Certificate Holders, the surviving joint
Certificate Holder will be deemed the successor payee.
(b) Certificate Holder is not the Annuitant: When the Certificate Holder
is not the Annuitant and the Certificate Holder dies, any remaining
payments will continue to the successor payee. If no successor payee
has been designated, the Beneficiary will be treated as the successor
payee. If the Account has joint Certificate Holders, the surviving
joint Certificate Holder will be deemed the successor payee.
If the Annuitant dies under option 1 or 2(b), or both the Annuitant
and second Annuitant die under option 3(d), any remaining payments
will continue to the Beneficiary, or if elected by the Beneficiary
and not prohibited by the Certificate Holder in the Beneficiary
designation, the present value of any remaining payments will be paid
in one sum to the Beneficiary. If option 3 has been elected and the
Annuitant dies, the remaining payments will continue to the
Certificate Holder.
Endorsed and made part of the Contract or the Certificate on the Effective Date
of the Contract or when approved, whichever is later.
/s/ Dan Kearney
Dan Kearney
President
Aetna Life Insurance and Annuity Company
5
Aetna Life Insurance and Annuity Company
Endorsement
The Contract is endorsed as follows.
1. On Contract Schedule I, delete Annual Waiver of Surrender Fee, and
replace it with the following.
Annual Waiver of Surrender Fee
As provided in 3.13(d), the total amount that may be withdrawn each
calendar year without a Surrender Fee cannot exceed [10%] of the Current
Value less any amounts distributed, and/or requested for distribution
under an SDO, during the calendar year. The amount available is based on
the Contract's Current Value [as of the date the surrender request is
processed].
2. On Contract Schedule I, add the following.
Maximum Age for the Minimum Guaranteed Death Benefit: [85] years
3. On Contract Schedule I, add the following.
Fund for Allocation of Excess [Aetna Variable Encore Fund
Guaranteed Death Benefit (the money market fund)]
Amount
4. On Contract Schedule I, delete Systematic Withdrawal Option (SWO).
5. Add the following to Contract Schedule II under Separate Account.
Transfers
When a Variable Annuity has been elected, [four] free transfers are
allowed each calendar year among the Funds available during the Annuity
Period. Aetna reserves the right to allow additional transfers.
6. Delete Section 1.10, Current Value, and replace it with the following.
As of the most recent Valuation Period, the Current Value is equal to the
total of the Net Purchase Payment(s) made to the Contract;
(a) Plus or minus the investment experience for the amount, if any,
allocated to one or more of the Funds;
(b) Plus interest added to the amount, if any, allocated to the AG
Account,
(c) Plus any additional amount deposited to the Contract pursuant to
Section 3.10;
(d) Less the amount of any Maintenance Fees deducted;
(e) Less any additional fee(s) deducted;
(f) Less any amount(s) surrendered; and
(g) Less any amount(s) applied to an Annuity option.
IMP1END(9/97)
<PAGE>
7. Delete Section 1.12, Dollar Cost Averaging, and replace it with the
following.
A program that permits the Contract Holder to systematically transfer
amounts from one of the available Funds, or an available AG Account
Guaranteed Term, to one or more of the Funds. If the Contract Holder
elects an AG Account Guaranteed Term available for Dollar Cost Averaging,
no MVA applies to amounts transferred under Dollar Cost Averaging. If
Dollar Cost Averaging from an AG Account Guaranteed Term is discontinued
before the end of the Dollar Cost Averaging period elected, Aetna will
automatically transfer the balance to a Guaranteed Term of the same
duration and an MVA will apply. The Contract Holder may initiate a
transfer to another investment option and an MVA will apply. If a
Guaranteed Term of the same duration is not available, Aetna will
transfer the amount to the Guaranteed Term with the next shortest
duration. Aetna reserves the right to establish and change terms and
conditions governing Dollar Cost Averaging.
8. Add the following to Section 1.14, Fund(s).
The Funds, and the number of Funds, available during the Accumulation
Period may be different from those available during the Annuity Period.
Aetna reserves the right to limit the number of Funds available at any
one time and to limit the number of Funds the Contract Holder may select
during the Accumulation Period and/or during the Annuity Period.
9. Add the following to Section 1.16, Guaranteed Rates -- AG Account.
Aetna may offer more than one Guaranteed Term of the same duration and
credit one with a higher rate contingent upon use only with Dollar Cost
Averaging (see 1.12).
10. Delete Section 1.31, Valuation Period (Period), and replace it with the
following.
1.31 Valuation Period (Period):
The date and time for which a Fund calculates its net asset value,
usually from 4:00 p.m. Eastern time each day the New York Stock Exchange
is open, to 4:00 p.m. the next such business day.
11. Add the following to I. General Definitions
Claim Date
The date when proof of death and the Beneficiary's claim for the death
benefit are received in good order at Aetna's home office.
Surrender Fee
A fee assessed to recover sales and administrative expenses incurred in
connection with the Contract. Also called the deferred sales charge.
12. Delete the first sentence in Section 2.07, Designation of Beneficiary and
replace it with the following.
Each Contract Holder shall name his or her Beneficiary and when
designating the Beneficiary may elect to specify in writing the form of
payment to the Beneficiary.
2
<PAGE>
13. Delete subsection (a) in Section 3.05, Market Value Adjustment, and
replace it with the following.
(a) A Transfer (including a Transfer from an AG Account Guaranteed Term
if Dollar Cost Averaging is discontinued); except for Transfers under
Dollar Cost Averaging, or as specified in 1.22, Matured Term Value
Transfer;
14. Delete the last paragraph in Section 3.06, Transfer of Current Value from
the Funds or AG Account During the Accumulation Period, and replace it
with the following.
Amounts allocated to AG Account Guaranteed Terms may not be transferred
to the Funds or to another Guaranteed Term during a Deposit Period or for
90 days after the close of a Deposit Period except for:
(a) Matured Term Value(s) during the calendar month following the Term's
Maturity Date;
(b) Amounts applied to an Annuity option;
(c) Amounts transferred under the Dollar Cost Averaging program;
(d) Amounts distributed under a Systematic Distribution Option; and
(e) Amounts transferred by Aetna if Dollar Cost Averaging is
discontinued.
15. Delete Section 3.10, Death Benefit Amount, and replace it with the
following.
3.10 Death Benefit During the Accumulation Period
If the Contract Holder or Annuitant die before Annuity payments start,
the Beneficiary is entitled to a death benefit. If the Contract is owned
jointly, the death benefit applies at the death of the first joint
Contract Holder to die. The amount of the death benefit is determined as
follows.
(a) At the death of the Annuitant: the death benefit is the greater of:
(1) The minimum guaranteed death benefit (described below) as of the
date of death, plus any Purchase Payments made, and less any
amount(s) surrendered, applied to an Annuity option or deducted
from the Contract, since the minimum guaranteed death benefit
was determined, or
(2) The Current Value on the Claim Date.
The minimum guaranteed death benefit is determined as follows: On the
Effective Date, the minimum guaranteed death benefit equals the
amount of the initial Purchase Payment. On each Effective Date
anniversary before the Annuitant reaches the maximum age shown on
Contract Schedule I, the minimum guaranteed death benefit is the
greater of:
(1) The prior minimum guaranteed death benefit, plus any Purchase
Payments made, and less any amount(s) surrendered, applied to an
Annuity option or deducted from the Contract, since the minimum
guaranteed death benefit was previously determined, or
(2) The Current Value on the Effective Date anniversary.
3
<PAGE>
After the Annuitant reaches the maximum age shown on Contract
Schedule I, the minimum guaranteed death benefit is equal to the
minimum guaranteed death benefit determined on the Effective Date
anniversary immediately preceding the date the Annuitant attained the
maximum age shown on Contract Schedule I, plus any Purchase Payments
made, and less any amounts surrendered, applied to an Annuity option
or deducted from the Contract.
On the Claim Date, if the minimum guaranteed death benefit is greater
than the Contract's Current Value, the amount by which the minimum
guaranteed death benefit exceeds the Current Value is allocated to
the Fund shown on Contract Schedule I. The Beneficiary may elect a
death benefit option as permitted in Section 3.11.
(b) At the death of the Contract Holder if the Contract Holder is not the
Annuitant: the death benefit amount is the Contract's Adjusted
Current Value on the Claim Date. A Surrender Fee may apply to any
full or partial surrender (see 3.13 and Contract Schedule I). The
Beneficiary may elect a death benefit option as permitted in Section
3.11.
(c) For a spousal Beneficiary of the original Contract Holder/Annuitant
who becomes the successor Contract Holder/ Annuitant: the initial
minimum guaranteed death benefit equals the Current Value on the
Claim Date for the death benefit of the original Contract
Holder/Annuitant. Thereafter, the guaranteed minimum death benefit is
determined as in (a) above.
16. Delete the last sentence of the first paragraph in Section 3.11, Death
Benefit Options Available to the Beneficiary, and replace it with the
following:
If the Contract Holder has specified the form of payment to the
Beneficiary, the death benefit will be paid as elected by the Contract
Holder in the Beneficiary designation. If the Contract Holder has not
specified a form of payment, the Beneficiary may elect one of the
following options.
17. Delete subsection (d) in Section 3.13, Surrender Fee, and replace it with
the following.
(d) Each calendar year, an amount not to exceed the amount shown on
Contract Schedule I under Annual Waiver of Surrender Fee, or if
larger, the amount taken to meet the minimum distribution required by
the Code for the Contract.
18. Add the following as Section 3.16.
3.16 Reinstatement
If allowed by state law, the Contract Holder may reinstate the proceeds
of a full surrender, subject to terms and conditions established by
Aetna.
19. Delete the last sentence in the third paragraph in Section 4.01, Choices,
and replace it with the following.
If a Variable Annuity is chosen, the initial Annuity payment for the
option elected reflects the assumed annual return rate elected (see
Contract Schedule II). The Contract Holder must allocate specified
amounts among the Funds available during the Annuity Period. Aetna
reserves the right to limit the number of Funds available at one time and
to limit the number of Funds the Contract
4
<PAGE>
Holder may select during the Accumulation Period and/or the Annuity
Period. Subject to terms and conditions established by Aetna, the
Contract Holder may transfer all or any portion of the amount allocated
to a Fund to another Fund. The number of Transfers allowed without charge
each year is shown on Contract Schedule II.
20. Delete subsections (a) and (b) in Section 4.03, Death of
Annuitant/Beneficiary, and replace them with the following.
(a) Contract Holder is the Annuitant: When the Contract Holder is the
Annuitant and the Annuitant dies under option 1 or 2(b), or both the
Annuitant and the second Annuitant die under option 3(d), any
remaining payments will continue to the Beneficiary, or if elected by
the Beneficiary and not prohibited by the Contract Holder in the
Beneficiary designation, the present value of any remaining payments
will be paid in one sum to the Beneficiary. If option 3 has been
elected and the Contract Holder dies, the remaining payments will
continue to the successor payee. If no successor payee has been
designated, the Beneficiary will be treated as the successor payee.
If the Contract has joint Contract Holders, the surviving joint
Contract Holder will be deemed the successor payee.
(b) Contract Holder is not the Annuitant: When the Contract Holder is not
the Annuitant and the Contract Holder dies, any remaining payments
will continue to the successor payee. If no successor payee has been
designated, the Beneficiary will be treated as the successor payee.
If the Contract has joint Contract Holders, the surviving joint
Contract Holder will be deemed the successor payee.
If the Annuitant dies under option 1 or 2(b), or both the Annuitant
and second Annuitant die under option 3(d), any remaining payments
will continue to the Beneficiary, or if elected by the Beneficiary
and not prohibited by the Contract Holder in the Beneficiary
designation, the present value of any remaining payments will be paid
in one sum to the Beneficiary. If option 3 has been elected and the
Annuitant dies, the remaining payments will continue to the Contract
Holder.
Endorsed and made part of the Contract on the Effective Date of the Contract or
when approved, whichever is later.
/s/ Dan Kearney
Dan Kearney
President
Aetna Life Insurance and Annuity Company
5
[Aetna Lettterhead] 151 Farmington Avenue
[Aetna Logo] Hartford, CT 06156
Julie E. Rockmore
Counsel
Law Division, RE4A
Investments & Financial Services
February 12, 1998 (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. 33 to Registration Statement on Form N-4
Prospectus Title: Aetna Marathon Plus - Group and Individual Deferred
Variable Annuity Contracts
File Nos. 33-34370* 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. 33. 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.
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
Counsel
Aetna Life Insurance and Annuity Company
- --------
*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 following earlier Registration Statement: 33-87932.
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 4, 1997 and February 14,
1997 incorporated herein by reference in Registration Statement (No. 33-34370)
on Form N-4 and to the reference to our firm under the heading "Independent
Auditors" in the statement of additional information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
February 12, 1998
