Prospectus - May 3, 1999
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The Funds
Aetna Ascent VP
Aetna Balanced VP, Inc.
Aetna Income Shares d/b/a Aetna Bond VP
Aetna Crossroads VP
Aetna Variable Fund d/b/a Aetna Growth and Income VP
Aetna Legacy VP
Aetna Variable Encore Fund d/b/a Aetna Money Market VP
Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio
Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio
Fidelity Variable Insurance Products Fund (VIP) Overseas Portfolio
Fidelity Variable Insurance Products Fund II (VIP II) Contrafund Portfolio
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Flexible Income Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
Portfolio Partners MFS Emerging Equities Portfolio
Portfolio Partners MFS Research Growth Portfolio
Portfolio Partners MFS Value Equity Portfolio
Portfolio Partners Scudder International Growth Portfolio
Portfolio Partners T. Rowe Price Growth Equity Portfolio
The Contract. The contracts described in this prospectus are individual non-
qualified deferred variable annuity contracts issued by Aetna Life Insurance
and Annuity Company (the Company, we, us). They are intended to provide
retirement benefits to individuals who either are not participating in a formal
retirement plan or are participating in a formal retirement plan but want to
supplement their benefits.
Why Reading this Prospectus Is Important. This prospectus contains facts about
the contracts and investment options your should know before purchasing. Read
this prospectus carefully. If you purchase a contract, retain this prospectus
for future reference.
Table of Contents . . . page 3
Contract Design. The contracts described in this prospectus are designed to:
>Help you save for retirement while receiving beneficial tax treatment
>Offer a variety of investment options to help meet long-term financial goals
>Provide a death benefit to a beneficiary
>Provide future income payments for life or for a specified period
Getting Additional Information. You may obtain the May 3, 1999, Statement of
Additional Information (SAI) about the separate account by indicating your
request on your application or calling us at 1-800-531-4547. You may also
obtain an SAI for any of the funds by calling that number. This prospectus, the
SAI and other information about the separate account are posted on the Security
and Exchange Commission (SEC) web site, http://www.sec.gov and may be obtained,
free of charge, by contacting the SEC Public Reference Room at 202-942-8090.
The SAI table of contents is listed on page 35 of this prospectus. The SAI is
incorporated into this prospectus by reference.
Additional Disclosure Information. Neither the SEC nor any state securities
commission has approved or disapproved the securities offered through this
prospectus or passed on the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense. We do not intend for this
prospectus to be an offer to sell or a solicitation of an offer to buy these
securities in any state that does not permit their sale. We have not authorized
anyone to provide you with information that is different from that contained in
this prospectus.
Investment Options. The contracts offer variable investment options and a fixed
interest option. When we establish your account, you instruct us to direct your
account dollars to any of the available investment options.
Variable Investment Options. These options are called subaccounts. The
subaccounts are within Variable Annuity Account B (the separate account), a
separate account of the Company. Each subaccount invests in one of the mutual
funds listed on this page. Earnings on amounts invested in a subaccount will
vary depending upon the performance of its underlying mutual fund. You do not
invest directly in or hold shares of the funds.
<PAGE>
Prospectus - May 3, 1999 (continued)
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Risks Associated with Investing in the Funds. The funds in which the
subaccounts invest have various risks. Information about the risks of investing
in the funds is located in the "Investment Option" section in this prospectus
and in each fund prospectus. Read this prospectus in conjunction with the fund
prospectuses, and retain the prospectuses for future reference.
Fixed Interest Option.
>Fixed Account
Except as specifically mentioned, this prospectus describes only the variable
investment options. However, we describe the Fixed Account in Appendix I of
this prospectus.
These contracts are not deposits with, obligations of or guaranteed or endorsed
by any bank, nor are they insured by the FDIC. The contracts are subject to
investment risk, including the possible loss of the principal amount invested.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Contract Overview ......................................... 4
Contract Design
Contract Facts
Questions: Contacting the Company (sidebar)
Sending Forms and Written Requests in Good Order (sidebar)
Contract Phases: Accumulation Phase, Income Phase
Fee Table .................................................. 6
Condensed Financial Information ............................ 10
Investment Options ......................................... 10
Transfers .................................................. 11
Purchase and Rights ........................................ 12
Right to Cancel ............................................ 13
Fees ....................................................... 14
Your Account Value ......................................... 16
Withdrawals ................................................ 19
Systematic Distribution Options ............................ 20
Death Benefit .............................................. 21
The Income Phase ........................................... 23
Taxation ................................................... 27
Other Topics ............................................... 30
The Company -- Variable Annuity Account B -- Contract Distribution -- Payment
Delay or Suspension -- Performance Reporting -- Voting Rights -- Contract
Modification -- Transfer of Ownership; Assignment -- Legal Matters and
Proceedings -- Year 2000 Readiness
Contents of the Statement of Additional Information ......... 35
Appendix I -- Fixed Account ................................. 36
Appendix II -- Description of Underlying Funds .............. 37
Appendix III -- Condensed Financial Information ............. 49
</TABLE>
3
<PAGE>
[Begin Sidebar]
Questions: Contacting the Company. To answer your questions, contact your local
representative or write or call our Home Office:
Aetna Retirement Services
Annuity Services
151 Farmington Avenue
Hartford, CT 06156-1277
1-800-525-4225
Sending Forms and Written Requests in Good Order.
If you are writing to change your beneficiary, request a withdrawal, or for any
other purpose, contact your local representative or the Company to learn what
information is required for the request to be in "good order." We can only act
upon requests that are received in good order.
[End Sidebar]
Contract Overview
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The following summarizes contract information. Read each section of this
prospectus for additional information.
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Contract Design
The contracts described in this prospectus are individual variable annuity
contracts. They are intended as a retirement savings vehicle that defers taxes
on investment earnings and offers a variety of investment options to help meet
long-term financial goals.
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Contract Facts
Free Look/Right to Cancel: You may cancel your contract within 10 days of
receipt. See "Right to Cancel."
Death Benefit: Your beneficiary may receive a financial benefit in the event of
your death prior to the income phase. Benefits during the income phase depend
on the payment option selected. See "Death Benefit" and "The Income Phase."
Withdrawals: During the accumulation phase you may withdraw all or part of your
account value. Certain fees, taxes and early withdrawal penalties may apply.
See "Withdrawals."
Systematic Distribution Options: These are made available for you to receive
periodic withdrawals from your account, while retaining the account in the
accumulation phase. See "Systematic Distribution Options."
Fees: Certain fees and expenses are deducted from the value of your contract.
See "Fee Table" and "Fees."
Taxation: The contracts are designed to help defer taxes on investment gains
until retirement. Tax on investment gains will generally be due when you
receive income payments or a distribution from the contract. Tax penalties may
apply in some circumstances. See "Taxation."
4
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Contract Phases
I. The Accumulation Phase (accumulating dollars)
-------------
Payments to
Your Account
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Step 1
---------------------------------------------
Aetna Life Insurance and Annuity Company
---------------------------------------------
a. Step 2 b.
----------- ----------------------------------------------
Fixed Variable Annuity
Interest Account B
Option
Variable Investment Options
The Subaccounts
----------- ----------------------------------------------
A B Etc.
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Step 3
----------------------------------------------
Fund A Fund B
--------------------------------
STEP 1: You provide Aetna Life Insurance and Annuity Company with your
completed application and initial payment. We set up an account for you.
STEP 2: You direct us to invest your account dollars in any of the:
(a) Fixed Interest Option
(b) Variable Investment Options. (The variable investment options are the
subaccounts of Variable Annuity Account B. Each one invests in a specific
mutual fund.)
STEP 3: Each subaccount you select purchases shares of its assigned fund.
II. The Income Phase When you want to begin receiving income payments from the
contract, you may select from the options available. The contract offers
several payment options (see "The Income Phase.") In general, you may:
>Receive payments for a specified period of time or for life
>Receive payments monthly, quarterly, semi-annually or annually
>Select an option that provides a death benefit to beneficiaries
>Select fixed payments or payments that vary based on the performance of the
variable investment options you select
5
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[Begin Sidebar]
In This Section:
>Maximum Transaction Fees
>Maximum Fees Deducted from Investments in the Separate Account
>Fees Deducted by the Funds
>Hypothetical Examples
Also See "Fees" for:
>How, When and Why Fees are Deducted
>Reduction, Waiver and/or Elimination of Certain Fees
>Premium and Other Taxes
See "The Income Phase" for:
>Fees During the Income Phase
[End Sidebar]
Fee Table
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The tables and examples in this section show the fees that may affect your
account value during the accumulation phase. See "The Income Phase" for fees
that may apply after you begin receiving income payments under the contract. The
fees shown below do not reflect any premium tax that may apply.
Maximum Transaction Fees
Early Withdrawal Charge. This charge is a percentage of the amount withdrawn.1
<TABLE>
<CAPTION>
Schedule A -- Installment Purchase Payment Contracts
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<S> <C>
Completed Payment Periods Early Withdrawal Charge
- ----------------------------- ------------------------
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
10 or more 0%
</TABLE>
<TABLE>
<CAPTION>
Schedule B -- Single Purchase Payment Contracts2
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<S> <C>
Completed Contract Years Early Withdrawal Charge
- ---------------------------- ------------------------
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
</TABLE>
Annual Maintenance Fee................................................$20.00(3)
Maximum Fees Deducted from Investments in the Separate Account
(Daily deductions equal to the given percentage on an annual basis.)
Mortality and Expense Risk Charge......................................1.25%
Administrative Expense Charge..........................................0.00%(4)
-----
Total Separate Account Expenses........................................1.25%
=====
1 The total early withdrawal charge deducted will not exceed 8.5% of the total
purchase payments made to a contract.
2 Schedule B also may apply to certain older contracts that accept more than
one purchase payment. Check your contract to determine which early withdrawal
charge schedule applies to you.
3 The annual maintenance fee is generally deducted only from installment
purchase payment contracts. Under certain contracts, the annual maintenance
fee may also be deducted upon full withdrawals. See "Fees--Annual Maintenance
Fee."
4 We currently do not impose this charge, however, if allowed by your contract,
we reserve the right to charge up to 0.25% annually. See
"Fees--Administrative Expense Charge."
6
<PAGE>
Fees Deducted by the Funds
Using this Information. The following table shows the investment advisory fees
and other expenses charged annually by each fund. Fund fees are one factor that
impacts the value of a fund share. To learn about additional factors impacting
the share value, refer to the fund prospectus.
How Fees are Deducted. Fund fees are not deducted from account values. Instead,
they are deducted from the value of the fund shares on a daily basis. Except as
noted below, the following figures are a percentage of the average net assets
of each fund, and are based on figures for the year ended December 31, 1998.
Fund Expense Table
<TABLE>
<CAPTION>
Total Fund Net Fund
Annual Annual
Expenses Expenses
Investment Without Total After
Advisory Other Waivers or Waivers and Waivers or
Fund Name Fees(1) Expenses Reductions Reductions Reductions
- -------------------------------------------------------------- ------------ ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP(2)(3) 0.60% 0.15% 0.75% 0.00% 0.75%
Aetna Balanced VP, Inc.(3) 0.50% 0.09% 0.59% -- 0.59%
Aetna Bond VP(3) 0.40% 0.10% 0.50% -- 0.50%
Aetna Crossroads VP(2)(3) 0.60% 0.15% 0.75% 0.00% 0.75%
Aetna Growth and Income VP(3) 0.50% 0.08% 0.58% -- 0.58%
Aetna Legacy VP(2)(3) 0.60% 0.16% 0.76% 0.00% 0.76%
Aetna Money Market VP(3) 0.25% 0.09% 0.34% -- 0.34%
Fidelity VIP Equity-Income Portfolio(4) 0.49% 0.09% 0.58% 0.01% 0.57%
Fidelity VIP Growth Portfolio(4) 0.59% 0.09% 0.68% 0.02% 0.66%
Fidelity VIP Overseas Portfolio(4) 0.74% 0.17% 0.91% 0.02% 0.89%
Fidelity VIP II Contrafund Portfolio(4) 0.59% 0.11% 0.70% 0.04% 0.66%
Janus Aspen Aggressive Growth Portfolio(5) 0.72% 0.03% 0.75% 0.00% 0.75%
Janus Aspen Balanced Portfolio(5) 0.72% 0.02% 0.74% 0.00% 0.74%
Janus Aspen Flexible Income Portfolio(5) 0.65% 0.08% 0.73% 0.00% 0.73%
Janus Aspen Growth Portfolio(5) 0.72% 0.03% 0.75% 0.07% 0.68%
Janus Aspen Worldwide Growth Portfolio(5) 0.67% 0.07% 0.74% 0.02% 0.72%
Portfolio Partners MFS Emerging Equities Portfolio(6) 0.68% 0.13% 0.81% 0.00% 0.83%
Portfolio Partners MFS Research Growth Portfolio(6) 0.70% 0.15% 0.85% -- 0.85%
Portfolio Partners MFS Value Equity Portfolio(6) 0.65% 0.25% 0.90% -- 0.90%
Portfolio Partners Scudder International Growth Portfolio(6) 0.80% 0.20% 1.00% -- 1.00%
Portfolio Partners T. Rowe Price Growth Equity Portfolio(6) 0.60% 0.15% 0.75% -- 0.75%
</TABLE>
7
<PAGE>
Footnotes to the "Fund Expense Table"
(1) Certain of the fund advisers reimburse the company for administrative
costs incurred in connection with administering the funds as variable
funding options under the contract. These reimbursements are generally
paid out of the management fees and are not charged to investors.
(2) The investment adviser is contractually obligated through December 31,
1999 to waive all or a portion of its investment advisory fee and/or its
administrative services fee and/or to reimburse a portion of other
expenses in order to ensure that the portfolio's Total Fund Annual
Expenses do not exceed the percentage reflected under Net Fund Annual
Expenses After Waivers or Reductions.
(3) Prior to May 1, 1998, the portfolio's investment adviser provided
administrative services to the portfolio and assumed the portfolio's
ordinary recurring direct costs under an administrative services
agreement. After that date, the portfolio's investment adviser provided
administrative services but no longer assumed all of the portfolio's
ordinary recurring direct costs under an administrative services
agreement. The administrative fee is 0.075% on the first $5 billion in
assets and 0.050% on all assets over $5 billion. The "Other Expenses"
shown are not based on actual figures for the year ended December 31,
1998, but reflect the fee payable under the new administrative services
agreement and estimates the portfolio's ordinary recurring direct costs.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or the investment
adviser on behalf of certain funds, have entered into arrangements with
their custodian whereby credits realized as a result of uninvested cash
balances were used to reduce custodian expenses. These credits are
included under Total Waivers and Reductions.
(5) All expenses are stated both with and without contractual waivers and fee
reductions by Janus Capital. Fee reductions for the Aggressive Growth,
Balanced, Growth and Worldwide Growth Portfolios reduce the Management
fee to the level of the corresponding Janus retail fund. Other waivers,
if applicable, are first applied against the Management Fee and then
against Other Expenses. Janus Capital has agreed to continue the other
waivers and fee reduction until at least the next annual renewal of the
advisory agreement.
(6) The investment adviser has agreed to reimburse the portfolios for
expenses and/or waive its fees, so that, through at least April 30, 2000,
the aggregate of each portfolio's expenses will not exceed the combined
investment advisory fees and other expenses shown under the Net Fund
Annual Expenses After Waivers or Reductions column above. For the
Portfolio Partners MFS Emerging Equities Portfolio, the Total Fund Annual
Expenses Without Waivers or Reductions for 1998 were less than the
percentage reflected under the Net Fund Annual Expenses After Waivers or
Reductions column. Nevertheless, the investment adviser will waive fees
and/or reimburse expenses if that portfolio's Total Fund Annual Expenses
Without Waivers or Reductions for 1999 exceed the percentage reflected
under the Net Fund Annual Expenses After Waivers or Reductions column.
8
<PAGE>
Hypothetical Examples
Account Fees You May Incur Over Time. The following hypothetical examples show
the fees and expenses paid over time if you invest $1,000 in the contract,
assuming a 5% annual return on the investment. For the purpose of these
examples, we deducted total annual fund expenses, the maximum mortality and
expense risk charge of 1.25% annually and the maximum annual maintenance fee of
$20 (converted to a percentage of assets equal to 0.013%). The total annual
fund expenses used are those shown in the column "Total Annual Expenses Without
Waivers or Reductions" in the Fund Expense Table.
> These examples are purely hypothetical
> They should not be considered a
representation of past or future expenses
or expected returns
> Actual expenses and/or returns may be
more or less than those shown in these
examples
<TABLE>
<CAPTION>
EXAMPLE A
---------------------------------------
If you withdraw your entire account
value at the end of the periods shown,
you would pay the following fees,
including any applicable early
withdrawal charge assessed:*
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Aetna Ascent VP $65 $108 $153 $234
Aetna Balanced VP, Inc. $64 $103 $144 $217
Aetna Bond VP $63 $100 $140 $208
Aetna Crossroads VP $65 $108 $153 $234
Aetna Growth and Income VP $64 $102 $144 $216
Aetna Legacy VP $65 $108 $153 $235
Aetna Money Market VP $61 $ 95 $131 $190
Fidelity VIP Equity-Income Portfolio $64 $102 $144 $216
Fidelity VIP Growth Portfolio $65 $106 $149 $227
Fidelity VIP Overseas Portfolio $67 $113 $161 $251
Fidelity VIP II Contrafund Portfolio $65 $106 $150 $229
Janus Aspen Aggressive Growth Portfolio $65 $108 $153 $234
Janus Aspen Balanced Portfolio $65 $107 $152 $233
Janus Aspen Flexible Income Portfolio $65 $107 $152 $232
Janus Aspen Growth Portfolio $65 $108 $153 $234
Janus Aspen Worldwide Growth Portfolio $65 $107 $152 $233
Portfolio Partners MFS Emerging Equities Portfolio $66 $110 $156 $240
Portfolio Partners MFS Research Growth Portfolio $66 $111 $158 $244
Portfolio Partners MFS Value Equity Portfolio $67 $112 $160 $250
Portfolio Partners Scudder International Growth Portfolio $68 $115 $165 $260
Portfolio Partners T. Rowe Price Growth Equity Portfolio $65 $108 $153 $234
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE B
--------------------------------------
If you leave your entire account
value invested or if you select an
income phase payment option at the
end of the periods shown, you would
pay the following fees (no early
withdrawal charge is reflected):**
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Aetna Ascent VP $20 $63 $108 $234
Aetna Balanced VP, Inc. $19 $58 $100 $217
Aetna Bond VP $18 $56 $ 96 $208
Aetna Crossroads VP $20 $63 $108 $234
Aetna Growth and Income VP $19 $58 $100 $216
Aetna Legacy VP $21 $63 $109 $235
Aetna Money Market VP $16 $51 $ 87 $190
Fidelity VIP Equity-Income Portfolio $19 $58 $100 $216
Fidelity VIP Growth Portfolio $20 $61 $105 $227
Fidelity VIP Overseas Portfolio $22 $68 $117 $251
Fidelity VIP II Contrafund Portfolio $20 $62 $106 $229
Janus Aspen Aggressive Growth Portfolio $20 $63 $108 $234
Janus Aspen Balanced Portfolio $20 $63 $108 $233
Janus Aspen Flexible Income Portfolio $20 $63 $107 $232
Janus Aspen Growth Portfolio $20 $63 $108 $234
Janus Aspen Worldwide Growth Portfolio $20 $63 $108 $233
Portfolio Partners MFS Emerging Equities Portfolio $21 $65 $112 $240
Portfolio Partners MFS Research Growth Portfolio $21 $66 $114 $244
Portfolio Partners MFS Value Equity Portfolio $22 $68 $116 $250
Portfolio Partners Scudder International Growth Portfolio $23 $71 $121 $260
Portfolio Partners T. Rowe Price Growth Equity Portfolio $20 $63 $108 $234
</TABLE>
- -----------------
* This example reflects deductions of an early withdrawal charge calculated
using the schedule applicable to Installment Purchase Payment Contracts.
Under that schedule, if only one $1,000 payment was made as described
above, fewer than five purchase payment periods would have been completed
at the end of years 1, 3, and 5, and the 5% charge would apply. At the end
of year 10 (regardless of the number of purchase payment periods completed)
the early withdrawal charge is waived and no early withdrawal charge would
apply.
** Example B will not apply during the income phase if you elect to receive
payments under a nonlifetime variable payment option and subsequently
request a lump sum withdrawal within 3 years after the payments start. In
this circumstance, the lump sum payment is treated as a withdrawal during
the accumulation phase and may be subject to an early withdrawal charge.
(refer to Example A.)
9
<PAGE>
Condensed Financial Information
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Understanding Condensed Financial Information. In Appendix III of this
prospectus, we provide condensed financial information about Variable Annuity
Account B (the separate account) subaccounts you may invest in through the
contract. The numbers show the year end unit values of each subaccount over the
past 10 years. For subaccounts that were not available 10 years ago, we give
history from the date of first availability.
Investment Options
- --------------------------------------------------------------------------------
The contract offers variable investment options and a fixed interest option.
Variable Interest Options. These options are called subaccounts. The
subaccounts are within Variable Annuity Account B (the separate account).
Earnings on amounts invested in a subaccount will vary depending on the
performance and fees of its underlying fund. You do not invest directly in or
hold shares of the funds.
Fund Descriptions. We provide brief descriptions of the funds in Appendix II.
Please refer to the fund prospectuses for additional information. Fund
prospectuses may be obtained, free of charge, from our Home Office at the
address and phone number listed in "Contract Overview", or by contacting the
SEC at its website, or by contacting the SEC Public Reference Room.
Fixed Interest Option. The Fixed Account offers fixed rates of return. For a
description of the Fixed Account, see Appendix I.
Selecting Investment Options
o Choose options appropriate for you. Your Company representative can help you
evaluate which investment options may be appropriate for your financial
goals.
o Understand the risks associated with the options you choose. Some funds are
considered riskier than others. Those funds with greater risks are expected
to have values rise and fall more rapidly and to a greater degree than other
funds. For example, funds investing in foreign or international securities
are subject to risks not associated with domestic investments, and their
investment performance may vary accordingly. Also, funds using derivatives
in their investment strategy may be subject to additional risks.
o Be informed. Read this prospectus, the fund prospectuses and Fixed Account
appendix (Appendix I).
Limits on Availability of Options. Some funds and the fixed interest option may
not be available through certain contracts or in some states. We may add,
withdraw or substitute funds, subject to conditions in the contract and
compliance with regulatory requirements.
Limits on the Number Investment Options You May Select. You may select no more
than 18 investment options during the accumulation phase. Each subaccount you
select and the Fixed Account counts as one option once you have made an
allocation to it, even if you no longer have amounts allocated to that option.
10
<PAGE>
Limits Imposed by the Underlying Funds. Orders for the purchase of fund shares
may be subject to acceptance by the fund. We reserve the right to reject,
without prior notice, any allocation of payments to a subaccount if the
subaccount's investment in the corresponding fund is not accepted by the fund
for any reason.
Additional Risks of Investing in the Funds. (Mixed and Shared Funding)
"Shared funding" occurs when shares of a fund, which the subaccounts buy for
variable annuity contracts, are also bought by other insurance companies for
their variable annuity contracts.
"Mixed funding" occurs when shares of a fund, which the subaccounts buy for
variable annuity contracts, is bought for variable life insurance contracts
issued by us or other insurance companies.
>Shared--bought by more than one company
>Mixed--bought for annuities and life insurance
It is possible that a conflict of interest may arise due to mixed and/or shared
funding, that could adversely impact the value of a fund. For example, if a
conflict of interest occurred and one of the separate account subaccounts
withdrew its investment in a fund, the fund may be forced to sell its
securities at disadvantageous prices, causing its share value to decrease. Each
fund's Board of Directors or Trustees will monitor events to identify any
conflicts which might arise and to determine what action, if any, should be
taken to address such conflicts.
Transfers
- --------------------------------------------------------------------------------
During the accumulation phase, you may transfer amounts among the available
subaccounts. Transfers from the Fixed Account may be restricted as outlined in
Appendix I, and the total number of investment options that you may select
during the accumulation period is limited (see "Investment Options -- Limits on
the Number of Investment Options You May Select"). The minimum transfer amount
is $500. You may establish automated transfers of account value. (See "Dollar
Cost Averaging.") Transfers must be made in accordance with the terms of your
contract. You may not make transfers once you enter the income phase. See
"The Income Phase."
Transfer Requests. Requests may be made in writing or by telephone.
Limits on Frequency of Transfers. The contract is not designed to serve as a
vehicle for frequent trading in response to short-term fluctuations in the
market. Such frequent trading can disrupt management of a fund and raise its
expenses. This in turn can have an adverse effect on fund performance.
Accordingly, individuals who use market-timing investment strategies and make
frequent transfers should not purchase the contract.
We reserve the right to restrict, in our sole discretion and without prior
notice, transfers initiated by a market-timing organization or individual or
other party authorized to give transfer instructions on behalf of multiple
contract holders. Such restrictions could include: (1) Not accepting transfer
instructions from an agent acting on behalf of more than one contract holder;
and (2) Not accepting preauthorized transfer forms from market timers or other
entities acting on behalf of more than one contract holder at a time.
11
<PAGE>
We further reserve the right to impose, without prior notice, restrictions on
transfers that we determine, in our sole discretion, will disadvantage or
potentially hurt the rights or interests of other contract holders.
Additionally, orders for the purchase of fund shares may be subject to
acceptance by the fund. We reserve the right to reject, without prior notice,
any transfer request to a subaccount if the subaccount's investment in the
corresponding fund is not accepted for any reason.
Charges for Transfers. We currently do not charge for transfers.
Value of Your Transferred Dollars. The value of amounts transferred will be
based upon the subaccount unit values next determined after we receive your
transfer request in good order at our Home Office.
Telephone Transfers: Security Measures. To prevent fraudulent use of telephone
transactions, we have established security procedures. These include recording
calls on our toll-free telephone lines and requiring the use of a personal
identification number (PIN) to execute transactions. You are responsible for
keeping your PIN and account information confidential. If we fail to follow
reasonable security procedures, we may be liable for losses due to unauthorized
or fraudulent telephone transactions. We are not liable for losses resulting
from telephone instructions we believe to be genuine. If a loss occurs when we
rely on such instructions, you will bear the loss.
The Dollar Cost Averaging Program. Dollar cost averaging is an investment
strategy whereby you purchase fixed dollar amounts of an investment at regular
intervals, regardless of price. Under this program a fixed dollar amount is
automatically transferred from one of your investment options to one or more of
the subaccounts. Transfers from the Fixed Account under the dollar cost
averaging program may be restricted. See Appendix I. Dollar cost averaging
neither ensures a profit nor guarantees against loss in a declining market. You
should consider your financial ability to continue purchases through periods of
low price levels. We do not charge for this service. For additional information
about this program, contact your local representative or call the Company at
the number listed in "Contract Overview -- Questions: Contacting the Company".
Purchase and Rights
- --------------------------------------------------------------------------------
Contracts Available for Purchase
The contracts offered in connection with this prospectus are individual non-
qualified deferred variable annuity contracts. They are designed to provide
retirement benefits to individuals who either are not participating in formal
retirement plans, or are participating in formal retirement plans but wish to
personally supplement their benefits. The contracts may receive favorable tax
treatment under federal income tax law.
Multiple Contracts
This contract may be combined with other annuity contracts purchased by you
from us or our affiliates on or after October 21, 1988, for purposes of
determining the taxable portion of payments from this contract. (See
"Taxation.")
12
<PAGE>
How to Purchase
>Complete the application and submit it along with your purchase payment to the
Company.
>Two types of contracts are available.
o Installment Purchase Payment contracts. Under these contracts, you make
continuing periodic payments.
o Single Purchase Payment contracts. Under these contracts you make a
single payment to the contract or a lump sum transfer of amounts
accumulated under a pre-existing annuity or retirement arrangement.
Payment Amounts
>The minimum payment for a single purchase payment contract is $5,000.
>Installment purchase payments must be at least $100 per month ($1,200
annually) and may not be less than $25 per payment.
Acceptance or Rejection of Your Application. We must accept or reject your
application within two business days of receipt. If the application is
incomplete, we may hold any forms and accompanying payment(s) for five business
days. Payments may be held for longer periods only with your consent, pending
acceptance of the application. If the application is rejected, the application
and any payments will be returned to you.
Allocation of Your Payments to the Investment Options. We will allocate your
payments among the investment options you select. Allocations must be in whole
percentages and there may be a limit on the number of investment options you
may select. When selecting investment options review the "Investment Options"
section and the prospectus of any fund you are considering.
Right to Cancel
- --------------------------------------------------------------------------------
When and How to Cancel. You may cancel the contract within ten days of receipt
(or as otherwise allowed by state law) by returning it to our Home Office along
with a written notice of cancellation.
Refunds. We will issue you a refund within seven days of our receipt of your
contract and written notice of cancellation. Your refund will equal the dollars
you contributed to the contract plus any earnings or minus any losses
attributable to those amounts allocated to the subaccounts, unless otherwise
required by law.
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<PAGE>
[Begin Sidebar]
Types of Fees
There are four types of fees or deductions which may affect your account:
>Transaction Fees
o Early Withdrawal Charge
o Annual Maintenance Fee
>Fees Deducted from Investments in the Separate Account
o Mortality and Expense
Risk Charge
o Administrative Expense
Charge
>Fees Deducted by the Funds
o Investment Advisory Fees
o Other Expenses
>Premium and Other Taxes
Terms to Understand
>"Payment Period" (for installment purchase payment contracts)--The period of
time it takes to complete the number of installment payments expected to be
made to your account over a year. For example, if your payment frequency is
monthly, a payment period is completed after 12 payments are made. If only 11
payments are made, the payment period is not completed until the twelfth
payment is made. The number of payment periods completed cannot exceed the
number of account years completed, regardless of the number of payments made.
>"Contract Year" (for single purchase payment contracts) --A 12 month period
measured from the date we establish your account, or measured from any
anniversary of that date.
[End Sidebar]
Fees
- --------------------------------------------------------------------------------
The following repeats and adds to information provided under "Fee Table."
Please review both sections for information on fees.
Transaction Fees
Early Withdrawal Charge
Withdrawals of all or a portion of your account value may be subject to a
charge.
Amount. The charge is a percentage of the amount that you withdraw. The
percentage will be determined by the early withdrawal charge schedule that
applies to your contract. The schedules are listed below and appear on your
contract schedule page. The charge will never be more than 8.5% of your total
payments to the contract.
Purpose. This charge reimburses us for some of the sales and administrative
expenses associated with your contract. Our remaining sales and administrative
expenses will be covered by our general assets which are attributable in part
to the mortality and expense risk charge described below.
Early Withdrawal Charge Schedules
<TABLE>
<CAPTION>
Schedule A-- Installment Purchase Payment Contracts
- --------------------------------------------------------
Completed Payment Periods Early Withdrawal Charge
- ----------------------------- ------------------------
<S> <C>
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
10 or more 0%
</TABLE>
<TABLE>
<CAPTION>
Schedule B--Single Purchase Payment Contracts*
- -------------------------------------------------------
Completed Contract Years Early Withdrawal Charge
- ---------------------------- ------------------------
<S> <C>
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
</TABLE>
* Schedule B also may apply to certain older contracts that accept more than
one purchase payment. Check your contract to determine which early withdrawal
charge schedule applies to you.
Waiver. The early withdrawal charge is waived if the amount withdrawn is due to
one or more of the following:
>Used to provide payments during the income phase
>Paid because of your death
>Withdrawn under a systematic distribution option (See "Systematic Distribution
Options")
>Withdrawn on or after the tenth anniversary of the effective date of an
installment purchase payment contract
>Paid when your account value is $2,500 or less and no withdrawal has been
taken from the account within the prior 12 months
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<PAGE>
>Withdrawn in part or in full from an installment purchase payment contract
provided you are at least 591/2 and nine purchase payment periods have been
completed
>Withdrawn in an amount of ten percent or less of your account value. This
applies only to the first partial withdrawal in each calendar year and does
not apply to full withdrawals or withdrawals under a systematic distribution
option. The ten percent amount will be calculated using your account value as
of the next valuation after your withdrawal request is received in good order
at our Home Office. This also does not apply for contracts issued in the state
of Washington.
Annual Maintenance Fee
Maximum Amount. $20.00 for installment purchase payment contracts. $0.00 for
single purchase payment contracts.
When/How. Each year during the accumulation phase, we deduct this fee on your
contract anniversary. It is also deducted upon a full withdrawal, to the extent
permitted under state law. It is deducted on a pro rata basis from each
subaccount and fixed interest option in which you have interest.
Purpose. This fee reimburses our administrative expenses related to
establishing and maintaining your contract.
Fees Deducted From Investments in the Separate Account
Mortality and Expense Risk Charge
Maximum Amount. 1.25% annually of your account value invested in the
subaccounts.
When/How. This fee is deducted daily from the subaccounts.
Purpose. This fee compensates us for the mortality and expense risks we assume
under the contracts.
>The mortality risks are those risks associated with our promise to make
lifetime payments based on annuity rates specified in the contract
>The expense risk is the risk that the actual expenses we incur under the
contracts will exceed the maximum costs that we can charge
If the amount we deduct for this fee is not enough to cover our mortality costs
and expenses under the contracts, we will bear the loss. We may use any excess
to recover distribution costs relating to the contract and as a source of
profit. We expect to make a profit from this fee.
Administrative Expense Charge
Maximum Amount. $0.00. We currently do not impose this fee. We reserve the
right, however, on 30 days' notice, if allowed by your contract, to charge up
to .25% annually of your daily net assets invested in the subaccounts.
When/How. If imposed, we will deduct this fee daily from the subaccounts. This
fee may be assessed during the accumulation phase and/or the income phase. If
we are imposing this fee when you enter the income phase, the fee will apply to
you during the entire income phase.
15
<PAGE>
Purpose. This fee compensates us for administrative expenses that exceed the
revenues from the maintenance fee described above. The fee is set at a level so
as not to exceed the average expected cost of administering the contracts. We
do not expect to make a profit from this fee.
Fees Deducted by the Funds
Maximum Amount. Each fund determines its own investment advisory fee and other
expenses. For a list of fund fees see "Fee Table -- Fees Deducted by the
Funds." The fees are described in more detail in each fund prospectus.
When/How. Fund fees are not deducted from your account. Instead, fund
investment advisory fees and other expenses are reflected in the daily value of
fund shares, which in turn will affect the daily value of the subaccounts.
Purpose. These amounts help to pay the fund's investment adviser and operating
expenses.
Premium and Other Taxes
Amount. Several states and municipalities charge a premium tax on annuities.
These taxes currently range from 0% to 4%, depending on the jurisdiction.
When/How. We reserve the right to deduct premium taxes from your account value
or from your payments to the contract at any time, but not before there is a
tax liability under state law. Our current practice is to deduct premium taxes
at the time of a full withdrawal or the commencement of income phase payments.
We will not deduct any municipal premium tax of 1% or less, but we reserve the
right to reflect this added expense in our annuity purchase rates for residents
of such municipalities. In addition, we reserve the right to assess a charge
for any federal taxes due against the separate account, See "Taxation."
Your Account Value
- --------------------------------------------------------------------------------
During the accumulation phase, your account value at any given time equals:
>The current dollar value of amounts invested in the subaccounts, plus
>Account dollars directed to the Fixed Account, including interest to date
Subaccount Accumulation Units. When you select a fund as an investment option,
your account dollars invest in "accumulation units" of the Variable Annuity
Account B subaccount corresponding to that fund. The subaccount invests
directly in the fund's shares. The value of your interest in a subaccount is
expressed as the number of accumulation units you hold multiplied by an
"Accumulation Unit Value," as described below, for each unit.
Accumulation Unit Value (AUV). The value of each accumulation unit in a
subaccount is called the accumulation unit value or AUV. The AUV varies daily
in relation to the underlying fund's investment performance. The value also
reflects deductions for fund fees and expenses, the mortality and expense risk
charge and the administrative expense charge (if any). We discuss these
deductions in more detail in "Fee Table" and "Fees."
Valuation. We determine the AUV every normal business day after the close of
the New York Stock Exchange. At that time, we calculate the current AUV
16
<PAGE>
by multiplying the AUV last calculated by the "net investment factor" of the
subaccount. The net investment factor measures the investment performance of
the subaccount from one valuation to the next.
Current AUV = Prior AUV x Net Investment Factor
Net Investment Factor. The net investment factor for a subaccount between two
consecutive valuations equals the sum of 1.0000 plus the net investment rate.
Net Investment Rate. The net investment rate is computed according to a formula
that is equivalent to the following:
>The net assets of the fund held by the subaccount as of the current valuation;
minus
>The net assets of the fund held by the subaccount at the preceding valuation;
plus or minus
>Taxes or provisions for taxes, if any, due to subaccount operations (with any
federal income tax liability offset by foreign tax credits to the extent
allowed); divided by
>The total value of the subaccount's units at the preceding valuation; minus
>A daily deduction for the mortality and expense risk charge and the
administrative expense charge (if any). See "Fees."
The net investment rate may be either positive or negative.
17
<PAGE>
Hypothetical Illustration. As a hypothetical illustration, assume that an
investor contributes $5,000 to his account and directs us to invest $3,000 in
Fund A and $2,000 in Fund B. After receiving the contribution and following the
next close of business of the New York Stock Exchange, the applicable AUV's are
$10 for Subaccount A and $25 for Subaccount B. The investor's account is
credited with 300 accumulation units of Subaccount A, and 80 accumulation units
of Subaccount B.
-----------------------------
$5,000 contribution
-----------------------------
Step 1
------------------------------------------------------
Aetna Life Insurance and Annuity Company
------------------------------------------------------
Step 2
------------------------------------------------
Variable Annuity Account B
------------------------------------------------
Subaccount A Subaccount B Etc.
300 80
accumulation accumulation
units units
------------------------------------------------
Step 3
-------------- --------------
Fund A Fund B
-------------- --------------
Step 1: An investor contributes $5000.
Step 2:
A. He directs us to invest $3,000 in Fund A. His dollars purchase 300
accumulation units of Subaccount A ($3,000 divided by the current $10 AUV).
B. He directs us to invest $2,000 in Fund B. His dollars purchase 80
accumulation units of Subaccount B ($2,000 divided by the current $25 AUV).
Step 3: The separate account then purchases shares of the applicable funds at
the current market value (NAV).
The fund's subsequent investment performance, expenses and charges, and the
daily charges deducted from the subaccount, will cause the AUV to vary on a
daily basis.
Payments to Your Account. If all or a portion of initial payments are directed
to the subaccounts, they will purchase subaccount accumulation units at the AUV
next computed after our acceptance of your application as described in
"Purchase and Rights." Subsequent payments or transfers directed to the
subaccounts will purchase subaccount accumulation units at the AUV next
computed following our receipt of the payment or transfer request in good
order. The value of subaccounts may vary day to day.
18
<PAGE>
[Begin Sidebar]
Taxes, Fees and Deductions
Amounts withdrawn may be subject to one or more of the following:
>Early Withdrawal Charge (see "Fees--Early Withdrawal Charge")
>Annual Maintenance Fee (see "Fees--Annual Maintenance Fee")
>Tax Penalty (see "Taxation")
>Tax Withholding (see "Taxation")
To determine which may apply to you, refer to the appropriate sections of this
prospectus, contact your local representative or call us at the number listed
in "Contract Overview--Questions: Contacting the Company."
[End Sidebar]
Withdrawals
- --------------------------------------------------------------------------------
Making a Withdrawal. You may withdraw all or a portion of your account value at
any time during the accumulation phase.
Steps for Making A Withdrawal.
>Select the withdrawal amount
1) Full Withdrawal: You will receive, reduced by any required withholding tax,
your account value minus any applicable early withdrawal charge and/or
annual maintenance fee.
2) Partial Withdrawal (Percentage or Specified Dollar Amount): You will
receive, reduced by any required withholding tax, the amount you specify
subject to the value available in your account. However, the amount
actually withdrawn from your account will be adjusted by any applicable
early withdrawal charge.
>Select investment options. If you do not specify this, we will withdraw
dollars proportionally from each of your investment options.
>Properly complete a disbursement form and send it to our Home Office.
Calculation of Your Withdrawal. We determine your account value every normal
business day after the close of the New York Stock Exchange. We pay withdrawal
amounts based upon your account value as of the next valuation after we receive
a request for withdrawal in good order at our Home Office, or on such later
date you specify on the disbursement form.
Delivery of Payment. Payments for withdrawal requests will be made in
accordance with SEC requirements. Normally, the payment will be sent no later
than seven calendar days following our receipt of your properly completed
disbursement form in good order.
Reinvesting a Full Withdrawal. Within 30 days after a full withdrawal, if
allowed by law and the contract, you may elect to reinvest all or a portion of
the withdrawal. We must receive the reinvested amounts within 60 days of the
withdrawal. We will credit your account for the amount reinvested based upon
the subaccount values next computed following our receipt of your request and
the amount to be reinvested. We will credit the amount reinvested
proportionally for annual maintenance fees and for early withdrawal charges
imposed at the time of withdrawal. We will deduct from the amount reinvested
any annual maintenance fee which fell due after the withdrawal and before the
reinvestment. We will reinvest in the same investment options and proportions
in place at the time of withdrawal. The reinvestment privilege may be used only
once. Seek competent advice regarding the tax consequences associated with
reinvestment.
19
<PAGE>
[Begin Sidebar]
Features of a Systematic Distribution Option (SDO)
An SDO allows you to receive regular payments from your contract, without
moving into the income phase. By remaining in the accumulation phase, you
retain certain rights and investment flexibility not available during the
income phase.
[End Sidebar]
Systematic Distribution Options
- --------------------------------------------------------------------------------
The following Systematic Distribution Options (SDO's) are currently available:
>SWO--Systematic Withdrawal Option. SWO is a series of automatic partial
withdrawals from your account based on a payment method you select. Consider
this option if you would like a periodic income while retaining investment
flexibility for amounts accumulated in the account.
>Other SDOs We may add additional SDOs from time to time. You may obtain
additional information relating to any of the SDOs from your local
representative or by calling us at the number listed in "Contract Overview--
Questions: Contacting the Company."
Eligibility for an SDO. To determine if you meet the age and account value
criteria and to assess terms and conditions that may apply, contact your local
representative or the Company at the number listed in "Contract Overview--
Question: Contacting the Company."
SDO Availability. If allowed by applicable law, we reserve the right to
discontinue the availability of one or all of the SDOs for new elections at any
time, and/or to change the terms of future elections.
Terminating an SDO. You may revoke an SDO at any time by submitting a written
request to our Home Office. Once you revoke an option, you may not elect it
again, nor may you elect any other SDO that may be available, unless you are
allowed under the Internal Revenue Code of 1986, as amended (Tax Code).
Charges and Taxation. When you elect a SDO, your account value remains in the
accumulation phase and subject to the charges and deductions described in the
"Fees" and "Fee Table" sections. Taking a withdrawal under a SDO may have tax
consequences. If you are concerned about tax implications consult a tax advisor
before electing an option.
20
<PAGE>
[Begin Sidebar]
This section provides information about the accumulation phase. For death
benefit information applicable to the income phase, see "The Income Phase".
[End Sidebar]
Death Benefit
- --------------------------------------------------------------------------------
During the Accumulation Phase
Who Receives the Death Benefit? If you would like certain individuals or
entities to receive a death benefit when it becomes payable, you may name them
as your beneficiaries.
Designating Your Beneficiary. You may designate a beneficiary on your
application or by contacting your local representative or calling us at the
number listed in "Contract Overview--Questions: Contacting the Company."
When is a Death Benefit Payable? During the accumulation phase a death benefit
is payable when you, the contract holder, die. Prior to the election of a
payment method by the beneficiary, the account value will remain in the account
and continue to be affected by the investment performance of the investment
option(s) selected. The beneficiary will have the right to allocate or transfer
amounts among available investment options. (Limitations may apply to transfers
from the Fixed Account -- see Appendix I)
The Value of the Death Benefit. The death benefit will equal your account value
as of the next time we value your account after the date on which we receive
proof of death acceptable to us. Interest, if any, will be paid from the date
of death at a rate no less than required by law.
Death Benefit--Methods of Payment
(For payment options during the income phase, see "The Income Phase.")
If you die during the accumulation phase of your contract, the following
payment options are available to your beneficiary, if allowed by the Tax Code:
>Lump sum payment; or
>Payment in accordance with any of the available income phase payment plans
(See "The Income Phase--Payment Plans")
The following options are also available, however, the Tax Code limits how long
the death benefit proceeds may be left in these options:
>Leave the account value invested in the contract; or
>Leave the account value on deposit in the Company's general account, and
receive monthly, quarterly, semi-annual or annual interest payments at the
interest rate then being credited on such deposits. Your beneficiary can
withdraw the balance on deposit at any time or request to receive payment in
accordance with any of the available income phase payment plans (See "The
Income Phase--Payment Plans").
Steps Required for Death Benefits to be Paid to Your Beneficiary:
1. You must have designated a beneficiary(ies) for your contract. You may do
this on your application, by contacting your local representative or by
calling the Company at the number listed in the "Contract Overview --
Questions: Contacting the Company."
2. Your beneficiary or someone on their behalf must provide us with proof of
your death acceptable to us; and
3. Your beneficiary must elect one of the payment options available under the
Contract.
21
<PAGE>
We will not pay any death proceeds until the beneficiary elects a method of
payment.
We will mail payment to the beneficiary within seven days after we receive
proof of death and an election of the method of payment acceptable to us.
Tax Penalties on Death Benefits
The Tax Code imposes time constraints on distribution of the death benefit. Your
beneficiary(ies) may be subject to tax penalties if they do not begin receiving
death benefit payments within time limitations imposed by the Tax Code.
Regardless of the method of payment death benefit proceeds will generally be
taxed to the beneficiary in the same manner as if you had received those
payments. See "Taxation."
22
<PAGE>
[Begin Sidebar]
We may have used the following terms in prior prospectuses:
Annuity Phase--Income Phase
Annuity Option--Payment Option
Annuity Payment--Income Phase Payment
Annuitization--Initiating Income Phase Payments
[End Sidebar]
The Income Phase
- --------------------------------------------------------------------------------
During the income phase you stop contributing dollars to the account and
start receiving payments from your accumulated account value.
Initiating Payments. At least 30 days before the date you want to start
receiving payments, you must notify us in writing of all of the following:
>Start date
>Payment option (see the payment options table in this section)
>Payment frequency (i.e. monthly, quarterly, semi-annually or annually)
>Choice of fixed or variable payments or a combination of fix and variable
payments.
>Selection of an assumed net investment rate (only if variable payments are
elected)
The account will continue in the accumulation phase until you properly initiate
payments. Once a payment option is selected, it may not be changed.
What Affects Payment Amounts? Some of the factors that may affect payment
amounts include your age, gender, account value, the payment option selected,
number of guaranteed payments (if any) selected, and whether you select
variable or fixed payments.
Fixed payments. Amounts funding fixed payments will be held in the Company's
general account. Fixed payments do not vary over time.
Variable payments. Amounts funding your variable income payments will be
invested in subaccount(s) you select. Currently, Aetna Balanced VP, Inc., Aetna
Bond VP and Aetna Growth and Income VP are the only subaccounts available
during the income phase. For variable payments, you must also select an assumed
net investment rate.
You may also elect to have a portion of your payments be fixed (invested in the
general account), and a portion variable (invested in available subaccounts).
Once income phase payments begin, you may not make transfers among investment
options.
Assumed Net Investment Rate. For variable payments, an assumed net investment
rate must be selected. If you select a 5% rate, your first payment will be
higher, but subsequent payments will increase only if the investment
performance of the subaccounts you selected is greater than 5% annually, after
deduction of fees. Payment amounts will decline if the investment performance
is less than 5%, after deduction of fees.
If you select a 3-1/2% rate, your first payment will be lower and subsequent
payments will increase more rapidly or decline more slowly depending upon
changes to the net investment rate of the subaccounts you selected. For more
information about selecting an assumed net investment rate, call us for a copy
of the SAI. See "Contracting Overview--Questions: Contacting the Company".
23
<PAGE>
Minimum Payment Amounts. The payment option you select must provide:
>A first payment of at least $20, or
>Total yearly payments of at least $100
If your account value is insufficient to provide these minimum payments, you
will receive a single lump sum payment.
Restrictions on Start Dates and the Duration of Payments. When payments start,
the age of the annuitant plus the number of years for which payments are
guaranteed may not exceed 95.
Charges Deducted. We make a daily deduction for mortality and expense risks
from amounts held in the subaccounts. Therefore, if you choose variable
payments and a nonlifetime payment option, we still make this deduction from
the subaccounts you select, even though we no longer assume any mortality
risks. We may also deduct a daily administrative charge from amounts held in
the subaccounts. See "Fees."
Death Benefit During the Income Phase. The death benefits that may be available
to a beneficiary are outlined in the payment option table below. If a lump sum
payment is due as a death benefit, we will make payment within seven calendar
days after we receive proof of death acceptable to us and the request for
payment at our Home Office. If the continuing payments are elected, the
beneficiary may not elect to receive a lump sum at a future date unless the
option specifically allows that right. We will calculate the value of any death
benefit at the next valuation after we receive proof of death and a request for
payment. Such value will be reduced by any payments we made after the date of
death.
Partial Entry into the Income Phase. You may elect a payment option for a
portion of your account dollars, while leaving the remaining portion invested
in the accumulation phase. Whether the Tax Code considers such payments taxable
as income phase payments or as withdrawals is currently unclear; consult a tax
advisor before electing this option. The same or a different payment option may
be selected for the portion left invested in the accumulation phase.
Taxation. To avoid certain tax penalties, you or your beneficiary must meet the
distribution rules imposed by the Tax Code. Additionally, when selecting a
payment option, the Tax Code requires that your expected payments will not
exceed certain durations. See "Taxation" for additional information.
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<PAGE>
Payment Options
The following table lists the payment options and accompanying death benefits
available during the income phase. We may offer additional payment options
under the contract from time to time.
Once income phase payments begin, you may not change the payment option
selected.
Terms to understand:
Annuitant: The person(s) on whose life expectancy(ies) the income phase
payments are based.
Beneficiary: The person(s) or entity(ies) entitled to receive a death benefit
payable under the contract.
Lifetime Payment Options
<TABLE>
<S> <C>
Length of Payments: For as long as the annuitant lives. It is possible that only one payment will be
Life Income made if the annuitant dies prior to the second payment's due date.
Death Benefit--None: All payments end upon the annuitant's death.
Length of Payments: For as long as the annuitant lives, with payments guaranteed for your choice
of 5, 10, 15 or 20 years (or as otherwise specified in the contract).
Life Income-- Death Benefit--Payment to the Beneficiary: If the annuitant dies before we have made all the
Guaranteed guaranteed payments, we will pay the beneficiary a lump sum (unless otherwise requested) equal
Payments to the present value of the remaining guaranteed payments.
Length of Payments: For as long as either annuitant lives. It is possible that only one payment will
be made if both annuitants die before the second payment's due date.
Continuing Payments:
(a) When you select this option you choose for 100%, 66-2/3% or 50% of the payment to continue
Life Income-- to the surviving annuitant after the first death; or
Two Lives (b) 100% of the payment to continue to the annuitant on the second annuitant's death, and 50%
of the payment will continue to the second annuitant on the annuitant's death.
Death Benefit--None: All payments end upon the death of both annuitants.
Length of Payments: For as long as either annuitant lives, with payments guaranteed for a
minimum of 120 months.
Life Income -- Continuing Payments: 100% of the payment will continue to the surviving annuitant after the
Two Lives with first death.
Guaranteed Death Benefit--Payment to the Beneficiary: If both annuitants die before the guaranteed
Payments payments have been paid, we will pay the beneficiary a lump sum (unless otherwise requested)
equal to the present value of the remaining guaranteed payments.
</TABLE>
Table continued
25
<PAGE>
Nonlifetime Payment Options
<TABLE>
<S> <C>
Length of Payment: You may select payments for 3-30 years. A lump sum payment may be
requested at any time. (see below)
Nonlifetime-- Death Benefit -- Payment to the Beneficiary: If the annuitant dies before we make all the
Guaranteed guaranteed payments, we will pay the beneficiary a lump sum (unless otherwise requested) equal
Payments to the present value of the remaining guaranteed payments, and we will not impose an early
withdrawal charge.
</TABLE>
Lump Sum Payment: If the Nonlifetime -- Guaranteed Payments option is elected
with variable payments, you may request at any time that all or a portion of the
present value of the remaining payments be paid in one lump sum. A lump sum
elected before three years of payments have been completed will be treated as a
withdrawal during the accumulation phase and we will charge any applicable early
withdrawal charge. If the early withdrawal charge is based on completed purchase
payment periods, each year that passes after income payments have begun is
treated as a completed purchase payment period even though no additional
purchase payments have been made. See "Fees -- Early Withdrawal Charge." We will
send lump sum payments within seven calendar days after we receive the request
for payment in good order at our Home Office.
Calculation of Lump Sum Payments: If a lump sum payment is available under the
payment options above, the rate we use to calculate the present value for the
remaining guaranteed payments is the same rate we used to calculate the income
phase payments (i.e. the actual fixed rate used for the fixed payments or the
3-1/2% or 5% assumed net investment rate used for variable payments.
26
<PAGE>
[Begin Sidebar]
In This Section:
> Introduction
> Contract Type
> Withdrawals and other Distributions
> Taxation of Distributions
> 10% Penalty Tax
> Withholding for Federal Income Tax Liability
> Minimum Distribution of Death Benefit Proceeds
> Taxation of Nonqualified Contracts
> Taxation of the Company
[End Sidebar]
Taxation
- --------------------------------------------------------------------------------
Introduction
This section discusses our understanding of current federal income tax laws
affecting the contract. Keep the following in mind:
> Your tax position (or the tax position of the beneficiary, as applicable)
determines federal taxation of amounts held or paid out under the contract.
> Tax laws change. It is possible that a change in the future could affect
contracts issued in the past.
> This section addresses federal income tax rules and does not discuss federal
estate and gift tax implications, state and local taxes or any other tax
provisions.
> Do not make any guarantee about the tax treatment of the contract or
transaction involving the contract.
> The term "payment" in this section refers to income phase payments.
We do not intend this information to be tax advice. Consult a tax adviser
about the effect of federal income taxes or any other taxes on amounts held or
paid out under the contract.
Contract Type
The contracts are designed for use on a non-tax qualified basis as a
nonqualified contract.
The Contract. You are responsible for determining that contributions,
distributions and other transactions satisfy applicable laws. Consult legal
counsel and a tax adviser regarding suitability of the contract.
Withdrawals and Other Distributions
Certain tax rules apply to distributions from the contract. A distribution is
any amount taken from the contract including withdrawals, income payments,
rollovers, exchanges and death benefit proceeds.
We report the taxable portion of all distributions to the Internal Revenue
Service (IRS).
Taxation of Distributions
Withdrawals and Annuity Payments. A full withdrawal of a nonqualified contract
is taxable to the extent that the amount received exceeds the investment in the
contract. A partial withdrawal is taxable to the extent that the contract value
immediately before the withdrawal exceeds the investment in the contract. In
other words, a partial withdrawal is treated first as a withdrawal of taxable
earnings.
For income phase payments, a portion of each payment which represents the
investment in the contract is not taxable. An exclusion ratio is calculated to
determine the nontaxable portion.
For fixed annuity payments, in general, there is no tax on the portion of each
payment which represents the same ratio that the investment in the contract
bears to the total dollar amount of the expected payments as defined in Tax
Code section 72(d). The entire annuity payment will be taxable once the
recipient has recovered the investment in the contract.
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For variable annuity payments, an equation is used to establish a specific
dollar amount of each payment that is not taxed. The dollar amount is
determined by dividing the investment in the contract by the total number of
expected periodic payments. The entire annuity payment will be taxable once the
recipient has recovered the investment in the contract.
All deferred nonqualified annuity contracts that are issued by the Company (or
its affiliates) to the same contract holder during any calendar year are
treated as one annuity contract for purposes of determining the amount
includible in gross income under Tax Code section 72(e). In addition, the
Treasury Department has specific authority to issue regulations that prevent
the avoidance of Tax Code section 72(e) through the serial purchase of annuity
contracts or otherwise.
Death Benefit Proceeds. In general, payments received by your beneficiaries
after your death are taxed in the same manner as if you had received those
payments.
10% Penalty Tax
The Tax Code may impose a 10% penalty tax on the taxable portion of any
distribution from a nonqualified contract unless one or more of the following
have occurred:
>The taxpayer has attained age 59-1/2,
>The taxpayer has become totally and permanently disabled,
>The contract holder has died,
>The distribution is made in substantially equal periodic payments (at least
annually) over the life or life expectancy of the taxpayer or the joint lives
or joint life expectancies of the taxpayer and beneficiary, or
>The distribution is allocable to investment in the contract before August 14,
1982.
Withholding for Federal Income Tax Liability
Any distributions under the contract are generally subject to withholding.
Federal income tax liability rates vary according to the type of distribution
and the recipient's tax status. Generally, you or a beneficiary may elect not
to have tax withheld from distributions. If you or your beneficiary is a
non-resident alien, then any withholding is governed by Tax Code section 1441
based on the individual's citizenship, the country of domicile and treaty
status.
Minimum Distribution of Death Benefit Proceeds
Death of Contract Holder. The following requirements apply to nonqualified
contracts at the death of the contract holder. Different distribution
requirements apply if you are the contract holder and your death occurs:
>After you begin receiving annuity payments under the contract, or
>Before you begin receiving such distributions.
If your death occurs after you begin receiving annuity payments, distribution
to your beneficiary must be made at least as rapidly as under the method in
effect at the time of your death.
If your death occurs before you begin receiving annuity payments, your entire
balance must be distributed within five years after the date of your death. For
example, if you die on September 1, 1999, your entire balance must be
distributed
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by August 31, 2004. However, if the distribution begins within one year of your
death, then payments may be made in one of the following time-frames:
>Over the life of the beneficiary, or
>Over a period not extending beyond the life expectancy of the beneficiary.
Spousal Beneficiaries. If the beneficiary is your spouse, the contract may be
continued with the surviving spouse as the new contract holder.
Death of the Annuitant. If the contract holder is a nonnatural person and the
annuitant dies, the same rules apply as outlined above for death of a contract
holder.
Taxation of Nonqualified Contracts
In General. Tax Code section 72 governs taxation of annuities in general. A
contract holder under a nonqualified contract who is a natural person generally
is not taxed on increases in the contract value until distribution occurs by
withdrawing all or part of such value. The taxable portion of a distribution is
taxable as ordinary income.
Non-Natural Holders of a Nonqualified Contract. If the contract holder is not a
natural person, a nonqualified contract generally is not treated as an annuity
for income tax purposes and the income on the contract for the taxable year is
currently taxable as ordinary income. Income on the contract is any increase
over the year in the surrender value, adjusted for purchase payments made
during the year, amounts previously distributed and amounts previously included
in income. There are some exceptions to the rule and a non-natural person
should consult a tax adviser prior to purchasing this contract. A non-natural
person exempt from federal income taxes should consult a tax adviser regarding
treatment of income on the contract for purposes of the unrelated business
income tax. When the contract holder is not a natural person, a change in
annuitant is treated as the death of the contract holder.
Taxation of Gains Prior to Distribution. The IRS has stated in published
rulings that a variable contract owner will be considered the owner of separate
account assets if the owner possesses incidents of investment control over the
assets. In these circumstances, income and gains from the separate account
assets would be includible in the variable contract owner's gross income. The
Treasury announced that it will issue guidance regarding the extent to which
owners could direct their investments among subaccounts without being treated
as owners of the underlying assets of the separate account. It is possible that
the Treasury's position, when announced, may adversely affect the tax treatment
of existing contracts. The Company reserves the right to modify the contract as
necessary to attempt to prevent a contract holder from being considered the
federal tax owner of a pro rata share of the assets of the separate account.
Diversification. Tax Code section 817(h) requires that in a nonqualified
contract the investments of the funds be "adequately diversified" in accordance
with Treasury Regulations in order for the contracts to qualify as annuity
contracts under federal tax law. The separate account, through the funds,
intends to comply with the diversification requirements prescribed by the
Treasury in Reg. Sec. 1.817-5, which affects how the funds' assets may be
invested.
Transfers, Assignments or Exchanges of a Nonqualified Contract. A transfer of
ownership of a nonqualified contract, the designation of an annuitant, payee
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or other beneficiary who is not also the contract holder, the selection of
certain annuity dates, or the exchange of a contract may result in certain tax
consequences. The assignment, pledge, or agreement to assign or pledge any
portion of the contract value generally will be treated as a distribution.
Anyone contemplating any such designation, transfer, assignment, selection, or
exchange should contact a tax adviser regarding the potential tax effects of
such a transaction.
Taxation of the Company
We are taxed as a life insurance company under the Tax Code. Variable Annuity
Separate Account B is not a separate entity from us. Therefore, it is not taxed
separately as a "regulated investment company", but is taxed as part of the
Company.
We automatically apply investment income and capital gains attributable to the
separate account to increase reserves under the contracts. Because of this,
under existing federal tax law we believe that any such income and gains will
not be taxed to the extent that such income and gains are applied to increase
reserves under the contracts. In addition, any foreign tax credits attributable
to the separate account will be first used to reduce any income taxes imposed
on the separate account before being used by the Company.
In summary, we do not expect that we will incur any federal income tax
liability attributable to the separate account and we do not intend to make any
provision for such taxes. However, changes in federal tax laws and/or their
interpretation may result in our being taxed on income or gains attributable to
the separate account. In this case, we may impose a charge against the separate
account (with respect to some or all of the contracts) to set aside provisions
to pay such taxes. We may deduct this amount from the separate account,
including from your contract value invested in the subaccounts.
Other Topics
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The Company
Aetna Life Insurance and Annuity Company (the Company, we, us) issues the
contracts described in this prospectus and is responsible for providing each
contract's insurance and annuity benefits.
We are a stock life insurance company organized under the insurance laws of the
State of Connecticut in 1976 and an indirect wholly-owned subsidiary of Aetna,
Inc. Through a merger our operations include the business of Aetna Variable
Annuity Life Insurance Company (formerly known as Participating Annuity Life
Insurance Company, an Arkansas life insurance company organized in 1954).
We are engaged in the business of issuing life insurance and annuities. Our
principal executive offices are located at:
151 Farmington Avenue
Hartford Connecticut 06156
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Variable Annuity Account B
We established Variable Annuity Account B (the "separate account") in 1976 as a
segregated asset account to fund our variable annuity contracts. The separate
account is registered as a unit investment trust under the Investment Company
Act of 1940 (the "'40 Act"). It also meets the definition of "separate account"
under the federal securities laws.
The separate account is divided into "subaccounts." The subaccounts invest
directly in shares of a pre-assigned fund.
Although we hold title to the assets of the separate account, such assets are
not chargeable with the liabilities of any other business that we conduct.
Income, gains or losses of the separate account are credited to or charged
against the assets of the separate account without regard to other income,
gains or losses of the Company. All obligations arising under the contracts are
obligations of the Company.
Contract Distribution
We will serve as the principal underwriter for the securities sold by this
prospectus. We are registered as a broker-dealer with the SEC and a member of
the National Association of Securities Dealers, Inc.
As principal underwriter, we will enter into arrangements with one or more
registered broker-dealers, including at least one affiliate of the Company, to
offer and sell the contracts described in this prospectus. We may also enter
into these arrangements with banks that may be acting as broker-dealers without
separate registration under the Securities Exchange Act of 1934 pursuant to
legal and regulatory exceptions. In this prospectus, we refer to the registered
broker-dealers and the banks described above as "distributors."
We and one or more of our affiliates may also sell the contracts directly. All
individuals offering and selling the contracts must be registered
representatives of a broker-dealer, or employees of a bank exempt from
registration under the Securities Act of 1934, and must be licensed as
insurance agents to sell variable annuity contracts.
Payment of Commissions. We pay commissions to persons who offer and sell the
contracts. The maximum percentage amount we ever pay with respect to a given
purchase payment is the first-year percentage which ranges from 1% to 7-1/2% of
the first year of payments to an account. We may also pay renewal commissions
on payments made after the first year and asset-based service fees. The average
of all commissions and asset-based service fees paid is estimated to equal
approximately 3% of the total payments made over the life of an average
contract. Some sales personnel may receive various types of non-cash
compensation as special sales incentives, including trips and educational
and/or business seminars. However, any such compensation will be paid in
accordance with NASD rules. In addition, we may provide additional compensation
to the Company's supervisory and other management personnel if the overall
amount of investments in funds advised by the Company or its affiliates
increases over time.
We may also reimburse the distributor for certain expenses. The name of the
distributor and the registered representative responsible for your account are
stated in your application. Commissions and sales related expenses are paid by
us and are not deducted from payments to your account.
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Payment Delay or Suspension
We reserve the right to suspend or postpone the date of any payment of benefits
or values under the following circumstances:
>On any valuation date when the New York Stock Exchange is closed (except
customary holiday or weekend closings) or when trading on the New York Stock
Exchange is restricted
>When an emergency exists as determined by the SEC so that disposal of the
securities held in the subaccounts is not reasonably practicable or it is not
reasonably practicable to fairly determine the value of the subaccount's
assets
>During any other periods the SEC permits for the protection of investors.
The conditions under which restricted trading or an emergency exists shall be
determined by the rules and regulations of the SEC.
Performance Reporting
We may advertise different types of historical performance for the subaccounts
including:
>Standardized average annual total returns
>Non-standardized average annual total returns
We may also advertise certain ratings, rankings or other information related to
the Company, the subaccounts or the funds. For further details regarding
performance reporting and advertising you may request a Statement of Additional
Information at the number listed in "Contract Overview -- Questions: Contacting
the Company".
Standardized Average Annual Total Returns. We calculate standardized average
annual total returns according to a formula prescribed by the SEC. This shows
the percentage return applicable to $1,000 invested in each subaccount over the
most recent one, five and 10-year periods. If the investment was not available
for the full period, we give a history from the date investments were first
received in that option under the separate account. We include all recurring
charges during each period (including mortality and expense risk charges,
annual maintenance fees, administrative expense charges (if any) and any
applicable early withdrawal charges).
Non-Standardized Average Annual Total Returns. We calculate non-standardized
average annual total returns in a similar manner as that stated above, except
we do not include the deduction of any applicable early withdrawal charge. Some
non-standardized returns may also exclude the effect of an annual maintenance
fee. If we reflected these charges in the calculation it would decrease the
level of performance reflected by the calculation. Non-standardized returns may
include performance from the fund's inception date, if that date is earlier
than the one we use for standardized returns.
Voting Rights
Each of the subaccounts holds shares in a fund and each is entitled to vote at
regular and special meetings of that fund. Under our current view of applicable
law, we will vote the shares for each subaccount as instructed by persons
having a voting interest in the separate account. We will vote shares for which
we receive no instructions in the same proportion as those for which we receive
instructions. You will receive periodic reports relating to the funds in which
you have an interest as well as any proxy materials and a form on which to give
voting
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instructions. Voting instructions will be solicited by a written communication
at least 14 days before any special meeting.
The number of votes (including fractional votes) you are entitled to direct
will be determined as of the record date set by any fund you invest in through
the subaccounts.
>During the accumulation phase the number of votes is equal to the portion of
your account value invested in the fund, divided by the net asset value of one
share of that fund.
>During the income phase the number of votes is equal to the portion of
reserves set aside for the contract's share of the fund, divided by the net
asset value of one share of that fund.
Contract Modification
We may change the contract as required by federal or state law. Certain changes
will require the approval of appropriate state or federal regulatory
authorities.
Transfer of Ownership: Assignment
We will accept assignments or transfers of ownership where such assignments are
not prohibited, with proper notification. The date of such assignment or
transfer of ownership will be the date we receive the notification at our Home
Office. An assignment or transfer of ownership may have tax consequences;
consult with a tax adviser before assigning or transferring ownership of the
contract.
An assignment of a contract will only be binding on the Company if it is made
in writing and sent to us at our Home Office. We will use reasonable procedures
to confirm that the assignment is authentic, including verification of
signature. If we fail to follow our own procedures, we will be liable for any
losses to you directly resulting from the failure. Otherwise, we are not
responsible for the validity of any assignment. Your rights and the interest of
the annuitant and any beneficiary will be subject to the rights of any assignee
we have on our records.
Legal Matters and Proceedings
We are aware of no material legal proceedings pending which involve the
separate account or the Company as a party or which would materially affect the
separate account. The validity of the securities offered by this prospectus has
been passed upon by Counsel to the Company.
Year 2000 Readiness
As a healthcare and financial services enterprise, Aetna Inc. (referred to
collectively with its affiliates and subsidiaries as "Aetna"), is dependent
upon computer systems and applications to conduct its business. Aetna has
developed and is currently executing a comprehensive risk-based plan designed
to make its mission-critical information technology (IT) systems and imbedded
systems Year 2000 ready. The plan for IT systems covers five stages including
(i) assessment, (ii) remediation, (iii) testing, (iv) implementation and (v)
Year 2000 approval. At year end 1997, Aetna, including the Company, had
substantially completed the assessment stage. The remediation of mission-
critical IT systems was completed by year end 1998. Testing of all mission-
critical IT systems is underway with Year 2000 approval targeted for completion
by mid-1999. The costs of these efforts will not affect the separate account.
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The Company, its affiliates and the mutual funds that serve as investment
options for the separate account also have relationships with investment
advisers, broker-dealers, transfer agents, custodians or other securities
industry participants or other service providers that are not affiliated with
Aetna. Aetna, including the Company, has initiated communication with its
critical external relationships to determine the extent to which Aetna may be
vulnerable to such parties' failure to resolve their own Year 2000 issues.
Aetna and the Company have assessed and are prioritizing responses in an
attempt to mitigate risks with respect to the failure of these parties to be
Year 2000 ready. There can be no assurance that failure of third parties to
complete adequate preparations in a timely manner, and any resulting systems
interruptions or other consequences, would not have an adverse effect, directly
or indirectly, on the separate account, including, without limitation, its
operation or the valuation of its assets and units.
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Contents of the Statement of Additional Information
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The Statement of Additional Information (SAI) contains more specific
information on the separate account and the contract, as well as the financial
statements of the separate account and the Company. The following is a list of
the contents of the SAI.
General Information and History
Variable Annuity Account B
Offering and Purchase of Contract
Performance Data
General
Average Annual Total Return Quotations
Income Phase Payments
Sales Material and Advertising
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of Aetna Life Insurance and Annuity Company and Subsidiary
You may request an SAI by calling the Home Office at the number listed in
"Contract Overview --Questions: Contacting the Company."
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Appendix I
Fixed Account
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The Fixed Account is an investment option available during the accumulation
phase of the contract.
Additional information about this option may be found in the contract.
Amounts allocated to the Fixed Account are held in the Company's general
account which supports insurance and annuity obligations.
General Disclosure. 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 may be
subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of the statements. The SEC has
not reviewed disclosure in this Appendix regarding the Fixed Account.
Interest Rates. The Fixed Account guarantees that amounts allocated to this
option will earn the minimum interest rate specified in the contract. We may
credit a higher interest rate from time to time, but the rate we credit will
never fall below the guaranteed minimum specified in the contract. Amounts
applied to the Fixed Account will earn the interest rate in effect at the time
money is applied. Amounts in the Fixed Account will receive a compound interest
rate as credited by us. The rate we quote is an annual effective yield.
Our determination of interest rates reflects the investment income earned on
invested assets and the amortization of any capital gains and/or losses
realized on the sale of invested assets. Under this option, we assume the risk
of investment gain or loss by guaranteeing the amounts you allocate to this
option and promising a minimum interest rate and income phase payment.
Withdrawals. Under certain emergency conditions, some contracts allow us to
defer payment of any withdrawal for period of up to 6 months or as provided by
federal law.
Charges. We do not make deductions from amounts in the Fixed Account to cover
mortality and expense risks. We consider these risks when determining the
credited rate.
If you make a withdrawal from amounts in the Fixed Account, an early withdrawal
charge may apply. See "Fees."
Transfers. During the accumulation phase, you may transfer account dollars from
the Fixed Account to any other available investment option once during each
calendar year. We may vary the dollar amount that you are allowed to transfer,
but it will never be less than 10% of your account value held in the Fixed
Account.
By notifying the Home Office at least 30 days before income payments begin you
may elect to have amounts transferred to one or more of the funds available
during the income phase to provide variable payments.
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Appendix II
Description of Underlying Funds
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The investment results of the mutual funds (funds) are likely to differ
significantly and there is no assurance that any of the funds will achieve
their respective investment objectives. Shares of the funds will rise and fall
in value and you could lose money by investing in the funds. Shares of the
funds are not bank deposits and are not guaranteed, endorsed or insured by any
financial institution, the Federal Deposit Insurance Corporation or any other
government agency. Except as noted, all funds are diversified, as defined under
the Investment Company Act of 1940.
Aetna Balanced VP, Inc.
Investment Objective
Seeks to maximize investment return, consistent with reasonable safety of
principal by investing in a diversified portfolio of one or more of the
following asset classes: stocks, bonds, and cash equivalents, based on the
investment adviser's judgment of which of those sectors or mix thereof offers
the best investment prospects.
Policies
Under normal market conditions, allocates assets among the following asset
classes: 1) equities such as common and preferred stocks; and 2) debt such as
bonds, mortgage-related and other asset-backed securities, and U.S. Government
securities. Typically maintains approximately 60% of total assets in equities
and 40% of total assets in debt (including money market instruments), although
those percentages may vary from time to time.
Risks
Principal risks are those generally attributable to stock and bond investing.
The success of the fund's strategy depends on the investment adviser's skill in
allocating fund assets between equities and debt and in choosing investments
within those categories. Risks attributable to stock investing include sudden
and unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile than stocks of larger companies and can be
particularly sensitive to expected changes in interest rates, borrowing costs
and earnings. Fixed-income investments are subject to the risk that interest
rates will rise, which generally causes bond prices to fall. Also, economic and
market conditions may cause issuers to default or go bankrupt. Values of
high-yield bonds are even more sensitive to economic and market conditions than
other bonds. Prices of mortgage-related securities, in addition to being
sensitive to changes in interest rates, also are sensitive to changes in the
prepayment patterns on the underlying instruments.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Income Shares d/b/a Aetna Bond VP
Investment Objective
Seeks to maximize total return, consistent with reasonable risk, through
investments in a diversified portfolio consisting primarily of debt securities.
It is anticipated that capital appreciation and investment income will both be
major factors in achieving total return.
Policies
Under normal market conditions, invests at least 65% of total assets in
high-grade corporate bonds, mortgage-related and other asset-backed securities,
and securities issued or guaranteed by the U.S. government, its agencies and
instrumentalities. High-grade securities are rated at least A by Standard &
Poor's Corporation (S&P) or Moody's Investors Service, Inc. (Moody's), or if
unrated, considered by the investment adviser to be of comparable quality. May
also invest up to 15% of total assets in high-yield bonds, and up to 25% of
total assets in foreign debt securities.
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Risks
Principal risks are those generally attributable to debt investing, including
increases in interest rates and loss of principal. Generally, when interest
rates rise, bond prices fall. Bonds with longer maturities tend to be more
sensitive to changes in interest rates. For all bonds there is a risk that the
issuer will default. High-yield bonds generally are more susceptible to the
risk of default than higher rated bonds. Prices of mortgage-related securities,
in addition to being sensitive to changes in interest rates, also are sensitive
to changes in the prepayment patterns on the underlying instruments. Foreign
securities have additional risks. Some foreign securities tend to be less
liquid and more volatile than their U.S. counterparts. In addition, accounting
standards and market regulations tend to be less standardized. These risks are
usually higher for securities of companies in emerging markets. Securities of
foreign companies may be denominated in foreign currency. Exchange rate
fluctuations may reduce or eliminate gains or create losses.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Fund d/b/a Aetna Growth and Income VP
Investment Objective
Seeks to maximize total return through investments in a diversified portfolio
of common stocks and securities convertible into common stock. It is
anticipated that capital appreciation and investment income will both be major
factors in achieving total return.
Policies
Under normal market conditions, invests at least 65% of total assets in common
stocks that the investment adviser believes have significant potential for
capital or income growth. Tends to emphasize stocks of larger companies. Also
invests assets across other asset classes (including stocks of small and
medium-sized companies, international stock, real estate securities and fixed
income securities).
Risks
Principal risks are those generally attributable to stock investing. These
risks include sudden and unpredictable drops in the value of the market as a
whole and periods of lackluster or negative performance. The success of the
fund's strategy also depends significantly on the investment adviser's skill in
allocating assets and in choosing investments within each asset class.
Growth-oriented stocks typically sell at relatively high valuations as compared
to other types of stocks. If a growth stock does not exhibit the level of
growth expected, its price may drop sharply. Historically, growth-oriented
stocks have been more volatile than value-oriented stocks. Although the
investment adviser emphasizes large cap stocks, the fund is more diversified
across asset classes than most other funds with a similar investment objective.
Therefore, it may not perform as well as those funds when large cap stocks are
in favor.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Encore Fund d/b/a Aetna Money Market VP
Investment Objective
Seeks to provide high current return, consistent with preservation of capital
and liquidity, through investment in high-quality money market instruments.
Policies
Invests only in a diversified portfolio of high-quality fixed income securities
denominated in U.S. dollars, with short remaining maturities. These securities
include U.S. Government securities, such as U.S. Treasury bills and securities
issued or sponsored by U.S. government agencies. They also may include
corporate debt securities, finance company commercial paper, asset-backed
securities and certain obligations of U.S. and foreign banks, each of which
must be highly rated by independent rating agencies or, if unrated, considered
by the investment adviser to be of comparable quality. Maintains a
dollar-weighted average portfolio maturity of 90 days or less.
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Risks
It is possible to lose money by investing in the fund. There is no guaranty the
fund will achieve its investment objective. Shares of the fund are not bank
deposits and are not guaranteed, endorsed or insured by any financial
institution, the FDIC or any other government agency.
A weak economy, strong equity markets and changes by the Federal Reserve in its
monetary policies all could affect short-term interest rates and therefore the
value and yield of the fund's shares.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Generation Portfolios, Inc.--Aetna Ascent VP
Investment Objective
Seeks to provide capital appreciation.
Policies
Designed for investors seeking capital appreciation who generally have an
investment horizon exceeding 15 years and who have a high level of risk
tolerance. Under normal market conditions, allocates assets among several
classes of equities, fixed-income securities, and money market instruments. The
investment adviser has instituted both a benchmark percentage allocation and a
fund level range allocation for each asset class. Asset allocation may vary
from the benchmark allocation (within the permissible range) based on the
investment adviser's ongoing evaluation of the expected returns and risks of
each asset class relative to other classes. May invest up to 15% of total
assets in high-yield bonds.
The benchmark portfolio is 80% equities and 20% fixed income under neutral
market conditions.
Risks
The success of the fund's strategy depends significantly on the investment
adviser's skill in choosing investments and in allocating assets among the
different investment classes. Principal risks are those generally attributable
to stock and bond investing. For stock investments, risks include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile. Risks associated with real estate securities include
periodic declines in the value of real estate, generally, or in the rents and
other income generated by real estate. For bonds, generally, when interest
rates rise, bond prices fall. Economic and market conditions may cause issuers
to default or go bankrupt. Values of high-yield bonds are even more sensitive
to economic and market conditions than other bonds. Prices of mortgage-related
securities, in addition to being sensitive to changes in interest rates, also
are sensitive to changes in the prepayment patterns on the underlying
instruments. Foreign securities have additional risks. Some foreign securities
tend to be less liquid and more volatile than their U.S. counterparts. In
addition, accounting standards and market regulations tend to be less
standardized. These risks are usually higher for securities of companies in
emerging markets. Securities of foreign companies may be denominated in foreign
currency. Exchange rate fluctuations may reduce or eliminate gains or create
losses.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Generation Portfolios, Inc.--Aetna Crossroads VP
Investment Objective
Seeks to provide total return (i.e., income and capital appreciation, both
realized and unrealized).
Policies
Designed for investors seeking a balance between income and capital
appreciation who generally have an investment horizon exceeding ten years and
who have a moderate level of risk tolerance. Under normal market conditions,
allocates assets among several classes of equities, fixed-income securities,
and money market instruments. The investment adviser has instituted both a
benchmark percentage allocation and a fund level range allocation for each
asset class. Asset allocation may vary from the benchmark allocation (within
the
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permissible range) based on the investment adviser's ongoing evaluation of the
expected returns and risks of each asset class relative to other classes. May
invest up to 15% of total assets in high-yield bonds.
The benchmark portfolio is 60% equities and 40% fixed income under neutral
market conditions.
Risks
The success of the fund's strategy depends significantly on the investment
adviser's skill in choosing investments and in allocating assets among the
different investment classes. Principal risks are those generally attributable
to stock and bond investing. For stock investments, risks include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile. Risks associated with real estate securities include
periodic declines in the value of real estate, generally, or in the rents and
other income generated by real estate. For bonds, generally, when interest
rates rise, bond prices fall. Economic and market conditions may cause issuers
to default or go bankrupt. Values of high-yield bonds are even more sensitive
to economic and market conditions than other bonds. Prices of mortgage-related
securities, in addition to being sensitive to changes in interest rates, also
are sensitive to changes in the prepayment patterns on the underlying
instruments. Foreign securities have additional risks. Some foreign securities
tend to be less liquid and more volatile than their U.S. counterparts. In
addition, accounting standards and market regulations tend to be less
standardized. These risks are usually higher for securities of companies in
emerging markets. Securities of foreign companies may be denominated in foreign
currency. Exchange rate fluctuations may reduce or eliminate gains or create
losses.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Generation Portfolios, Inc.--Aetna Legacy VP
Investment Objective
Seeks to provide total return consistent with preservation of capital.
Policies
Designed for investors primarily seeking total return consistent with capital
preservation who generally have an investment horizon exceeding five years and
who have a low level of risk tolerance. Under normal market conditions,
allocates assets among several classes of equities, fixed-income securities,
and money market instruments. The investment adviser has instituted both a
benchmark percentage allocation and a fund level range allocation for each
asset class. Asset allocation may vary from the benchmark allocation (within
the permissible range) based on the investment adviser's ongoing evaluation of
the expected returns and risks of each asset class relative to other classes.
May invest up to 15% of total assets in high-yield bonds.
The benchmark portfolio is 40% equities and 60% fixed income under neutral
market conditions.
Risks
The success of the fund's strategy depends significantly on the investment
adviser's skill in choosing investments and in allocating assets among the
different investment classes. Principal risks are those generally attributable
to stock and bond investing. For stock investments, risks include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile. Risks associated with real estate securities include
periodic declines in the value of real estate, generally, or in the rents and
other income generated by real estate. For bonds, generally, when interest
rates rise, bond prices fall. Economic and market conditions may cause issuers
to default or go bankrupt. Values of high-yield bonds are even more sensitive
to economic and market conditions than other bonds. Prices of mortgage-related
securities, in addition to being sensitive to changes in interest rates, also
are sensitive to changes in the prepayment patterns on the underlying
instruments. Foreign securities have additional risks. Some foreign securities
tend to be less liquid and more volatile than their U.S. counterparts. In
addition, accounting standards and market regulations tend to be less
standardized. These risks are usually higher for securities of companies in
emerging markets. Securities of foreign companies may be denominated in foreign
currency. Exchange rate fluctuations may reduce or eliminate gains or create
losses.
Investment Adviser: Aeltus Investment Management, Inc.
40
<PAGE>
Fidelity Variable Insurance Products Fund--Equity-Income Portfolio
Investment Objective
Seeks reasonable income. Also considers the potential for capital appreciation.
Seeks a yield which exceeds the composite yield on the securities comprising
the S&P 500.
Policies
Normally invests at least 65% of total assets in income-producing equity
securities. May also invest in other types of equity securities and debt
securities, including lower-quality debt securities. May invest in securities
of both foreign and domestic issuers. Emphasis on above-average
income-producing equity securities tends to lead to investments in large cap
"value" stocks. In making investment decisions, the investment adviser relies
on fundamental analysis of each issuer and its potential for success in light
of its current financial condition, its industry position, and economic and
market conditions. May use various techniques, such as buying and selling
futures contracts, to increase or decrease exposure to changing security
prices, or other factors that affect security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Debt securities have
varying levels of sensitivity to changes in interest rates. In general, the
price of a debt security can fall when interest rates rise. Securities with
longer maturities and mortgage securities can be more sensitive to interest
rate changes. Foreign investments, especially those in emerging markets, can be
more volatile and potentially less liquid than U.S. investments due to
increased risks of adverse issuer, political, regulatory, market or economic
developments. Lower-quality debt securities (those of less than
investment-grade quality) can be more volatile due to increased sensitivity to
adverse issuer, political, regulatory, market or economic developments.
Lower-quality debt securities involve greater risk of default or price changes
due to changes in the credit quality of the issuer. "Value" stocks can react
differently to issuer, political, market and economic developments than the
market as a whole and other types of stocks. "Value" stocks may not ever
realize their full value.
Investment Adviser: Fidelity Management & Research Company
Fidelity Variable Insurance Products Fund--Growth Portfolio
Investment Objective
Seeks capital appreciation.
Policies
Normally invests primarily in common stocks of companies the investment adviser
believes have above-average growth potential. Companies with high growth
potential tend to be companies with higher than average price/
earning (P/E) ratios and are often called "growth" stocks. May invest in
securities of both foreign and domestic issuers. In making investment
decisions, the investment adviser relies on fundamental analysis of each issuer
and its potential for success in light of its current financial condition, its
industry position, and economic and market conditions. May use various
techniques, such as buying and selling futures contracts, to increase or
decrease exposure to changing security prices, or other factors that affect
security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Foreign investments,
especially those in emerging markets, can be more volatile and potentially less
liquid than U.S. investments due to increased risks of adverse issuer,
political, regulatory, market or economic developments. "Growth" stocks tend to
be sensitive to changes in their earnings and more volatile than other types of
stocks.
Investment Adviser: Fidelity Management & Research Company
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<PAGE>
Fidelity Variable Insurance Products Fund--Overseas Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
Normally invests at least 65% of total assets in foreign securities, primarily
in common stocks. Investments are allocated across countries and regions, with
consideration given to the size of the market in each country and region
relative to the size of the international market as a whole. In making
investment decisions, the investment adviser relies on fundamental analysis of
each issuer and its potential for success in light of its current financial
condition, its industry position, and economic and market conditions. May use
various techniques, such as buying and selling futures contracts, to increase
or decrease exposure to changing security prices or other factors that affect
security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Debt securities have
varying levels of sensitivity to changes in interest rates. In general, the
price of a debt security can fall when interest rates rise. Securities with
longer maturities and mortgage securities can be more sensitive to interest
rate changes. Foreign investments, especially those in emerging markets, can be
more volatile and potentially less liquid than U.S. investments due to
increased risks of adverse issuer, political, regulatory, market or economic
developments.
Investment Adviser: Fidelity Management & Research Company
Fidelity Variable Insurance Products Fund II--Contrafund Portfolio
Investment Objective
Seeks long-term capital appreciation.
Policies
Normally invests primarily in common stocks of companies whose value the
investment adviser believes is not fully recognized by the public. May invest
in securities of both foreign and domestic issuers. May tend to buy "growth"
stocks or "value" stocks, or a combination of both types. In making investment
decisions, the investment adviser relies on fundamental analysis of each issuer
and its potential for success in light of its current financial condition, its
industry position, and economic and market conditions. May use various
techniques, such as buying and selling futures contracts, to increase or
decrease exposure to changing security prices, interest rates or other factors
that affect security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Debt securities have
varying levels of sensitivity to changes in interest rates. In general, the
price of a debt security can fall when interest rates rise. Securities with
longer maturities and mortgage securities can be more sensitive to interest
rate changes. Foreign investments, especially those in emerging markets, can be
more volatile and potentially less liquid than U.S. investments due to
increased risks of adverse issuer, political, regulatory, market or economic
developments. "Growth" stocks tend to be sensitive to changes in their earnings
and more volatile than other types of stocks. "Value" stocks can react
differently to issuer, political, market and economic developments than the
market as a whole and other types of stocks. "Value" stocks may not ever
realize their full value.
Investment Adviser: Fidelity Management & Research Company
42
<PAGE>
Janus Aspen Series--Aggressive Growth Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
A nondiversified portfolio that invests primarily in common stocks selected for
their growth potential and normally invests at least 50 percent of its equity
assets in medium-sized companies. Medium-sized companies are those whose market
capitalizations at the time of investment fall within the range of companies in
the Standard and Poor's (S&P) MidCap 400 Index. The market capitalizations
within the Index will vary, but as of December 31, 1998, they ranged from
approximately $142 million to $73 billion. May at times hold substantial
positions in cash or similar investments.
Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease
in response to the activities of an individual company or in response to
general market and/or economic conditions. In addition, a nondiversified
portfolio has the ability to take larger positions in a smaller number of
issuers. Because the appreciation or depreciation of a single stock may have a
greater impact on the net asset value of a nondiversified portfolio, its share
price can be expected to fluctuate more than a diversified portfolio.
Performance may also be affected by risks specific to certain types of
investments, such as foreign securities, derivative investments, non-investment
grade debt securities (high-yield/high-risk securities or "junk" bonds) or
companies with relatively small market capitalizations. Smaller or newer
companies may suffer more significant losses as well as realize more
substantial growth than larger or more established issuers. Investments in such
companies tend to be more volatile and somewhat more speculative. Issues
associated with investing in foreign securities include currency risk,
political and economic risk, regulatory risk, market risk and transaction
costs. High-yield/high-risk securities are generally more dependent on the
ability of the issuer to meet interest and principal payments (i.e., credit
risk). They are more vulnerable to real or perceived economic changes,
political changes or other adverse developments specific to the issuer.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series--Balanced Portfolio
Investment Objective
Seeks long-term capital growth, consistent with preservation of capital and
balanced by current income.
Policies
Normally invests 40-60 percent of its assets in securities selected primarily
for their growth potential and 40-60 percent of its assets in securities
selected primarily for their income potential. Will normally invest at least 25
percent of its assets in fixed-income securities. Assets may shift between the
growth and income components of the Portfolio based on the portfolio manager's
analysis of relevant market, financial and economic conditions. May at times
hold substantial positions in cash or similar investments.
Risks
Because the Portfolio may invest a significant portion of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease
in response to the activities of an individual company or in response to
general market and/or economic conditions. The income component of the
Portfolio's holdings includes fixed-income securities which generally will
decrease in value when interest rates rise. Another risk associated with
fixed-income securities is the risk that an issuer of a bond will be unable to
make principal and interest payments when due (i.e. credit risk). Performance
may also be affected by risks specific to certain types of investments, such as
foreign securities, derivative investments, non-investment grade debt
securities (high-yield/high-risk securities or "junk" bonds) or companies with
relatively small market capitalizations. Smaller or newer companies may suffer
more significant losses as well as realize more substantial growth than larger
or more established issuers. Investments in such companies tend to be more
volatile and somewhat more speculative. Issues associated with investing in
foreign securities include currency risk, political and economic risk,
regulatory risk, market risk and transaction costs. High-yield/high-risk
43
<PAGE>
securities are generally more susceptible to credit risk. They are more
vulnerable to real or perceived economic changes, political changes or other
adverse developments specific to the issuer.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series--Flexible Income Portfolio
Investment Objective
Seeks to obtain maximum total return, consistent with the preservation of
capital.
Policies
Invests primarily in a wide variety of income-producing securities such as
corporate bonds and notes, government securities and preferred stock. Will
invest at least 80 percent of its assets in income-producing securities. May
own an unlimited amount of high-yield/high-risk securities ("junk bonds") which
may be a big part of the portfolio. May at times hold substantial positions in
cash or similar investments.
Risks
Because the Portfolio invests substantially all of its assets in fixed-income
securities, it is subject to risks such as credit or default risks or decreased
value due to interest rate increases. Generally, a fixed-income security will
increase in value when interest rates fall and decrease in value when interest
rates rise. Performance may also be affected by risks specific to certain types
of investments, such as foreign securities, derivative investments,
non-investment grade debt securities (high-yield/high-risk securities or "junk"
bonds) or companies with relatively small market capitalizations. Smaller or
newer companies may suffer more significant losses as well as realize more
substantial growth than larger or more established issuers. Investments in such
companies tend to be more volatile and somewhat more speculative. Issues
associated with investing in foreign securities include currency risk,
political and economic risk, regulatory risk, market risk and transaction
costs. High-yield/high-risk securities are generally more dependent on the
ability of the issuer to meet interest and principal payments (i.e., credit
risk). They are more vulnerable to real or perceived economic changes,
political changes or other adverse developments specific to the issuer.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series--Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the preservation
of capital.
Policies
Generally invests primarily in common stocks of larger, more established
companies selected for their growth potential, although it can invest in
companies of any size. May at times hold substantial positions in cash or
similar investments.
Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease
in response to the activities of an individual company or in response to
general market and/or economic conditions. Performance may also be affected by
risks specific to certain types of investments, such as foreign securities,
derivative investments, non-investment grade debt securities (high-yield/
high-risk securities or "junk" bonds) or companies with relatively small market
capitalizations. Smaller or newer companies may suffer more significant losses
as well as realize more substantial growth than larger or more established
issuers. Investments in such companies tend to be more volatile and somewhat
more speculative. Issues associated with investing in foreign securities
include currency risk, political and economic risk, regulatory risk, market
risk and transaction costs. High-yield/high-risk securities are generally more
dependent on the ability of the issuer to meet interest and principal payments
(i.e., credit risk). They are more vulnerable to real or perceived economic
changes, political changes or other adverse developments specific to the
issuer.
Investment Adviser: Janus Capital Corporation
44
<PAGE>
Janus Aspen Series--Worldwide Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the preservation
of capital.
Policies
Invests primarily in common stocks of companies of any size throughout the
world. Normally invests in issuers from at least five different countries,
including the United States. May at times invest in fewer than five countries
or even in a single country. May hold substantial positions in cash or similar
investments.
Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease
in response to the activities of an individual company or in response to
general market and/or economic conditions. Performance may also be affected by
risks specific to certain types of investments, such as foreign securities,
derivative investments, non-investment grade debt securities (high-yield/
high-risk securities or "junk" bonds) or companies with relatively small market
capitalizations. Smaller or newer companies may suffer more significant losses
as well as realize more substantial growth than larger or more established
issuers. Investments in such companies tend to be more volatile and somewhat
more speculative. Issues associated with investing in foreign securities
include currency risk, political and economic risk, regulatory risk, market
risk and transaction costs. High-yield/high-risk securities are generally more
dependent on the ability of the issuer to meet interest and principal payments
(i.e., credit risk). They are more vulnerable to real or perceived economic
changes, political changes or other adverse developments specific to the
issuer.
Investment Adviser: Janus Capital Corporation
Portfolio Partners MFS Emerging Equities Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
Invests, under normal market conditions, at least 80% of total assets in common
stocks and related securities, such as preferred stock, convertible securities
and depositary receipts, of emerging growth companies. Emerging growth
companies are companies believed to be either early in their life cycle but
which have the potential to become major enterprises, or major enterprises
whose rates of earnings growth are expected to accelerate. Investments may
include securities traded in the over-the-counter markets.
May also invest in foreign securities and may have exposure to foreign
currencies through its investment in these securities, its direct holdings of
foreign currencies or through its use of foreign currency exchange contracts
for the purchase or sale of a fixed quantity of foreign currency at a future
date.
Risks
Investment in the portfolio is subject to the following risks:
o Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security.
o Emerging Growth Risk: The portfolio's performance is particularly sensitive
to changes in the value of emerging growth companies. Investments in emerging
growth companies may be subject to more abrupt or erratic market movements and
may involve greater risks than investments in other companies.
o Over the Counter Risk: Equity securities that are traded over the counter may
be more volatile than exchange listed securities, and the portfolio may
experience difficulty in purchasing or selling these securities at a fair
price.
o Foreign Markets Risk: Investment in foreign securities involves risks related
to political, social and economic developments abroad. These risks result from
differences between the regulations to which U.S. and foreign issuers and
Markets are subject.
45
<PAGE>
o Currency Risk: The portfolio's exposure to foreign currencies may cause the
value of the portfolio to decline if the U.S. dollar strengthens against these
currencies or if foreign governments intervene in the currency markets.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Massachusetts Financial Services Company
Portfolio Partners MFS Research Growth Portfolio
Investment Objective
Seeks long-term growth of capital and future income.
Policies
Invests primarily (at least 65% of total assets) in common stocks and related
securities, such as preferred stock, convertible securities and depositary
receipts. Focuses on companies believed to have favorable prospects for
long-term growth, attractive valuations based on current and expected earnings
or cash flow, dominant or growing market share and superior management. May
invest in companies of any size. Investments may also include securities traded
on securities exchanges or in the over-the-counter markets.
May invest in foreign securities and may have exposure to foreign currencies
through its investment in these securities, its direct holdings of foreign
currencies or through its use of foreign currency exchange contracts for the
purchase or sale of a fixed quantity of foreign currency at a future date.
Risks
Investment in the portfolio is subject to the following risks:
o Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security. In
addition, securities of growth companies may be more volatile because such
companies usually invest a high portion of their earnings in their businesses
and may lack the dividends of value companies, which can cushion the security
prices in a declining market.
o Over-the-Counter Risk: Equity securities that are traded over-the-counter may
be more volatile than exchange-listed stocks, and the portfolio may
experience difficulty in purchasing or selling these securities at a fair
price.
o Foreign Markets Risk: Investment in foreign securities involves additional
risks relating to political, social and economic developments abroad. Other
risks from these investments result from the differences between the
regulations to which U.S. and foreign issuers and markets are subject.
o Currency Risk: The portfolio's exposure to foreign currencies may cause the
value of the portfolio to decline if the U.S. dollar strengthens against these
currencies or if foreign governments intervene in the currency markets.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Massachusetts Financial Services Company
Portfolio Partners MFS Value Equity Portfolio
Investment Objectives
Seeks capital appreciation
Policies
Invests primarily (at least 65% of total assets) in common stocks and related
securities, such as preferred stock, convertible securities and depositary
receipts. Focuses on companies believed to have favorable growth prospects and
attractive valuations based on current and expected earnings or cash flow.
Investments may include securities traded in the over-the-counter markets.
May invest in foreign securities (including emerging market securities) and may
have exposure to foreign currencies through its investment in these securities,
its direct holdings of foreign currencies or through its use of
46
<PAGE>
foreign currency exchange contracts for the purchase or sale of a fixed
quantity of a foreign currency at a future date.
Also may invest in debt securities issued by both U.S. and foreign companies,
including non-investment grade debt securities.
Risks
Investment in the portfolio is subject to the following risks:
o Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security. In
addition, securities of growth companies may be more volatile because such
companies usually invest a high portion of their earnings in their businesses
and may lack the dividends of value companies, which can cushion the security
prices in a declining market.
o Over the Counter Risk: Equity securities that are traded over the counter may
be more volatile than exchange listed securities, and the portfolio may
experience difficulty in purchasing or selling these securities at a fair
price.
o Foreign Markets Risk: The portfolio's investment in foreign securities
involves additional risks relating to political, social and economic
developments abroad. Other risks from these investments result from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject.
o Emerging Markets Risk: Emerging markets are generally defined as countries in
the initial stages of their industrialization cycles with low per capita
income. Investments in emerging markets securities involve all of the risks of
investment in foreign securities, and also have additional risks.
o Currency Risk: The portfolio's exposure to foreign currencies may cause the
value of the portfolio to decline in the event that the U.S. dollar
strengthens against these currencies, or in the event that foreign governments
intervene in the currency markets.
o Interest Rate Risk: The portfolio's investment in debt securities involves
risks relating to interest rate movement. If interest rates go up, the value
of debt securities held by the portfolio will decline.
o Credit Risk: The portfolio's investment in non-investment grade debt
securities involves credit risk because issuers of non-investment grade
securities are more likely to have difficulty making timely payments of
interest or principal.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Massachusetts Financial Services Company
Portfolio Partners Scudder International Growth Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
Invests primarily (at least 65% of total assets) in the equity securities of
foreign companies believed to have high growth potential. Normally invests in
securities of at least three different countries other than the U.S. Focuses on
issuers located primarily in Europe, Latin America, and the emerging markets of
the Pacific Basis and Japan, but also may invest in select issues from
elsewhere outside the U.S. Will invest in securities in both developed and
developing markets. Seeks to invest in those companies believed to be best able
to capitalize on the growth and changes taking place within and between various
regions of the world. Typically, these are companies with leading or rapidly
developing business franchises, strong financial positions, and high quality
management capable of defining and implementing strategies to take advantage of
local, regional or global markets.
Also may invest in debt securities issued by both U.S. and foreign companies,
including non-investment grade debt securities.
Risks
Investment in the portfolio is subject to the following risks:
47
<PAGE>
o Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security. In
addition, securities of growth companies may be more volatile because such
companies usually invest a high portion of their earnings in their businesses
and may lack the dividends of value companies, which can cushion the security
prices in a declining market.
o Foreign Markets Risk: The portfolio's investment in foreign securities
involves additional risks relating to political, social and economic
developments abroad. Other risks from these investments result from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject.
o Currency Risk: The portfolio's exposure to foreign currencies may cause the
value of the portfolio to decline in the event that the U.S. dollar
strengthens against these currencies, or in the event that foreign governments
intervene in the currency markets.
o Emerging Growth Risk: The portfolio's performance is particularly sensitive
to changes in the value of emerging growth companies. Investments in emerging
growth companies may be subject to more abrupt or erratic market movements and
may involve greater risks than investments in other companies.
o Interest Rate Risk: The portfolio's investment in debt securities involves
risks relating to interest rate movement. If interest rates go up, the value
of debt securities held by the portfolio will decline.
o Credit Risk: The portfolio's investment in non-investment grade debt
securities involves credit risk because issuers of non-investment grade
securities are more likely to have difficulty making timely payments of
interest or principal.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Scudder Kemper Investments, Inc.
Portfolio Partners T. Rowe Price Growth Equity Portfolio
Investment Objective
Seeks long-term capital growth, and, secondarily, increasing dividend income.
Policies
Invests primarily (at least 65% of total assets) in the common stocks of a
diversified group of growth companies. The subadviser seeks companies with a
lucrative niche in the economy that it believes will give them the ability to
sustain earnings momentum even during times of slow economic growth. The
subadviser believes that when a company's earnings grow faster than both
inflation and the overall economy, the market will eventually reward it with a
higher stock price.
May invest in foreign securities and may have exposure to foreign currencies
through its investment in these securities, its direct holdings of foreign
currencies or through its use of foreign currency exchange contracts for the
purchase or sale of a fixed quantity of foreign currency at a future date.
Risks
Investment in the portfolio is subject to the following risks:
o Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security. In
addition, securities of growth companies may be more volatile because such
companies usually invest a high portion of their earnings in their businesses
and may lack the dividends of value companies, which can cushion the security
prices in a declining market.
o Foreign Markets Risk: The portfolio's investment in foreign securities
involves additional risks relating to political, social and economic
developments abroad. Other risks from these investments result from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject.
o Currency Risk: The portfolio's exposure to foreign currencies may cause the
value of the portfolio to decline in the event that the U.S. dollar
strengthens against these currencies, or in the event that foreign governments
intervene in the currency markets.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser: T.
Rowe Price Associates, Inc.
48
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Appendix III
Condensed Financial Information
- --------------------------------------------------------------------------------
TABLE I
FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 1.25%
(Selected data for accumulation units outstanding throughout each period)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the periods in
the ten-year period ended December 31, 1998 (as applicable), is derived from
the financial statements of the separate account, which have been audited by
KPMG LLP, independent auditors. The financial statements and the independent
auditors' report thereon for the year ended December 31, 1998 are included in
the Statement of Additional Information.
<TABLE>
<CAPTION>
1998 1997 1996 1995
------------- -------------- -------------- -------------------
<S> <C> <C> <C> <C>
AETNA ASCENT VP
Value at beginning of period $ 15.392 $ 12.999 $ 10.652 $ 10.000(1)
Value at end of period $ 15.855 $ 15.392 $ 12.999 $ 10.652
Number of accumulation units
outstanding at end of period 274,115 317,579 99,589 16,791
AETNA BALANCED VP, INC.
Value at beginning of period $ 18.989 $ 15.698 $ 13.803 $ 10.971
Value at end of period $ 21.929 $ 18.989 $ 15.698 $ 13.803
Number of accumulation units
outstanding at end of period 2,929,720 3,174,738 3,885,730 6,430,772
AETNA BOND VP
Value at beginning of period $ 13.361 $ 12.493 $ 12.212 $ 10.457
Value at end of period $ 14.270 $ 13.361 $ 12.493 $ 12.212
Number of accumulation units
outstanding at end of period 1,129,589 1,168,988 1,947,629 4,853,662
AETNA CROSSROADS VP
Value at beginning of period $ 14.432 $ 12.430 $ 10.594 $ 10.000(1)
Value at end of period $ 15.095 $ 14.432 $ 12.430 $ 10.594
Number of accumulation units
outstanding at end of period 218,649 175,559 74,128 16,953
AETNA GROWTH AND
INCOME VP
Value at beginning of period $ 22.028 $ 17.173 $ 13.972 $ 10.698
Value at end of period $ 24.907 $ 22.028 $ 17.173 $ 13.972
Number of accumulation units
outstanding at end of period 9,491,619 10,689,845 15,372,944 30,554,957
AETNA LEGACY VP
Value at beginning of period $ 13.317 $ 11.776 $ 10.443 $ 10.000(1)
Value at end of period $ 14.064 $ 13.317 $ 11.776 $ 10.443
Number of accumulation units
outstanding at end of period 197,742 133,741 25,977 2,222
AETNA MONEY MARKET VP
Value at beginning of period $ 11.930 $ 11.453 $ 11.007 $ 10.509
Value at end of period $ 12.425 $ 11.930 $ 11.453 $ 11.007
Number of accumulation units
outstanding at end of period 1,146,661 974,714 1,984,269 4,354,272
FIDELITY VIP
EQUITY-INCOME
PORTFOLIO
Value at beginning of period $ 15.784 $ 12.475 $ 11.054 $ 10.000(1)
Value at end of period $ 17.400 $ 15.784 $ 12.475 $ 11.054
Number of accumulation units
outstanding at end of period 298,921 328,562 208,072 294,244
FIDELITY VIP GROWTH
PORTFOLIO
Value at beginning of period $ 13.904 $ 11.402 $ 10.066 $ 10.000(1)
Value at end of period $ 19.155 $ 13.904 $ 11.402 $ 10.066
Number of accumulation units
outstanding at end of period 324,558 229,060 199,720 288,576
FIDELITY VIP OVERSEAS
PORTFOLIO
Value at beginning of period $ 12.381 $ 11.238 $ 10.052 $ 10.000(1)
Value at end of period $ 13.786 $ 12.381 $ 11.238 $ 10.052
Number of accumulation units
outstanding at end of period 54,226 51,780 38,994 33,813
FIDELITY VIP II
CONTRAFUND
PORTFOLIO
Value at beginning of period $ 15.374 $ 12.540 $ 10.468 $ 10.000(1)
Value at end of period $ 19.735 $ 15.374 $ 12.540 $ 10.468
Number of accumulation units
outstanding at end of period 488,102 465,699 273,189 379,862
<CAPTION>
1994 1993 1992 1991 1990 1989
-------------- ---------- ---------------- ------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
AETNA ASCENT VP
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
AETNA BALANCED VP, INC.
Value at beginning of period $ 11.164 $ 10.286 $ 12.717(2) $ 10.882 $10.423 $ 10.000(3)
Value at end of period $ 10.971 $ 11.164 $ 10.286 $ 12.717 $10.882 $ 10.423
Number of accumulation units
outstanding at end of period 3,541,703 318,711 6,537 1,324,822 984,798 639,219
AETNA BOND VP
Value at beginning of period $ 11.006 $ 10.160 $ 37.815(4) $ 32.066 $29.752 $ 26.291
Value at end of period $ 10.457 $ 11.006 $ 10.160 $ 37.815 $32.066 $ 29.752
Number of accumulation units
outstanding at end of period 1,988,960 166,913 4,196 427,893 358,454 366,176
AETNA CROSSROADS VP
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
AETNA GROWTH AND
INCOME VP
Value at beginning of period $ 10.940 $ 10.378 $ 84.249(5) $ 67.496 $66.174 $ 51.900
Value at end of period $ 10.698 $ 10.940 $ 10.378 $ 84.249 $67.496 $ 66.174
Number of accumulation units
outstanding at end of period 11,117,383 879,670 3,107 908,777 810,126 831,547
AETNA LEGACY VP
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
AETNA MONEY MARKET VP
Value at beginning of period $ 10.223 $ 10.031 $ 34.122(6) $ 32.431 $30.285 $ 28.029
Value at end of period $ 10.509 $ 10.223 $ 10.031 $ 34.122 $32.431 $ 30.285
Number of accumulation units
outstanding at end of period 1,822,449 90,782 2,808 548,425 722,438 653,619
FIDELITY VIP
EQUITY-INCOME
PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
FIDELITY VIP GROWTH
PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
FIDELITY VIP OVERSEAS
PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
FIDELITY VIP II
CONTRAFUND
PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
</TABLE>
49
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
------------- ---------------- ----------
<S> <C> <C> <C>
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period $ 15.410 $ 13.850 $ 12.992
Value at end of period $ 20.433 $ 15.410 $ 13.850
Number of accumulation units
outstanding at end of period 512,154 469,230 590,904
JANUS ASPEN BALANCED
PORTFOLIO
Value at beginning of period $ 14.990 $ 12.431 $ 10.835
Value at end of period $ 19.880 $ 14.990 $ 12.431
Number of accumulation units
outstanding at end of period 334,508 193,429 74,184
JANUS ASPEN FLEXIBLE
INCOME PORTFOLIO
Value at beginning of period $ 14.393 $ 13.040 $ 12.094
Value at end of period $ 15.509 $ 14.393 $ 13.040
Number of accumulation units
outstanding at end of period 85,517 109,812 96,128
JANUS ASPEN GROWTH
PORTFOLIO
Value at beginning of period $ 15.414 $ 12.716 $ 10.870
Value at end of period $ 20.651 $ 15.414 $ 12.716
Number of accumulation units
outstanding at end of period 217,310 179,226 132,465
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period $ 16.745 $ 13.880 $ 10.893
Value at end of period $ 21.320 $ 16.745 $ 13.880
Number of accumulation units
outstanding at end of period 1,069,704 953,522 520,275
PORTFOLIO PARTNERS
MFS EMERGING EQUITIES
PORTFOLIO
Value at beginning of period $ 15.219 $ 15.411(8)
Value at end of period $ 19.489 $ 15.219
Number of accumulation units
outstanding at end of period 695,813 742,913
PORTFOLIO PARTNERS
MFS RESEARCH GROWTH
PORTFOLIO
Value at beginning of period $ 12.744 $ 12.995(8)
Value at end of period $ 15.481 $ 12.744
Number of accumulation units
outstanding at end of period 605,271 664,979
PORTFOLIO PARTNERS
MFS VALUE EQUITY
PORTFOLIO
Value at beginning of period $ 21.343 $ 21.038(8)
Value at end of period $ 26.713 $ 21.343
Number of accumulation units
outstanding at end of period 303,746 296,540
PORTFOLIO PARTNERS
SCUDDER INTERNATIONAL
GROWTH PORTFOLIO
Value at beginning of period $ 17.903 $ 17.682(8)
Value at end of period $ 21.057 $ 17.903
Number of accumulation units
outstanding at end of period 360,392 411,600
PORTFOLIO PARTNERS T.
ROWE PRICE GROWTH
EQUITY PORTFOLIO
Value at beginning of period $ 14.400 $ 14.112(8)
Value at end of period $ 18.146 $ 14.400
Number of accumulation units
outstanding at end of period 287,914 231,297
<CAPTION>
1995 1994 1993 1992 1991 1990 1989
---------------- ---------------- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period $ 10.319 $ 10.000(7)
Value at end of period $ 12.992 $ 10.319
Number of accumulation units
outstanding at end of period 723,839 131,702
JANUS ASPEN BALANCED
PORTFOLIO
Value at beginning of period $ 10.000(1)
Value at end of period $ 10.835
Number of accumulation units
outstanding at end of period 7,772
JANUS ASPEN FLEXIBLE
INCOME PORTFOLIO
Value at beginning of period $ 9.886 $ 10.000(7)
Value at end of period $ 12.094 $ 9.886
Number of accumulation units
outstanding at end of period 84,048 15,893
JANUS ASPEN GROWTH
PORTFOLIO
Value at beginning of period $ 10.000(1)
Value at end of period $ 10.870
Number of accumulation units
outstanding at end of period 26,022
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period $ 10.000(1)
Value at end of period $ 10.893
Number of accumulation units
outstanding at end of period 227,582
PORTFOLIO PARTNERS
MFS EMERGING EQUITIES
PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
PORTFOLIO PARTNERS
MFS RESEARCH GROWTH
PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
PORTFOLIO PARTNERS
MFS VALUE EQUITY
PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
PORTFOLIO PARTNERS
SCUDDER INTERNATIONAL
GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
PORTFOLIO PARTNERS T.
ROWE PRICE GROWTH
EQUITY PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
</TABLE>
- -----------------
(1) The initial accumulation unit value was established at $10.000 during
August 1995, when the fund became available under the contract.
(2) The accumulation unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the accumulation unit value of the fund was $12.991. On the
date of conversion, additional units were issued so that account values
were not changed as a result of the conversion.
(3) The initial accumulation unit value was established at $10.000 on June 23,
1989, the date on which the fund commenced operations.
50
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
(4) The accumulation unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the accumulation unit value of the fund was $39.496. On the
date of conversion, additional units were issued so that account values
were not changed as a result of the conversion.
(5) The accumulation unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the accumulation unit value of the fund was $85.546. On the
date of conversion, additional units were issued so that account values
were not changed as a result of the conversion.
(6) The accumulation unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the accumulation unit value of the fund was $34.828. On the
date of conversion, additional units were issued so that account values
were not changed as a result of the conversion.
(7) The initial accumulation unit value was established at $10.000 during
October 1994, when the funds were first received in this option.
(8) Funds were first received in this option during November 1997.
51
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
TABLE II
FOR CONTRACTS CONTAINING LIMITS ON FEES
(Selected data for accumulation units outstanding throughout each period)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the periods in
the two-year period ended December 31, 1998 (as applicable), is derived from
the financial statements of the separate account, which have been audited by
KPMG LLP, independent auditors. The financial statements and the independent
auditors' report thereon for the year ended December 31, 1998 are included in
the Statement of Additional Information.
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
<S> <C> <C>
AETNA ASCENT VP
Value at beginning of period $ 15.422 $ 13.943(1)
Value at end of period $ 15.942 $ 15.422
Number of accumulation
units outstanding at
end of period 24,014 23,868
AETNA BALANCED VP, INC.
Value at beginning of period $ 19.016 $ 16.898(1)
Value at end of period $ 22.015 $ 19.016
Number of accumulation
units outstanding at
end of period 452,764 477,504
AETNA BOND VP
Value at beginning of period $ 13.373 $ 12.747(1)
Value at end of period $ 14.304 $ 13.373
Number of accumulation units outstanding at end of period 452,992 489,431
AETNA CROSSROADS VP
Value at beginning of period $ 14.461 $ 13.178(1)
Value at end of period $ 15.179 $ 14.461
Number of accumulation units outstanding at end of period 10,769 10,798
AETNA GROWTH AND INCOME VP
Value at beginning of period $ 22.060 $ 19.527(1)
Value at end of period $ 25.005 $ 22.060
Number of accumulation units outstanding at end of period 3,821,349 4,106,796
AETNA LEGACY VP
Value at beginning of period $ 13.343 $ 12.335(1)
Value at end of period $ 14.141 $ 13.343
Number of accumulation units outstanding at end of period 1,958 2,254
AETNA MONEY MARKET VP
Value at beginning of period $ 11.930 $ 11.654(1)
Value at end of period $ 12.425 $ 11.930
Number of accumulation units outstanding at end of period 505,775 580,412
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $ 15.784 $ 14.017(1)
Value at end of period $ 17.400 $ 15.784
Number of accumulation units outstanding at end of period 13,539 35,342
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $ 13.904 $ 12.498(1)
Value at end of period $ 19.155 $ 13.904
Number of accumulation units outstanding at end of period 24,195 3,029
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $ 15.374 $ 13.535(1)
Value at end of period $ 19.735 $ 15.374
Number of accumulation units outstanding at end of period 14,618 13,675
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $ 15.410 $ 13.806(1)
Value at end of period $ 20.433 $ 15.410
Number of accumulation units outstanding at end of period 24,373 19,818
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $ 14.990 $ 13.554(1)
Value at end of period $ 19.880 $ 14.990
Number of accumulation units outstanding at end of period 6,712 2,819
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $ 14.630(2)
Value at end of period $ 15.509
Number of accumulation units outstanding at end of period 5,158
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $ 15.414 $ 13.985(1)
Value at end of period $ 20.651 $ 15.414
Number of accumulation units outstanding at end of period 1,028 750
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $ 16.745 $ 15.851(1)
Value at end of period $ 21.320 $ 16.745
Number of accumulation units outstanding at end of period 45,971 44,433
</TABLE>
52
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---------- ----------------
<S> <C> <C>
PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period $ 15.219 $ 15.411(3)
Value at end of period $ 19.489 $ 15.219
Number of accumulation units outstanding at end of period 11,330 11,848
PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period $ 12.744 $ 12.995(3)
Value at end of period $ 15.481 $ 12.744
Number of accumulation units outstanding at end of period 148,963 141,582
PORTFOLIO PARTNERS MFS VALUE EQUITY PORTFOLIO
Value at beginning of period $ 21.343 $ 21.038(3)
Value at end of period $ 26.713 $ 21.343
Number of accumulation units outstanding at end of period 9,947 8,563
PORTFOLIO PARTNERS SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period $ 17.903 $ 17.682(3)
Value at end of period $ 21.057 $ 17.903
Number of accumulation units outstanding at end of period 5,245 3,986
PORTFOLIO PARTNERS T. ROWE PRICE GROWTH EQUITY PORTFOLIO
Value at beginning of period $ 14.400 $ 14.112(3)
Value at end of period $ 18.146 $ 14.400
Number of accumulation units outstanding at end of period 4,730 3,310
</TABLE>
- -----------------
(1) Funds were first received in this option during June 1997.
(2) Funds were first received in this option during February 1998.
(3) Funds were first received in this option during November 1997.
53
