Contract Prospectus - May 1, 2000
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The Funds
o Aetna Balanced VP, Inc.
o Aetna Income Shares d/b/a Aetna Bond VP
o Aetna Growth VP
o Aetna Variable Fund d/b/a Aetna Growth and Income VP
o Aetna Index Plus Large Cap VP
o Aetna International VP
o Aetna Variable Encore Fund d/b/a Aetna Money Market VP
o Aetna Real Estate Securities VP*
o Aetna Small Company VP
o Aetna Technology VP
o AIM V.I. Capital Appreciation Fund
o AIM V.I. Growth Fund
o AIM V.I Growth and Income Fund
o AIM V.I. Value Fund
o Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio
o Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio
o Fidelity Variable Insurance Products Fund (VIP) High Income Portfolio
o Fidelity Variable Insurance Products Fund II (VIP II) Contrafund[RegTM]
Portfolio
o Janus Aspen Aggressive Growth Portfolio
o Janus Aspen Balanced Portfolio
o Janus Aspen Growth Portfolio
o Janus Aspen Worldwide Growth Portfolio
o MFS Total Return Series
o Oppenheimer Aggressive Growth Fund/VA
o Oppenheimer Main Street Growth & Income Fund/VA
o Oppenheimer Strategic Bond Fund/VA
o Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (formerly
PPI MFS Value Equity Portfolio)
o Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio
o Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio
o Portfolio Partners, Inc. (PPI) Scudder International Growth Portfolio
[End sidebar]
The Contract. The contract described in this prospectus is a group or individual
Aetna Variable Annuity deferred variable annuity contract issued by Aetna Life
Insurance and Annuity Company (the Company, we, us). It is issued to you, the
contract holder, as either a nonqualified deferred annuity, including contracts
offered to a custodian for an Individual Retirement Account as described in
Section 408(a) of the Internal Revenue Code of 1986, as amended (Tax Code); a
qualified individual retirement annuity (IRA); a qualified Roth IRA; or as a
qualified contract for use with certain employer sponsored retirement plans.
The Contract is not available as a SIMPLE IRA under Tax Code Section 408(p).
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Why Reading this Prospectus Is Important. This prospectus contains facts about
the contract and its investment options that you should know before purchasing.
This information will help you decide if the contract is right for you. Please
read this prospectus carefully.
Table of Contents . . . page 3
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Investment Options. The contract offers variable investment options and fixed
interest options. When we establish your account you instruct us to direct
account dollars to any of the available 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 fund. You do not invest
directly in or hold shares of the funds.
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 on page 20, in Appendix
III--Description of Underlying Funds and in each fund prospectus. Read this
prospectus in conjunction with the fund prospectuses, and retain the
prospectuses for future reference.
Getting Additional Information. You may obtain the May 1, 2000, Statement of
Additional Information (SAI) about the separate account by indicating your
request on your application or calling us at 1-800-238-6219. You may also obtain
an SAI for any of the funds by calling that number. The SEC also makes available
to the public reports and information about the separate account and the funds.
Certain reports and information, including this prospectus and SAI, are
available on the EDGAR Database on the Securities and Exchange Commission (SEC)
web site, www.sec.gov, or at the SEC Public Reference Room in Washington, D.C.
You may call 1-202-942-8090 to get information about the operations of the
Public Reference Room. You may obtain copies of reports and other information
about the separate account and the funds, after paying a duplicating fee, by
sending an e-mail request to [email protected] or by writing to the SEC Public
Reference Section, Washington, D.C. 20549-0102. The SAI table of contents is
listed on page 60 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 than that contained in
this prospectus.
*Effective May 15, 2000, transfers or deposits are not allowed into the
subaccount investing in this fund except those made pursuant to standing
instructions (e.g., dollar cost averaging, account rebalancing) in effect prior
to this date. See "Important Information Regarding the Aetna Real Estate
Securities VP Subaccount."
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Prospectus - May 1, 2000 (continued)
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Fixed Interest Options.
> ALIAC Guaranteed Account (the Guaranteed Account)
> Fixed Account
Except as specifically mentioned, this prospectus describes only the investment
options offered through the separate account. However, we describe the fixed
interest options in appendices to this prospectus. There is also a separate
Guaranteed Account prospectus.
Availability of Options. Some funds or fixed interest options may be unavailable
through your contract or in your state.
Important Information Regarding the Aetna Real Estate Securities VP Subaccount
Subaccount to be Closed to New Investments. Effective May 15, 2000, the Aetna
Real Estate Securities VP subaccount will no longer be available for new
investments. After that date we will only accept deposits into the subaccount
investing in this fund if they are made pursuant to standing instructions (e.g.,
dollar cost averaging, account rebalancing, etc.) in effect before the close of
business on May 12, 2000.
Fund Shares to be Substituted with Shares of Aetna Money Market VP.
Plan of Substitution. On or before September 1, 2000, subject to applicable
regulatory approvals and the requisite vote of shareholders of the applicable
fund, any existing balance in Aetna Real Estate Securities VP will be invested
in (substituted with) shares of Aetna Money Market VP. You will not incur any
fees or charges as a result of the substitution. In addition, on and after
September 1, 2000, all investment allocations then being directed to the Aetna
Real Estate Securities VP subaccount will be redirected to the Aetna Money
Market VP subaccount. We do not believe that the substitution will create any
tax liability.
Transfer Rights. At any time prior to the date of substitution, you may transfer
your accumulated values from the subaccounts investing in substituted funds into
any other investment option available under your contract and no transfer fees
or other charges will be imposed. From and after the date of substitution, you
may, if you had values transferred from a subaccount as a result of a
substitution, transfer among any of the remaining investment options in
accordance with the terms of your contract and free of any transfer fees and
charges. Any such transfer will not be counted as one of the free transfers
permitted under your contract, provided that the transfer occurs prior to, or
within 90 days after, the substitution.
Surrender Rights. If you had shares substituted and elect to make a surrender
under the contract (if permitted by applicable tax law) within 30 days after the
date of the substitution, we will waive any early withdrawal charge on amounts
transferred as a result of the substitution. This offer to waive the early
withdrawal charge will not apply to amounts transferred after April 10, 2000
from the other investment options to the Aetna Real Estate Securities VP
subaccount. If you exercise this surrender right, you may incur income tax
liability and a tax penalty. See the "Taxation" section of this prospectus for a
discussion of tax consequences resulting from surrender. You should seek
qualified tax advice before exercising your surrender rights.
The contract is not a deposit with, obligation of or guaranteed or endorsed by
any bank, nor is it insured by the FDIC. The contract is subject to investment
risk, including the possible loss of the principal amount of your investment.
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
Contract Overview ........................................ 4
Contract Design
Contract Facts
Questions: Contacting the Company (sidebar)
Sending Forms and Written Requests in Good Order (sidebar)
Sending Additional Purchase Payments (sidebar)
Contract Phases: The Accumulation Phase, The Income Phase
</TABLE>
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<TABLE>
<S> <C>
Fee Table .................................. 7
Condensed Financial Information ............ 20
Investment Options ......................... 20
Transfers Among Investment Options ......... 22
Purchase and Rights ........................ 23
Right to Cancel ............................ 26
Transfers Between Option Packages .......... 27
Fees ....................................... 28
Your Account Value ......................... 32
Withdrawals ................................ 35
Systematic Distribution Options ............ 37
Death Benefit .............................. 38
The Income Phase ........................... 43
Taxation ................................... 47
Other Topics ............................... 55
</TABLE>
The Company -- Variable Annuity Account B -- Contract Distribution -- Payment
of Commissions -- Payment Delay or Suspension -- Performance Reporting --
Voting Rights -- Contract Modifications -- Transfer of Ownership: Assignment --
Involuntary Terminations -- Legal Matters and Proceedings
<TABLE>
<S> <C>
Contents of the Statement of Additional Information ......... 60
Appendix I -- ALIAC Guaranteed Account ...................... 61
Appendix II -- Fixed Account ................................ 64
Appendix III -- Description of Underlying Funds ............. 65
Appendix IV -- Condensed Financial Information .............. 82
</TABLE>
3
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Questions: Contacting the Company. To answer your questions, contact your sales
representative or write or call our Home Office at:
Aetna Financial Services
Annuity Services
151 Farmington Avenue
Hartford, CT 06156-1258
1-800-238-6219
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 us or your sales representative 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.
Sending Additional Purchase Payments.
Use one of the following addresses when sending additional purchase payments.
If using the U.S. Postal Service:
ALIAC
Attn: New Business Unit
P.O. Box 30670
Hartford, CT 06150-0670
If using express mail:
Fleet Bank/ALIAC #30670
Lockbox-CT/EH F03E
99 Founders Plaza, 3rd Floor
East Hartford, CT 06108
Express mail packages should not be sent to the P.O. Box address.
[End sidebar]
Contract Overview
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The following is intended as a summary. Please read each section of this
prospectus for additional detail.
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Contract Design
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The contract described in this prospectus is a group or individual deferred
variable annuity contract. It is intended to be a retirement savings vehicle
that offers a variety of investment options to help meet long-term financial
goals. The term "contract" in this prospectus refers to individual contracts and
to certificates issued under group contracts.
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Contract Facts
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Option Packages: There are three option packages available under the contract.
You select an option package at the time of application. Each option package is
distinct. The differences are summarized as follows:
<TABLE>
<CAPTION>
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Option Package I Option Package II Option Package III
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<S> <C> <C> <C> <C> <C> <C>
Mortality and
Expense Risk
Charge(1): 0.80% 1.10% 1.25%
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Death Benefit(2) The greater of: The greatest of: Outside of New In New York:
on Death of the (1) The sum of (1) The sum of York: The greatest of:
Annuitant(3): all purchase all purchase The greatest of: (1) The sum of
payments, payments, (1) The sum of all purchase
adjusted for adjusted for all purchase payments,
amounts amounts payments, adjusted for
withdrawn or withdrawn or adjusted for amounts
applied to an applied to an amounts withdrawn or
income phase income phase withdrawn or applied to an
payment option payment option applied to an income phase
as of the claim as of the claim income phase payment
date; or date; or payment option as
(2) The account (2) The account option as of of the claim
value on the value on the the claim date; date; or
claim date. claim date; or or (2) The account
(3) The "step-up (2) The account value on the
value" on the value on the claim date; or
claim date. claim date; (3) The "step-up
or value" on the
(3) The "step-up claim date.(4)
value" on the
claim date; or
(4) The "roll-up
value" on the
claim date.
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Minimum Initial Non- Non- Non-
Purchase Payment(5): Qualified: Qualified: Qualified: Qualified: Qualified: Qualified:
$15,000 $1,500 $5,000 $1,500 $5,000 $1,500
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Free Withdrawals(6): 10% of your account 10% of your account 10% of your account value each
value each account value each account account year, cumulative to a
year, non-cumulative. year, non-cumulative. maximum 30%.
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Outside
Nursing Home of New In New Outside In New In
Waiver -- Waiver York: York: of New York: Outside of New York:
of Early With- Not Not York: Not New York: Not
drawal Charge(6): Available Available Available Available Available Available
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</TABLE>
(1) See "Fee Table" and "Fees."
(2) See "Death Benefit."
(3) When a contract holder who is not the annuitant dies, the amount of the
death benefit is not the same as shown above under each option package. See
"Death Benefit." Therefore, contract holders who are not also the annuitant
should seriously consider whether Option Packages II and III are suitable
for their circumstances.
(4) For contracts issued in New York, the benefit payable upon the death of the
annuitant under Option Package III is the same as that described under
Option Package II. Therefore, contract holders of contracts issued in New
York should seriously consider whether Option Package III is suitable for
their circumstances.
(5) See "Purchase and Rights."
(6) See "Fees."
4
<PAGE>
Transferability. You may transfer from one option package to another.
> Transfers must occur on an account anniversary.
> A written request for the transfer must be received by us within 60 days of
an account anniversary.
> Certain minimum account values must be met.
See "Transfers Between Option Packages."
Free Look/Right to Cancel. You may cancel your contract within ten days (some
states require more than ten 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. The amount of the death benefit will
depend upon the option package selected. See "Death Benefit." Any death benefit
during the income phase will depend upon the income phase payment option
selected. See "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. In
addition, the Tax Code restricts full and partial withdrawals in some
circumstances. See "Withdrawals." Amounts withdrawn from the Guaranteed Account
may be subject to a market value adjustment. See Appendix I.
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 and Expenses. Certain fees and expenses are deducted from the value of your
contract. The fees and expenses deducted may vary depending upon the option
package you select. See "Fee Table" and "Fees."
Taxation. You will generally not pay taxes on any earnings from the annuity
contract described in this prospectus until they are withdrawn. Tax-qualified
retirement arrangements (e.g., IRAs or 403(b) plans) also defer payment of taxes
on earnings until they are withdrawn. If you are considering funding a
tax-qualified retirement arrangement with an annuity contract, you should know
that the annuity contract does not provide any additional tax deferral of
earnings beyond the tax deferral provided by the tax-qualified retirement
arrangement. However, annuities do provide other features and benefits which may
be valuable to you. You should discuss your decision with your financial
representative.
Taxes will generally be due when you receive a distribution. Tax penalties may
apply in some circumstances. See "Taxation."
5
<PAGE>
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Contract Phases
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[graphic]
Payments to
Your Account
Step 1 (down arrow)
Aetna Life Insurance and Annuity Company
(a) (down arrow) Step 2 (b) (down arrow)
Variable Annuity
Fixed Account B
Interest
Options Variable Investment Options
The Subaccounts
A B Etc.
(down arrow) Step 3 (down arrow)
Mutual Mutual
Fund A Fund B
[end graphic]
I. The Accumulation Phase (accumulating dollars under your contract)
STEP 1: You provide us with your completed application and initial purchase
payment. We establish an account for you and credit that account with your
initial purchase payment.
STEP 2: You direct us to invest your purchase payment in one or more of the
following investment options:
(a) Fixed Interest Options; or
(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 (receiving income phase payments from your contract)
When you want to begin receiving payments from your contract, you may select
from the options available. The contract offers several income phase payment
options (see "The Income Phase"). In general, you may:
> Receive income phase payments for a specified period of time or for life;
> Receive income phase payments monthly, quarterly, semi-annually or
annually;
> Select an income phase payment option that provides for payments to your
beneficiary; or
> Select income phase payments that are fixed or vary depending upon the
performance of the variable investment options you select.
6
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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 the "Fees" section for:
> How, When and Why Fees are Deducted
> Reduction, Waiver and/or Elimination of Certain Fees
> Premium and Other Taxes
[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 payments under the contract. The fees
shown do not reflect any premium tax that may apply.
Maximum Transaction Fees
Early Withdrawal Charge. (As a percentage of payments withdrawn.)
FOR CONTRACTS ISSUED OUTSIDE OF THE STATE OF NEW YORK:
<TABLE>
<CAPTION>
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Contracts Other Than Roth IRA Contracts:
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Early
Years From Receipt Withdrawal
of Purchase Payment Charge
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<S> <C>
Less than 2 7%
2 or more but less than 4 6%
4 or more but less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more 0%
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</TABLE>
<TABLE>
<CAPTION>
Roth IRA Contracts:
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Early
Withdrawal
Completed Account Years Charge
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<S> <C>
Less than 1 5%
1 or more but less than 2 4%
2 or more but less than 3 3%
3 or more but less than 4 2%
4 or more but less than 5 1%
5 or more 0%
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</TABLE>
FOR CONTRACTS ISSUED IN THE STATE OF NEW YORK:
<TABLE>
<CAPTION>
For All Contracts
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Early
Years From Receipt Withdrawal
of Purchase Payment Charge
- ------------------- ----------
<S> <C>
Less than 1 7%
1 or more but less than 2 6%
2 or more but less than 3 5%
3 or more but less than 4 4%
4 or more but less than 5 3%
5 or more but less than 6 2%
6 or more but less than 7 1%
7 or more 0%
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</TABLE>
Annual Maintenance Fee............................................... $30.00(1)
Transfer Charge....................................................... $0.00(2)
(1) The annual maintenance fee will be waived if your account value is $50,000
or greater on the date this fee is due. See "Fees--Annual Maintenance Fee."
(2) During the accumulation phase we currently allow you 12 free transfers each
account year. We reserve the right to charge $10 for each additional
transfer. We currently do not impose this charge. See "Transfers" for
additional information.
7
<PAGE>
Maximum Fees Deducted from Investments in the Separate Account
Amount During the Accumulation Phase
(Daily deductions, equal to the following percentages on an annual basis, from
amounts invested in the subaccounts.)
> Option Package I--
Mortality and Expense Risk Charge 0.80%
Administrative Expense Charge 0.15%
-----
Total Separate Account Expenses 0.95%
=====
> Option Package II--
Mortality and Expense Risk Charge 1.10%
Administrative Expense Charge 0.15%
-----
Total Separate Account Expenses 1.25%
=====
> Option Package III--
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.15%
-----
Total Separate Account Expenses 1.40%
=====
Amount During the Income Phase
(Daily deductions, equal to the following percentages on an annual basis, from
amounts invested in the subaccounts.)
> All Option Packages--
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.00% - 0.25%(3)
----- -----
Total Separate Account Expenses 1.25% - 1.50%
===== =====
(3) We currently do not deduct an administrative expense charge during the
income phase; however, we reserve the right to deduct a daily charge of not
more than 0.25% per year. See "The Income Phase--Charges Deducted."
8
<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. The fund fees are not deducted from account values.
Instead, they are deducted from the value of the fund shares on a daily basis,
which in turn affects the value of each subaccount that purchases fund shares.
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,
1999.
Fund Expense Table
<TABLE>
<CAPTION>
Total Fund Net Fund
Annual Annual
Expenses Expenses
Investment Without Total After
Advisory Other Waivers or Waivers and Waivers
Fund Name Fees(1) Expenses Reductions Reductions or Reductions
- --------- ------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. 0.50% 0.09% 0.59% -- 0.59%
Aetna Bond VP 0.40% 0.09% 0.49% -- 0.49%
Aetna Growth VP(2) 0.60% 0.11% 0.71% 0.00% 0.71%
Aetna Growth and Income VP 0.50% 0.08% 0.58% -- 0.58%
Aetna Index Plus Large Cap VP(2) 0.35% 0.10% 0.45% 0.00% 0.45%
Aetna International VP(2) 0.85% 0.77% 1.62% 0.47% 1.15%
Aetna Money Market VP 0.25% 0.09% 0.34% -- 0.34%
Aetna Real Estate Securities VP(2) 0.75% 0.74% 1.49% 0.54% 0.95%
Aetna Small Company VP(2) 0.75% 0.13% 0.88% 0.00% 0.88%
Aetna Technology VP(2)(3) 0.95% 0.25% 1.20% 0.05% 1.15%
AIM V.I. Capital Appreciation Fund 0.62% 0.11% 0.73% -- 0.73%
AIM V.I. Growth Fund 0.63% 0.10% 0.73% -- 0.73%
AIM V.I. Growth and Income Fund 0.61% 0.16% 0.77% -- 0.77%
AIM V.I. Value Fund 0.61% 0.15% 0.76% -- 0.76%
Fidelity VIP Equity-Income Portfolio(4) 0.48% 0.09% 0.57% -- 0.57%
Fidelity VIP Growth Portfolio(4) 0.58% 0.08% 0.66% -- 0.66%
Fidelity VIP High Income Portfolio(4) 0.58% 0.11% 0.69% -- 0.69%
Fidelity VIP II Contrafund[RegTM] Portfolio(4) 0.58% 0.09% 0.67% -- 0.67%
Janus Aspen Aggressive Growth Portfolio(5) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Balanced Portfolio(5) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Growth Portfolio(5) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Worldwide Growth Portfolio(5) 0.65% 0.05% 0.70% 0.00% 0.70%
MFS Total Return Series(6) 0.75% 0.15% 0.90% 0.00% 0.90%
Oppenheimer Aggressive Growth Fund/VA 0.66% 0.01% 0.67% -- 0.67%
Oppenheimer Main Street Growth & Income
Fund/VA 0.73% 0.05% 0.78% -- 0.78%
Oppenheimer Strategic Bond Fund/VA 0.74% 0.04% 0.78% -- 0.78%
PPI MFS Capital Opportunities Portfolio(7) 0.65% 0.25% 0.90% 0.00% 0.90%
PPI MFS Emerging Equities Portfolio(7) 0.67% 0.13% 0.80% 0.00% 0.80%
PPI MFS Research Growth Portfolio(7) 0.70% 0.15% 0.85% 0.00% 0.85%
PPI Scudder International Growth Portfolio(7) 0.80% 0.20% 1.00% 0.00% 1.00%
</TABLE>
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 Investment Advisory Fees and are not charged to investors. For the AIM
Funds, the reimbursements may be paid out of fund assets in an amount up to
0.25% annually. Any such reimbursements paid from the AIM Funds' assets are
included in the "Other Expenses" column.
9
<PAGE>
(2) The investment adviser is contractually obligated through December 31,
2000 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 fund's "Total Fund Annual Expenses
Without Waivers or Reductions" do not exceed the percentage reflected
under "Net Fund Annual Expenses After Waivers or Reductions."
(3) Aetna Technology VP commenced operations on May 1, 2000. Amounts reflected
in "Other Expenses" and "Total Fund Annual Expenses Without Waivers or
Reductions" are estimated amounts for the current fiscal year based on
expenses for comparable funds. Actual expenses may vary from those shown.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain
funds', or the investment adviser on behalf of certain funds', custodian,
credits realized as a result of uninvested cash balances were used to
reduce a portion of each applicable fund's expenses. These credits are not
included under Total Waivers and Reductions. If these credits had been
included, the amounts shown under Net Fund Annual Expenses After Waivers
or Reductions presented in the table would have been 0.56% for Fidelity
VIP Equity-Income Portfolio; 0.65% for Fidelity VIP Growth Portfolio; and
0.65% for Fidelity VIP II Contrafund[RegTM] Portfolio.
(5) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for Aggressive
Growth, Balanced, Growth and Worldwide Growth Portfolios. All expenses are
shown without the effect of expense offset arrangements.
(6) The series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. The series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. The "Other
Expenses" shown above do not take into account these expense reductions,
and are therefore higher than the actual expenses of the series. Had these
fee reductions been taken into account, Net Fund Annual Expenses After
Waivers or Reductions would be lower and would equal 0.89% for the series.
(7) The investment adviser has agreed to reimburse the portfolios for expenses
and/or waive its fees, so that, through at least April 30, 2001, 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.
10
<PAGE>
For Contracts Issued Outside of the State of New York
Hypothetical Example: Option Package I -- For Contracts Other than ROTH IRA
Contracts
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package I (i.e., a mortality and expense risk charge of 0.80%, an administrative
expense charge of 0.15% annually and an annual maintenance fee of $30 (converted
to a percentage of assets equal to 0.022%)). The total annual fund expenses used
are those shown in the column "Total Fund Annual Expenses Without Waiver or
Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early with-
- ----------------------------------------------- drawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ 79 $103 $120 $186 $16 $ 49 $ 85 $186
Aetna Bond VP $ 78 $100 $115 $175 $15 $ 46 $ 80 $175
Aetna Growth VP $ 80 $106 $127 $199 $17 $ 53 $ 91 $199
Aetna Growth and Income VP $ 79 $102 $120 $185 $16 $ 49 $ 85 $185
Aetna Index Plus Large Cap VP $ 77 $ 98 $113 $170 $14 $ 45 $ 78 $170
Aetna International VP $ 89 $134 $173 $293 $26 $ 81 $138 $293
Aetna Money Market VP $ 76 $ 95 $107 $158 $13 $ 42 $ 72 $158
Aetna Real Estate Securities VP $ 88 $130 $167 $280 $25 $ 77 $131 $280
Aetna Small Company VP $ 82 $112 $135 $217 $19 $ 58 $100 $217
Aetna Technology VP $ 85 $121 $152 $251 $22 $ 68 $117 $251
AIM V.I. Capital Appreciation Fund $ 80 $107 $128 $201 $17 $ 54 $ 92 $201
AIM V.I. Growth Fund $ 80 $107 $128 $201 $17 $ 54 $ 92 $201
AIM V.I. Growth and Income Fund $ 80 $108 $130 $205 $18 $ 55 $ 94 $205
AIM V.I. Value Fund $ 80 $108 $129 $204 $18 $ 55 $ 94 $204
Fidelity VIP Equity-Income Portfolio $ 78 $102 $119 $184 $16 $ 49 $ 84 $184
Fidelity VIP Growth Portfolio $ 79 $105 $124 $193 $17 $ 51 $ 89 $193
Fidelity VIP High Income Portfolio $ 80 $106 $126 $197 $17 $ 52 $ 90 $197
Fidelity VIP II Contrafund[RegTM] Portfolio $ 79 $105 $125 $195 $17 $ 52 $ 89 $195
Janus Aspen Aggressive Growth Portfolio $ 79 $105 $125 $195 $17 $ 52 $ 89 $195
Janus Aspen Balanced Portfolio $ 79 $105 $125 $195 $17 $ 52 $ 89 $195
Janus Aspen Growth Portfolio $ 79 $105 $125 $195 $17 $ 52 $ 89 $195
Janus Aspen Worldwide Growth Portfolio $ 80 $106 $126 $198 $17 $ 53 $ 91 $198
MFS Total Return Series $ 82 $112 $137 $219 $19 $ 59 $101 $219
Oppenheimer Aggressive Growth Fund/VA $ 79 $105 $125 $195 $17 $ 52 $ 89 $195
Oppenheimer Main Street Growth & Income Fund/VA $ 81 $109 $130 $206 $18 $ 55 $ 95 $206
Oppenheimer Strategic Bond Fund/VA $ 81 $109 $130 $206 $18 $ 55 $ 95 $206
PPI MFS Capital Opportunities Portfolio $ 82 $112 $137 $219 $19 $ 59 $101 $219
PPI MFS Emerging Equities Portfolio $ 81 $109 $131 $209 $18 $ 56 $ 96 $209
PPI MFS Research Growth Portfolio $ 81 $111 $134 $214 $19 $ 57 $ 99 $214
PPI Scudder International Growth Portfolio $ 83 $115 $142 $230 $20 $ 62 $106 $230
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
11
<PAGE>
For Contracts Issued Outside of the State of New York
Hypothetical Example: Option Package I -- For ROTH IRA Contracts
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package I (i.e., a mortality and expense risk charge of 0.80%, an administrative
expense charge of 0.15% annually and an annual maintenance fee of $30 (converted
to a percentage of assets equal to 0.022%)). The total annual fund expenses used
are those shown in the column "Total Fund Annual Expenses Without Waiver or
Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $52 $ 67 $ 85 $186 $16 $ 49 $ 85 $186
Aetna Bond VP $51 $ 64 $ 80 $175 $15 $ 46 $ 80 $175
Aetna Growth VP $53 $ 71 $ 91 $199 $17 $ 53 $ 91 $199
Aetna Growth and Income VP $52 $ 67 $ 85 $185 $16 $ 49 $ 85 $185
Aetna Index Plus Large Cap VP $50 $ 63 $ 78 $170 $14 $ 45 $ 78 $170
Aetna International VP $62 $ 98 $138 $293 $26 $ 81 $138 $293
Aetna Money Market VP $49 $ 59 $ 72 $158 $13 $ 42 $ 72 $158
Aetna Real Estate Securities VP $61 $ 95 $131 $280 $25 $ 77 $131 $280
Aetna Small Company VP $55 $ 76 $100 $217 $19 $ 58 $100 $217
Aetna Technology VP $58 $ 86 $117 $251 $22 $ 68 $117 $251
AIM V.I. Capital Appreciation Fund $53 $ 71 $ 92 $201 $17 $ 54 $ 92 $201
AIM V.I. Growth Fund $53 $ 71 $ 92 $201 $17 $ 54 $ 92 $201
AIM V.I. Growth and Income Fund $54 $ 73 $ 94 $205 $18 $ 55 $ 94 $205
AIM V.I. Value Fund $53 $ 72 $ 94 $204 $18 $ 55 $ 94 $204
Fidelity VIP Equity-Income Portfolio $52 $ 66 $ 84 $184 $16 $ 49 $ 84 $184
Fidelity VIP Growth Portfolio $52 $ 69 $ 89 $193 $17 $ 51 $ 89 $193
Fidelity VIP High Income Portfolio $53 $ 70 $ 90 $197 $17 $ 52 $ 90 $197
Fidelity VIP II Contrafund[RegTM] Portfolio $53 $ 70 $ 89 $195 $17 $ 52 $ 89 $195
Janus Aspen Aggressive Growth Portfolio $53 $ 70 $ 89 $195 $17 $ 52 $ 89 $195
Janus Aspen Balanced Portfolio $53 $ 70 $ 89 $195 $17 $ 52 $ 89 $195
Janus Aspen Growth Portfolio $53 $ 70 $ 89 $195 $17 $ 52 $ 89 $195
Janus Aspen Worldwide Growth Portfolio $53 $ 71 $ 91 $198 $17 $ 53 $ 91 $198
MFS Total Return Series $55 $ 77 $101 $219 $19 $ 59 $101 $219
Oppenheimer Aggressive Growth Fund/VA $53 $ 70 $ 89 $195 $17 $ 52 $ 89 $195
Oppenheimer Main Street Growth & Income Fund/VA $54 $ 73 $ 95 $206 $18 $ 55 $ 95 $206
Oppenheimer Strategic Bond Fund/VA $54 $ 73 $ 95 $206 $18 $ 55 $ 95 $206
PPI MFS Capital Opportunities Portfolio $55 $ 77 $101 $219 $19 $ 59 $101 $219
PPI MFS Emerging Equities Portfolio $54 $ 74 $ 96 $209 $18 $ 56 $ 96 $209
PPI MFS Research Growth Portfolio $54 $ 75 $ 99 $214 $19 $ 57 $ 99 $214
PPI Scudder International Growth Portfolio $56 $ 80 $106 $230 $20 $ 62 $106 $230
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
12
<PAGE>
For Contracts Issued in the State of New York:
Hypothetical Example: Option Package I
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package I (i.e., a mortality and expense risk charge of 0.80%, an administrative
expense charge of 0.15% annually and an annual maintenance fee of $30 (converted
to a percentage of assets equal to 0.022%)). The total annual fund expenses used
are those shown in the column "Total Fund Annual Expenses Without Waivers or
Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ 70 $ 85 $103 $186 $16 $ 49 $ 85 $186
Aetna Bond VP $ 69 $ 82 $ 97 $175 $15 $ 46 $ 80 $175
Aetna Growth VP $ 71 $ 89 $109 $199 $17 $ 53 $ 91 $199
Aetna Growth and Income VP $ 70 $ 85 $102 $185 $16 $ 49 $ 85 $185
Aetna Index Plus Large Cap VP $ 68 $ 81 $ 95 $170 $14 $ 45 $ 78 $170
Aetna International VP $ 80 $116 $155 $293 $26 $ 81 $138 $293
Aetna Money Market VP $ 67 $ 77 $ 90 $158 $13 $ 42 $ 72 $158
Aetna Real Estate Securities VP $ 79 $112 $149 $280 $25 $ 77 $131 $280
Aetna Small Company VP $ 73 $ 94 $118 $217 $19 $ 58 $100 $217
Aetna Technology VP $ 76 $104 $134 $251 $22 $ 68 $117 $251
AIM V.I. Capital Appreciation Fund $ 71 $ 89 $110 $201 $17 $ 54 $ 92 $201
AIM V.I. Growth Fund $ 71 $ 89 $110 $201 $17 $ 54 $ 92 $201
AIM V.I. Growth and Income Fund $ 72 $ 90 $112 $205 $18 $ 55 $ 94 $205
AIM V.I. Value Fund $ 71 $ 90 $112 $204 $18 $ 55 $ 94 $204
Fidelity VIP Equity-Income Portfolio $ 69 $ 84 $102 $184 $16 $ 49 $ 84 $184
Fidelity VIP Growth Portfolio $ 70 $ 87 $106 $193 $17 $ 51 $ 89 $193
Fidelity VIP High Income Portfolio $ 71 $ 88 $108 $197 $17 $ 52 $ 90 $197
Fidelity VIP II Contrafund[RegTM] Portfolio $ 70 $ 87 $107 $195 $17 $ 52 $ 89 $195
Janus Aspen Aggressive Growth Portfolio $ 70 $ 87 $107 $195 $17 $ 52 $ 89 $195
Janus Aspen Balanced Portfolio $ 70 $ 87 $107 $195 $17 $ 52 $ 89 $195
Janus Aspen Growth Portfolio $ 70 $ 87 $107 $195 $17 $ 52 $ 89 $195
Janus Aspen Worldwide Growth Portfolio $ 71 $ 88 $108 $198 $17 $ 53 $ 91 $198
MFS Total Return Series $ 73 $ 94 $119 $219 $19 $ 59 $101 $219
Oppenheimer Aggressive Growth Fund/VA $ 70 $ 87 $107 $195 $17 $ 52 $ 89 $195
Oppenheimer Main Street Growth & Income Fund/VA $ 72 $ 91 $113 $206 $18 $ 55 $ 95 $206
Oppenheimer Strategic Bond Fund/VA $ 72 $ 91 $113 $206 $18 $ 55 $ 95 $206
PPI MFS Capital Opportunities Portfolio $ 73 $ 94 $119 $219 $19 $ 59 $101 $219
PPI MFS Emerging Equities Portfolio $ 72 $ 91 $114 $209 $18 $ 56 $ 96 $209
PPI MFS Research Growth Portfolio $ 72 $ 93 $116 $214 $19 $ 57 $ 99 $214
PPI Scudder International Growth Portfolio $ 74 $ 98 $124 $230 $20 $ 62 $106 $230
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
13
<PAGE>
For Contracts Issued Outside of the State of New York
Hypothetical Example: Option Package II -- For Contracts Other than ROTH IRA
Contracts
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package II (i.e., a mortality and expense risk charge of 1.10%, an
administrative expense charge of 0.15% annually and an annual maintenance fee of
$30 (converted to a percentage of assets equal to 0.022%)). The total annual
fund expenses used are those shown in the column "Total Fund Annual Expenses
Without Waiver or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ 82 $112 $136 $218 $19 $ 59 $101 $218
Aetna Bond VP $ 81 $109 $131 $208 $18 $ 55 $ 96 $208
Aetna Growth VP $ 83 $116 $142 $231 $20 $ 62 $107 $231
Aetna Growth and Income VP $ 82 $112 $135 $217 $19 $ 58 $100 $217
Aetna Index Plus Large Cap VP $ 80 $108 $129 $203 $18 $ 54 $ 93 $203
Aetna International VP $ 92 $143 $188 $322 $29 $ 90 $152 $322
Aetna Money Market VP $ 79 $104 $123 $191 $16 $ 51 $ 88 $191
Aetna Real Estate Securities VP $ 91 $139 $182 $309 $28 $ 86 $146 $309
Aetna Small Company VP $ 85 $121 $151 $248 $22 $ 67 $116 $248
Aetna Technology VP $ 88 $131 $167 $281 $25 $ 77 $132 $281
AIM V.I. Capital Appreciation Fund $ 83 $116 $143 $233 $20 $ 63 $108 $233
AIM V.I. Growth Fund $ 83 $116 $143 $233 $20 $ 63 $108 $233
AIM V.I. Growth and Income Fund $ 84 $117 $145 $237 $21 $ 64 $110 $237
AIM V.I. Value Fund $ 83 $117 $145 $236 $21 $ 64 $109 $236
Fidelity VIP Equity-Income Portfolio $ 81 $111 $135 $216 $19 $ 58 $100 $216
Fidelity VIP Growth Portfolio $ 82 $114 $140 $226 $20 $ 61 $104 $226
Fidelity VIP High Income Portfolio $ 83 $115 $141 $229 $20 $ 62 $106 $229
Fidelity VIP II Contrafund[RegTM] Portfolio $ 83 $114 $140 $227 $20 $ 61 $105 $227
Janus Aspen Aggressive Growth Portfolio $ 83 $114 $140 $227 $20 $ 61 $105 $227
Janus Aspen Balanced Portfolio $ 83 $114 $140 $227 $20 $ 61 $105 $227
Janus Aspen Growth Portfolio $ 83 $114 $140 $227 $20 $ 61 $105 $227
Janus Aspen Worldwide Growth Portfolio $ 83 $115 $142 $230 $20 $ 62 $106 $230
MFS Total Return Series $ 85 $121 $152 $251 $22 $ 68 $117 $251
Oppenheimer Aggressive Growth Fund/VA $ 83 $114 $140 $227 $20 $ 61 $105 $227
Oppenheimer Main Street Growth & Income Fund/VA $ 84 $118 $146 $238 $21 $ 64 $110 $238
Oppenheimer Strategic Bond Fund/VA $ 84 $118 $146 $238 $21 $ 64 $110 $238
PPI MFS Capital Opportunities Portfolio $ 85 $121 $152 $251 $22 $ 68 $117 $251
PPI MFS Emerging Equities Portfolio $ 84 $118 $147 $240 $21 $ 65 $111 $240
PPI MFS Research Growth Portfolio $ 84 $120 $149 $245 $22 $ 66 $114 $245
PPI Scudder International Growth Portfolio $ 86 $124 $157 $261 $23 $ 71 $122 $261
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
14
<PAGE>
For Contracts Issued Outside of the State of New York
Hypothetical Example: Option Package II -- For ROTH IRA Contracts
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package II (i.e., a mortality and expense risk charge of 1.10%, an
administrative expense charge of 0.15% annually and an annual maintenance fee of
$30 (converted to a percentage of assets equal to 0.022%)). The total annual
fund expenses used are those shown in the column "Total Fund Annual Expenses
Without Waiver or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $55 $ 76 $101 $218 $19 $ 59 $101 $218
Aetna Bond VP $54 $ 73 $ 96 $208 $18 $ 55 $ 96 $208
Aetna Growth VP $56 $ 80 $107 $231 $20 $ 62 $107 $231
Aetna Growth and Income VP $55 $ 76 $100 $217 $19 $ 58 $100 $217
Aetna Index Plus Large Cap VP $53 $ 72 $ 93 $203 $18 $ 54 $ 93 $203
Aetna International VP $65 $107 $152 $322 $29 $ 90 $152 $322
Aetna Money Market VP $52 $ 69 $ 88 $191 $16 $ 51 $ 88 $191
Aetna Real Estate Securities VP $64 $104 $146 $309 $28 $ 86 $146 $309
Aetna Small Company VP $58 $ 85 $116 $248 $22 $ 67 $116 $248
Aetna Technology VP $61 $ 95 $132 $281 $25 $ 77 $132 $281
AIM V.I. Capital Appreciation Fund $56 $ 81 $108 $233 $20 $ 63 $108 $233
AIM V.I. Growth Fund $56 $ 81 $108 $233 $20 $ 63 $108 $233
AIM V.I. Growth and Income Fund $57 $ 82 $110 $237 $21 $ 64 $110 $237
AIM V.I. Value Fund $57 $ 82 $109 $236 $21 $ 64 $109 $236
Fidelity VIP Equity-Income Portfolio $55 $ 76 $100 $216 $19 $ 58 $100 $216
Fidelity VIP Growth Portfolio $55 $ 78 $104 $226 $20 $ 61 $104 $226
Fidelity VIP High Income Portfolio $56 $ 79 $106 $229 $20 $ 62 $106 $229
Fidelity VIP II Contrafund[RegTM] Portfolio $56 $ 79 $105 $227 $20 $ 61 $105 $227
Janus Aspen Aggressive Growth Portfolio $56 $ 79 $105 $227 $20 $ 61 $105 $227
Janus Aspen Balanced Portfolio $56 $ 79 $105 $227 $20 $ 61 $105 $227
Janus Aspen Growth Portfolio $56 $ 79 $105 $227 $20 $ 61 $105 $227
Janus Aspen Worldwide Growth Portfolio $56 $ 80 $106 $230 $20 $ 62 $106 $230
MFS Total Return Series $58 $ 86 $117 $251 $22 $ 68 $117 $251
Oppenheimer Aggressive Growth Fund/VA $56 $ 79 $105 $227 $20 $ 61 $105 $227
Oppenheimer Main Street Growth & Income Fund/VA $57 $ 82 $110 $238 $21 $ 64 $110 $238
Oppenheimer Strategic Bond Fund/VA $57 $ 82 $110 $238 $21 $ 64 $110 $238
PPI MFS Capital Opportunities Portfolio $58 $ 86 $117 $251 $22 $ 68 $117 $251
PPI MFS Emerging Equities Portfolio $57 $ 83 $111 $240 $21 $ 65 $111 $240
PPI MFS Research Growth Portfolio $57 $ 84 $114 $245 $22 $ 66 $114 $245
PPI Scudder International Growth Portfolio $59 $ 89 $122 $261 $23 $ 71 $122 $261
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
15
<PAGE>
For Contracts Issued in the State of New York:
Hypothetical Example: Option Package II
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package II (i.e., a mortality and expense risk charge of 1.10%, an
administrative expense charge of 0.15% annually and an annual maintenance fee of
$30 (converted to a percentage of assets equal to 0.022%)). The total annual
fund expenses used are those shown in the column "Total Fund Annual Expenses
Without Waivers or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ 73 $ 94 $118 $218 $19 $ 59 $101 $218
Aetna Bond VP $ 72 $ 91 $113 $208 $18 $ 55 $ 96 $208
Aetna Growth VP $ 74 $ 98 $125 $231 $20 $ 62 $107 $231
Aetna Growth and Income VP $ 73 $ 94 $118 $217 $19 $ 58 $100 $217
Aetna Index Plus Large Cap VP $ 71 $ 90 $111 $203 $18 $ 54 $ 93 $203
Aetna International VP $ 83 $125 $170 $322 $29 $ 90 $152 $322
Aetna Money Market VP $ 70 $ 86 $105 $191 $16 $ 51 $ 88 $191
Aetna Real Estate Securities VP $ 82 $121 $164 $309 $28 $ 86 $146 $309
Aetna Small Company VP $ 76 $103 $133 $248 $22 $ 67 $116 $248
Aetna Technology VP $ 79 $113 $149 $281 $25 $ 77 $132 $281
AIM V.I. Capital Appreciation Fund $ 74 $ 98 $126 $233 $20 $ 63 $108 $233
AIM V.I. Growth Fund $ 74 $ 98 $126 $233 $20 $ 63 $108 $233
AIM V.I. Growth and Income Fund $ 75 $100 $128 $237 $21 $ 64 $110 $237
AIM V.I. Value Fund $ 74 $ 99 $127 $236 $21 $ 64 $109 $236
Fidelity VIP Equity-Income Portfolio $ 73 $ 94 $117 $216 $19 $ 58 $100 $216
Fidelity VIP Growth Portfolio $ 73 $ 96 $122 $226 $20 $ 61 $104 $226
Fidelity VIP High Income Portfolio $ 74 $ 97 $124 $229 $20 $ 62 $106 $229
Fidelity VIP II Contrafund[RegTM] Portfolio $ 74 $ 97 $122 $227 $20 $ 61 $105 $227
Janus Aspen Aggressive Growth Portfolio $ 74 $ 97 $122 $227 $20 $ 61 $105 $227
Janus Aspen Balanced Portfolio $ 74 $ 97 $122 $227 $20 $ 61 $105 $227
Janus Aspen Growth Portfolio $ 74 $ 97 $122 $227 $20 $ 61 $105 $227
Janus Aspen Worldwide Growth Portfolio $ 74 $ 98 $124 $230 $20 $ 62 $106 $230
MFS Total Return Series $ 76 $104 $134 $251 $22 $ 68 $117 $251
Oppenheimer Aggressive Growth Fund/VA $ 74 $ 97 $122 $227 $20 $ 61 $105 $227
Oppenheimer Main Street Growth & Income Fund/VA $ 75 $100 $128 $238 $21 $ 64 $110 $238
Oppenheimer Strategic Bond Fund/VA $ 75 $100 $128 $238 $21 $ 64 $110 $238
PPI MFS Capital Opportunities Portfolio $ 76 $104 $134 $251 $22 $ 68 $117 $251
PPI MFS Emerging Equities Portfolio $ 75 $101 $129 $240 $21 $ 65 $111 $240
PPI MFS Research Growth Portfolio $ 75 $102 $132 $245 $22 $ 66 $114 $245
PPI Scudder International Growth Portfolio $ 77 $107 $139 $261 $23 $ 71 $122 $261
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
16
<PAGE>
For Contracts Issued Outside of the State of New York
Hypothetical Example: Option Package III -- For Contracts Other than ROTH IRA
Contracts
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package III (i.e., a mortality and expense risk charge of 1.25%, an
administrative expense charge of 0.15% annually and an annual maintenance fee of
$30 (converted to a percentage of assets equal to 0.022%)). The total annual
fund expenses used are those shown in the column "Total Fund Annual Expenses
Without Waiver or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ 83 $117 $144 $234 $20 $ 63 $108 $234
Aetna Bond VP $ 82 $113 $139 $223 $19 $ 60 $103 $223
Aetna Growth VP $ 84 $120 $150 $246 $22 $ 67 $115 $246
Aetna Growth and Income VP $ 83 $116 $143 $233 $20 $ 63 $108 $233
Aetna Index Plus Large Cap VP $ 82 $112 $137 $219 $19 $ 59 $101 $219
Aetna International VP $ 94 $148 $195 $336 $31 $ 94 $160 $336
Aetna Money Market VP $ 81 $109 $131 $208 $18 $ 55 $ 96 $208
Aetna Real Estate Securities VP $ 92 $144 $189 $323 $29 $ 90 $153 $323
Aetna Small Company VP $ 86 $125 $159 $264 $23 $ 72 $123 $264
Aetna Technology VP $ 89 $135 $175 $296 $27 $ 82 $139 $296
AIM V.I. Capital Appreciation Fund $ 85 $121 $151 $248 $22 $ 67 $116 $248
AIM V.I. Growth Fund $ 85 $121 $151 $248 $22 $ 67 $116 $248
AIM V.I. Growth and Income Fund $ 85 $122 $153 $253 $22 $ 69 $118 $253
AIM V.I. Value Fund $ 85 $122 $152 $252 $22 $ 68 $117 $252
Fidelity VIP Equity-Income Portfolio $ 83 $116 $143 $232 $20 $ 63 $107 $232
Fidelity VIP Growth Portfolio $ 84 $119 $147 $241 $21 $ 65 $112 $241
Fidelity VIP High Income Portfolio $ 84 $120 $149 $244 $21 $ 66 $113 $244
Fidelity VIP II Contrafund[RegTM] Portfolio $ 84 $119 $148 $242 $21 $ 66 $112 $242
Janus Aspen Aggressive Growth Portfolio $ 84 $119 $148 $242 $21 $ 66 $112 $242
Janus Aspen Balanced Portfolio $ 84 $119 $148 $242 $21 $ 66 $112 $242
Janus Aspen Growth Portfolio $ 84 $119 $148 $242 $21 $ 66 $112 $242
Janus Aspen Worldwide Growth Portfolio $ 84 $120 $149 $245 $22 $ 66 $114 $245
MFS Total Return Series $ 86 $126 $160 $266 $24 $ 73 $124 $266
Oppenheimer Aggressive Growth Fund/VA $ 84 $119 $148 $242 $21 $ 66 $112 $242
Oppenheimer Main Street Growth & Income Fund/VA $ 85 $122 $153 $254 $22 $ 69 $118 $254
Oppenheimer Strategic Bond Fund/VA $ 85 $122 $153 $254 $22 $ 69 $118 $254
PPI MFS Capital Opportunities Portfolio $ 86 $126 $160 $266 $24 $ 73 $124 $266
PPI MFS Emerging Equities Portfolio $ 85 $123 $154 $256 $23 $ 69 $119 $256
PPI MFS Research Growth Portfolio $ 86 $124 $157 $261 $23 $ 71 $122 $261
PPI Scudder International Growth Portfolio $ 87 $129 $165 $276 $25 $ 76 $129 $276
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
17
<PAGE>
For Contracts Issued Outside of the State of New York
Hypothetical Example: Option Package III -- For ROTH IRA Contracts
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package III (i.e., a mortality and expense risk charge of 1.25%, an
administrative expense charge of 0.15% annually and an annual maintenance fee of
$30 (converted to a percentage of assets equal to 0.022%)). The total annual
fund expenses used are those shown in the column "Total Fund Annual Expenses
Without Waiver or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $56 $ 81 $108 $234 $20 $ 63 $108 $234
Aetna Bond VP $55 $ 78 $103 $223 $19 $ 60 $103 $223
Aetna Growth VP $58 $ 85 $115 $246 $22 $ 67 $115 $246
Aetna Growth and Income VP $56 $ 81 $108 $233 $20 $ 63 $108 $233
Aetna Index Plus Large Cap VP $55 $ 77 $101 $219 $19 $ 59 $101 $219
Aetna International VP $67 $112 $160 $336 $31 $ 94 $160 $336
Aetna Money Market VP $54 $ 73 $ 96 $208 $18 $ 55 $ 96 $208
Aetna Real Estate Securities VP $65 $108 $153 $323 $29 $ 90 $153 $323
Aetna Small Company VP $59 $ 90 $123 $264 $23 $ 72 $123 $264
Aetna Technology VP $62 $ 99 $139 $296 $27 $ 82 $139 $296
AIM V.I. Capital Appreciation Fund $58 $ 85 $116 $248 $22 $ 67 $116 $248
AIM V.I. Growth Fund $58 $ 85 $116 $248 $22 $ 67 $116 $248
AIM V.I. Growth and Income Fund $58 $ 86 $118 $253 $22 $ 69 $118 $253
AIM V.I. Value Fund $58 $ 86 $117 $252 $22 $ 68 $117 $252
Fidelity VIP Equity-Income Portfolio $56 $ 80 $107 $232 $20 $ 63 $107 $232
Fidelity VIP Growth Portfolio $57 $ 83 $112 $241 $21 $ 65 $112 $241
Fidelity VIP High Income Portfolio $57 $ 84 $113 $244 $21 $ 66 $113 $244
Fidelity VIP II Contrafund[RegTM] Portfolio $57 $ 83 $112 $242 $21 $ 66 $112 $242
Janus Aspen Aggressive Growth Portfolio $57 $ 83 $112 $242 $21 $ 66 $112 $242
Janus Aspen Balanced Portfolio $57 $ 83 $112 $242 $21 $ 66 $112 $242
Janus Aspen Growth Portfolio $57 $ 83 $112 $242 $21 $ 66 $112 $242
Janus Aspen Worldwide Growth Portfolio $57 $ 84 $114 $245 $22 $ 66 $114 $245
MFS Total Return Series $59 $ 90 $124 $266 $24 $ 73 $124 $266
Oppenheimer Aggressive Growth Fund/VA $57 $ 83 $112 $242 $21 $ 66 $112 $242
Oppenheimer Main Street Growth & Income Fund/VA $58 $ 87 $118 $254 $22 $ 69 $118 $254
Oppenheimer Strategic Bond Fund/VA $58 $ 87 $118 $254 $22 $ 69 $118 $254
PPI MFS Capital Opportunities Portfolio $59 $ 90 $124 $266 $24 $ 73 $124 $266
PPI MFS Emerging Equities Portfolio $58 $ 87 $119 $256 $23 $ 69 $119 $256
PPI MFS Research Growth Portfolio $59 $ 89 $122 $261 $23 $ 71 $122 $261
PPI Scudder International Growth Portfolio $60 $ 93 $129 $276 $25 $ 76 $129 $276
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
18
<PAGE>
For Contracts Issued in the State of New York:
Hypothetical Example: Option Package III
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package III (i.e., a mortality and expense risk charge of 1.25%, an
administrative expense charge of 0.15% annually and an annual maintenance fee of
$30 (converted to a percentage of assets equal to 0.022%)). The total annual
fund expenses used are those shown in the column "Total Fund Annual Expenses
Without Waivers or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ 74 $ 99 $126 $234 $20 $ 63 $108 $234
Aetna Bond VP $ 73 $ 96 $121 $223 $19 $ 60 $103 $223
Aetna Growth VP $ 75 $102 $132 $246 $22 $ 67 $115 $246
Aetna Growth and Income VP $ 74 $ 98 $126 $233 $20 $ 63 $108 $233
Aetna Index Plus Large Cap VP $ 73 $ 94 $119 $219 $19 $ 59 $101 $219
Aetna International VP $ 85 $130 $178 $336 $31 $ 94 $160 $336
Aetna Money Market VP $ 72 $ 91 $113 $208 $18 $ 55 $ 96 $208
Aetna Real Estate Securities VP $ 83 $126 $171 $323 $29 $ 90 $153 $323
Aetna Small Company VP $ 77 $108 $141 $264 $23 $ 72 $123 $264
Aetna Technology VP $ 80 $117 $157 $296 $27 $ 82 $139 $296
AIM V.I. Capital Appreciation Fund $ 76 $103 $133 $248 $22 $ 67 $116 $248
AIM V.I. Growth Fund $ 76 $103 $133 $248 $22 $ 67 $116 $248
AIM V.I. Growth and Income Fund $ 76 $104 $135 $253 $22 $ 69 $118 $253
AIM V.I. Value Fund $ 76 $104 $135 $252 $22 $ 68 $117 $252
Fidelity VIP Equity-Income Portfolio $ 74 $ 98 $125 $232 $20 $ 63 $107 $232
Fidelity VIP Growth Portfolio $ 75 $101 $130 $241 $21 $ 65 $112 $241
Fidelity VIP High Income Portfolio $ 75 $102 $131 $244 $21 $ 66 $113 $244
Fidelity VIP II Contrafund[RegTM] Portfolio $ 75 $101 $130 $242 $21 $ 66 $112 $242
Janus Aspen Aggressive Growth Portfolio $ 75 $101 $130 $242 $21 $ 66 $112 $242
Janus Aspen Balanced Portfolio $ 75 $101 $130 $242 $21 $ 66 $112 $242
Janus Aspen Growth Portfolio $ 75 $101 $130 $242 $21 $ 66 $112 $242
Janus Aspen Worldwide Growth Portfolio $ 75 $102 $132 $245 $22 $ 66 $114 $245
MFS Total Return Series $ 77 $108 $142 $266 $24 $ 73 $124 $266
Oppenheimer Aggressive Growth Fund/VA $ 75 $101 $130 $242 $21 $ 66 $112 $242
Oppenheimer Main Street Growth & Income Fund/VA $ 76 $105 $136 $254 $22 $ 69 $118 $254
Oppenheimer Strategic Bond Fund/VA $ 76 $105 $136 $254 $22 $ 69 $118 $254
PPI MFS Capital Opportunities Portfolio $ 77 $108 $142 $266 $24 $ 73 $124 $266
PPI MFS Emerging Equities Portfolio $ 76 $105 $137 $256 $23 $ 69 $119 $256
PPI MFS Research Growth Portfolio $ 77 $107 $139 $261 $23 $ 71 $122 $261
PPI Scudder International Growth Portfolio $ 78 $111 $147 $276 $25 $ 76 $129 $276
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
19
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
Understanding Condensed Financial Information. In Appendix IV of this
prospectus, we provide condensed financial information about the 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 from
the time purchase payments were first received in the subaccounts under the
contract.
Investment Options
- --------------------------------------------------------------------------------
The contract offers variable investment options and fixed interest 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 a specific mutual
fund. You do not invest directly in or hold shares of the funds.
> Mutual Fund (fund) Descriptions. We provide brief descriptions of the funds
in Appendix III. Investment results of the 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. Unless otherwise noted, all funds are
diversified as defined under the Investment Company Act of 1940. 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--Questions: Contacting the Company" or
by contacting the SEC Public Reference Room.
Fixed Interest Options. If available in your state, the ALIAC Guaranteed Account
(the Guaranteed Account) or the Fixed Account. The Guaranteed Account offers
certain guaranteed minimum interest rates for a stated period of time. Amounts
must remain in the Guaranteed Account for specific periods to receive the quoted
interest rates, or a market value adjustment will be applied. The market value
adjustment may be positive or negative. The Fixed Account guarantees payment of
the minimum interest rate specified in the contract. The Fixed Account is only
available in certain states. For a description of these options, see Appendices
I and II and the Guaranteed Account prospectus.
20
<PAGE>
- --------------------------------------------------------------------------------
Selecting Investment Options
o Choose options appropriate for you. Your sales 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
subaccounts invest in funds that are considered riskier than others. Funds
with additional risks are expected to have values that 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, the Guaranteed
Account and Fixed Account appendices and the Guaranteed Account prospectus.
- --------------------------------------------------------------------------------
Limits on Availability of Options. Some funds or fixed interest options may be
unavailable through your contract or in your state. We may add, withdraw or
substitute funds, subject to the conditions in your contract and compliance with
regulatory requirements.
Limits on How Many Investment Options You May Select. Although there is
currently no limit, we reserve the right to limit the number of investment
options you may select at any one time or during the life of the contract. For
purposes of determining any limit, each subaccount and each guaranteed term of
the Guaranteed Account, or an investment in the Fixed Account in certain
contracts, will be considered an investment option.
Limits Imposed by the Underlying Fund. 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 a purchase payment 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, are 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, which could adversely impact the value of a fund. For example, if a
conflict of interest occurred and one of the 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 may arise and to
determine what action, if any, should be taken to address such conflicts.
21
<PAGE>
Transfers Among Investment Options
- --------------------------------------------------------------------------------
You may transfer amounts among the available subaccounts. During the
accumulation phase we allow you 12 free transfers each account year. We reserve
the right to charge $10 for each additional transfer. We currently do not impose
this charge. During the income phase, if approved in your state, we allow you
four free transfers each account year. We reserve the right to charge $10 for
each additional transfer. We currently do not impose this charge.
Transfers from the Guaranteed Account are subject to certain restrictions and
may be subject to a market value adjustment. Transfers from the Fixed Account
are subject to certain restrictions and transfers into the Fixed Account from
any of the other investment options are not allowed. Transfers must be made in
accordance with the terms of your contract.
Transfer Requests. Requests may be made in writing, by telephone or, where
applicable, electronically.
Limits on Frequent 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,
organizations or individuals that 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.
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.
Value of Your Transferred Dollars. The value of amounts transferred into or out
of subaccounts will be based on the subaccount unit values next determined after
we receive your transfer request in good order at our Home Office, or if you are
participating in the dollar cost averaging or account rebalancing programs,
after your scheduled transfer or reallocation.
Telephone and Electronic Transactions: Security Measures. To prevent fraudulent
use of telephone and electronic transactions (including, but not limited to,
internet transactions), we have established security procedures. These include
recording calls on our toll-free telephone lines and requiring 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 or other electronic transactions. We are not liable for
losses resulting from telephone or electronic instructions we believe to be
genuine. If a loss occurs when we rely on such instructions, you will bear the
loss.
22
<PAGE>
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 certain subaccounts, the Guaranteed Account or
Fixed Account to any of the other subaccounts. A market value adjustment will
not be applied to dollar cost averaging transfers from a guaranteed term of the
Guaranteed Account during participation in the dollar cost averaging program. If
such participation is discontinued, we will automatically transfer the remaining
balance in that guaranteed term to another guaranteed term of the same duration,
unless you initiate a transfer into another investment option. In either case a
market value adjustment will apply. See Appendix I for more information about
dollar cost averaging from the Guaranteed Account. If dollar cost averaging is
stopped with respect to amounts invested in the Fixed Account, the remaining
balance will be transferred to the money market subaccount.
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. There is no additional charge for
this program and transfers made under this program do not count as transfers
when determining the number of free transfers that may be made each calendar
year. For additional information about this program, contact your sales
representative or call us at the number listed in "Contract Overview--Questions:
Contacting the Company."
In certain states purchase payments allocated to the Fixed Account may require
participation in the dollar cost averaging program.
Dollar cost averaging is not available if you elect to participate in the
account rebalancing program.
The Account Rebalancing Program. Account rebalancing allows you to reallocate
your account value to match the investment allocations you originally selected.
Only account values invested in the subaccounts may be rebalanced. We
automatically reallocate your account value annually (or more frequently as we
allow). Account rebalancing neither ensures a profit nor guarantees against loss
in a declining market. There is no additional charge for this program and
transfers made under this program do not count as transfers when determining the
number of free transfers that may be made each calendar year. You may
participate in this program by completing the account rebalancing section of
your application or by contacting us at the address and/or number listed in
"Contract Overview--Questions: Contacting the Company."
Account rebalancing is not available if you elect to participate in the dollar
cost averaging program.
Purchase And Rights
- --------------------------------------------------------------------------------
How to Purchase
> Individual Contracts. In some states, where group contracts are not
available, you may purchase the contract directly from us by completing an
application and delivering it and your initial purchase payment to us. Upon
our approval we will issue you a contract and set up an account for you
under the contract.
23
<PAGE>
> Group Contracts. In most states we have distributors, usually
broker-dealers or banks, who hold the contract as a group contract (see
"Distribution"). You may purchase an interest (or, in other words,
participate) in the group contract by contacting a distributor and
completing an application and delivering it with your initial purchase
payment to that distributor. Upon our approval, we will set up an account
for you under the group contract and issue you a certificate showing your
rights under the contract.
> Joint Contracts (generally spouses). For a nonqualified contract, you may
participate in a group contract as a joint contract holder. References to
"contract holder" in this prospectus mean both contract holders under joint
contracts. Tax law prohibits the purchase of qualified contracts by joint
contract holders.
Maximum Issue Age. The maximum issue age for you and the annuitant (if you are
not the annuitant) on the date we establish your account is 90.
Your Rights Under the Contract
> Individual Contracts. You have all contract rights.
> Group Contracts. The holder of the group contract has title to the contract
and, generally, only the right to accept or reject any modifications to the
contract. You have all other rights to your account under the contract.
> Joint Contracts. Joint contract holders have equal rights under the
contract with respect to their account. All rights under the contract must
be exercised by both joint contract holders with the exception of transfers
among investment options. See the "Death Benefit" section for the rights of
the surviving joint contract holder upon the death of a joint contract
holder prior to the income phase start date.
Purchase Payment Methods. The following purchase payment methods are allowed:
> One lump sum;
> Periodic payments; or
> Transfer or rollover from a pre-existing retirement plan or account.
We reserve the right to reject any purchase payments to a prospective or
existing account without advance notice.
Purchase Payment Amounts.
The minimum initial purchase payment depends upon the option package selected
at issue.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Option Option Option
Package I Package II Package III
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Minimum Non- Non- Non-
Initial Qualified: Qualified:* Qualified: Qualified:* Qualified: Qualified:*
Purchase ---------- ----------- ---------- ----------- ---------- -----------
Payment $15,000 $1,500 $5,000 $1,500 $5,000 $1,500
- ------------------------------------------------------------------------------------------
</TABLE>
*The Tax Code imposes a maximum limit on annual payments which may be excluded
from your gross income.
Additional purchase payments must be at least $50 (we may change this amount
from time to time.) A purchase payment of more than $1,000,000 will be allowed
only with our consent.
24
<PAGE>
Reduction of Purchase Payment Amounts. In certain circumstances we may reduce
the minimum initial or additional purchase payment amount we will accept under a
contract. Whether such a reduction is available will be based on consideration
of each of the following factors:
> The size and type of the prospective group, if any, to which the reduction
would apply;
> The method and frequency of purchase payments to be made under the
contract; and
> The amount of compensation to be paid to distributors and their registered
representative on each purchase payment.
Any reduction of the minimum initial or additional purchase payment amount will
not be unfairly discriminatory against any person. We will make any such
reduction according to our own rules in effect at the time the purchase payment
is received. We reserve the right to change these rules from time to time.
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 purchase payment(s) for five
business days. We may hold purchase payments for longer periods, pending
acceptance of the application, only with your permission. If the application is
rejected, the application and any purchase payments will be returned to you.
Allocating Purchase Payments to the Investment Options. We will allocate your
purchase payments among the investment options you select. Allocations must be
in whole percentages and there may be limits on the number of investment options
you may select. When selecting investment options you may find it helpful to
review the "Investment Options" section.
25
<PAGE>
Right to Cancel
- --------------------------------------------------------------------------------
When and How to Cancel. You may cancel your contract within ten days of receipt
(some states require more than ten days) 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. Unless your state requires
otherwise or unless you purchased an IRA, your refund will equal the purchase
payments made plus any earnings or minus any losses attributable to those
purchase payments allocated among the subaccounts. In other words, you will bear
the entire investment risk for amounts allocated among the subaccounts during
this period and the amount refunded could be less than the amount paid. If your
state requires or if you purchased an IRA, we will refund all purchase payments
made.
If the purchase payments for your canceled contract came from a rollover from
another contract issued by us or one of our affiliates where an early withdrawal
charge was reduced or eliminated, the purchase payments will be restored to your
prior contract.
26
<PAGE>
Transfers Between Option Packages
- --------------------------------------------------------------------------------
You may transfer from one option package to another.
> Transfers must occur on an account anniversary.
> A written request for the transfer must be received by us within 60 days of
an account anniversary.
> The following minimum account values need to be met:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Transfers to Transfers to
Option Package I Option Packages II or III
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum Account Value Non- Non-
Qualified: Qualified: Qualified: Qualified:
---------- ---------- ---------- ----------
$15,000 $1,500 $5,000 $1,500
- -----------------------------------------------------------------------------------
</TABLE>
> You will receive a new contract schedule page upon transfer.
> Only one option package may be in effect at any time.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Transfers to Transfers to Transfers to
Option Package I Option Package II Option Package III
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Death Benefit(1): Death Benefit(1): Death Benefit(1):
o The sum of all purchase payments o The sum of all purchase payments o The sum of all purchase payments
made, adjusted for amounts made, adjusted for amounts made, adjusted for amounts
withdrawn or applied to an income withdrawn or applied to an income withdrawn or applied to an income
phase payment option as of the phase payment option as of the phase payment option as of the
claim date, will continue to be claim date, will continue to be claim date, will continue to be
calculated from the account calculated from the account calculated from the account
effective date. effective date. effective date.
o The "step-up value" under Option o If transferring from Option Package o If transferring from Option Package
Packages II and III will terminate on I, the "step-up value" will be I, the "step-up value" will be
the new schedule effective date. calculated beginning on the new calculated beginning on the new
o The "roll-up value" under Option schedule effective date. schedule effective date.
Package III will terminate on the o If transferring from Option Package o If transferring from Option Package
new schedule effective date. III, the "step-up value" will continue II, the "step-up value" will continue
to be calculated from the date to be calculated from the date
calculated under Option calculated under Option Package II.
Package III. o The "roll-up value" will be calculated
o The "roll-up value" under Option beginning on the new schedule
Package III will terminate on the effective date.
new schedule effective date.
- -----------------------------------------------------------------------------------------------------------------------------
Nursing Home Waiver(2): Nursing Home Waiver(2): Nursing Home Waiver(2):
o The availability of the waiver of the o If transferring from Option Package o If transferring from Option Package
early withdrawal charge under the I, the waiting period under I, the waiting period under the
Nursing Home Waiver will terminate the Nursing Home Waiver will begin Nursing Home Waiver will begin to
on the new schedule effective date. to be measured from the new be measured from the new schedule
schedule effective date. effective date.
o If transferring from Option Package o If transferring from Option Package
III, the waiting period will have II, the waiting period will have been
been satisfied on the new schedule satisfied on the new schedule
effective date. effective date.
- -----------------------------------------------------------------------------------------------------------------------------
Free Withdrawals(3): Free Withdrawals(3): Free Withdrawals(3):
o If transferring from Option Package o If transferring from Option Package o The cumulative to 30% available
III, any available free withdrawal III, any available free withdrawal free withdrawal amount will begin to
amount in excess of 10% will be lost amount in excess of 10% will be lost be calculated as of the new schedule
as of the new schedule effective date. as of the new schedule effective effective date.
date.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Death Benefit."
(2) See "Fees--Nursing Home Waiver."
(3) See "Fees--Free Withdrawals."
27
<PAGE>
[Begin sidebar]
Types of Fees
There are four types of fees or deductions that may affect your account.
TRANSACTION FEES
o Early Withdrawal Charge
o Annual Maintenance Fee
o Transfer Charge
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
[End sidebar]
Fees
- --------------------------------------------------------------------------------
The following repeats and adds to information provided in the "Fee Table"
section. 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. A percentage of the purchase payments that you withdraw. The percentage
will be determined by the early withdrawal charge schedule that applies to your
account.
Early Withdrawal Charge Schedules
FOR CONTRACTS ISSUED OUTSIDE OF THE STATE OF NEW YORK:
<TABLE>
<CAPTION>
- ---------------------------------------------
Contracts Other Than Roth IRA Contracts:
- ---------------------------------------------
Early
Years From Receipt Withdrawal
of Purchase Payment Charge
- ------------------- ----------
<S> <C>
Less than 2 7%
2 or more but less than 4 6%
4 or more but less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more 0%
- ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------
Roth IRA Contracts:
- ---------------------------------------------
Early
Withdrawal
Completed Account Years Charge
- ----------------------- ----------
<S> <C>
Less than 1 5%
1 or more but less than 2 4%
2 or more but less than 3 3%
3 or more but less than 4 2%
4 or more but less than 5 1%
5 or more 0%
- ---------------------------------------------
</TABLE>
FOR CONTRACTS ISSUED IN THE STATE OF NEW YORK:
<TABLE>
<CAPTION>
- ---------------------------------------------
For All Contracts
- ---------------------------------------------
Early
Years From Receipt Withdrawal
of Purchase Payment Charge
- ------------------- ----------
<S> <C>
Less than 1 7%
1 or more but less than 2 6%
2 or more but less than 3 5%
3 or more but less than 4 4%
4 or more but less than 5 3%
5 or more but less than 6 2%
6 or more but less than 7 1%
7 or more 0%
- ---------------------------------------------
</TABLE>
Purpose. This is a deferred sales charge. It reimburses us for some of the sales
and administrative expenses associated with the contract. If our expenses are
greater than the amount we collect for the early withdrawal charge, we may use
any of our corporate assets, including potential profit that may arise from the
mortality and expense risk charge, to make up any difference.
28
<PAGE>
First In, First Out. The early withdrawal charge is calculated separately for
each purchase payment withdrawn. For purposes of calculating your early
withdrawal charge, we consider that your first purchase payment to the account
(first in) is the first you withdraw (first out).
Examples: For contracts other than Roth IRA contracts issued outside of the
state of New York, the early withdrawal charge is based on the number of years
since the purchase payment was received. If your initial purchase payment was
made three years ago, we will deduct an early withdrawal charge equal to 6% of
the portion of that purchase payment withdrawn.
For Roth IRA contracts issued outside of the state of New York, the early
withdrawal charge is based on the number of completed account years. If your
initial purchase payment was made three years ago, we will deduct an early
withdrawal charge equal to 2% of the portion of that purchase payment withdrawn.
For all contracts issued in the state of New York, the early withdrawal charge
is based on the number of years since the purchase payment was received, and if
your initial purchase payment was made three years ago, we will deduct an early
withdrawal charge equal to 4% of the portion of that purchase payment withdrawn.
In each case the next time you make a withdrawal we will access the early
withdrawal charge, if any, against the portion of the first purchase payment you
did not withdraw and/or subsequent purchase payments to your account in the
order they were received.
Earnings may be withdrawn after all purchase payments have been withdrawn. There
is no early withdrawal charge for withdrawal of earnings.
Free Withdrawals. There is no early withdrawal charge if, during each account
year, the amount withdrawn is 10% or less of your account value on the later of
the date we established your account or the most recent anniversary of that
date. Under Option Package III, any unused percentage of the 10% free withdrawal
amount shall carry forward into successive account years, up to a maximum 30% of
your account value.
The free withdrawal amount will be adjusted for amounts withdrawn under a
systematic distribution option or taken as a required minimum distribution
during the account year.
Waiver. The early withdrawal charge is waived for purchase payments withdrawn if
the withdrawal is:
> Used to provide income phase payments to you;
> Paid due to the annuitant's death during the accumulation phase in an
amount up to the sum of purchase payments made, minus the total of all
partial withdrawals, amounts applied to an income phase payment option and
deductions made prior to the annuitant's death;
> Paid upon a full withdrawal where your account value is $2,500 or less and
no part of the account has been withdrawn during the prior 12 months;
> Taken because of the election of a systematic distribution option (see
"Systematic Distribution Options");
> Applied as a rollover to certain Roth IRAs issued by us or an affiliate;
29
<PAGE>
> If approved in your state, taken under a qualified contract, when the
amount withdrawn is equal to the minimum distribution required by the Tax
Code for your account calculated using a method permitted under the Tax
Code and agreed to by us (including required minimum distributions using
the ECO systematic distribution option (see "Systematic Distribution
Options")); or
> Paid upon termination of your account by us (see "Other Topics --
Involuntary Terminations").
Nursing Home Waiver. Under Option Packages II and III, you may withdraw all or a
portion of your account value without an early withdrawal charge if:
> More than one account year has elapsed since the schedule effective date;
> The withdrawal is requested within three years of the annuitant's admission
to a licensed nursing care facility (in Oregon there is no three year
limitation period and in New Hampshire non-licensed facilities are
included); and
> The annuitant has spent at least 45 consecutive days in such nursing care
facility.
We will not waive the early withdrawal charge if the annuitant was in a nursing
care facility for at least one day during the two week period immediately
preceding or following the schedule effective date. It will also not apply to
contracts issued in New York or as otherwise prohibited by state law.
Annual Maintenance Fee
Maximum Amount. $30.00
When/How. Each year during the accumulation phase we deduct this fee from your
account value. We deduct it on your account anniversary and at the time of full
withdrawal. It is deducted proportionally from each investment option.
Purpose. This fee reimburses us for our administrative expenses relating to the
establishment and maintenance of your account.
Elimination. We will not deduct the annual maintenance fee if your account value
is $50,000 or more on the date this fee is to be deducted.
Transfer Charge
Amount. During the accumulation phase we currently allow you 12 free transfers
each account year. We reserve the right to charge $10 for each additional
transfer. We currently do not impose this charge.
Purpose. This charge reimburses us for administrative expenses associated with
transferring your dollars among investment options.
FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT
Mortality and Expense Risk Charge
Maximum Amount. During the accumulation phase the amount of this charge, on an
annual basis, is equal to the following percentages of your account value
invested in the subaccounts:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Option Package I Option Package II Option Package III
- ------------------------------------------------------------------
<S> <C> <C>
0.80% 1.10% 1.25%
- ------------------------------------------------------------------
</TABLE>
30
<PAGE>
During the income phase this charge, on an annual basis, is equal to 1.25% of
amounts invested in the subaccounts.
When/How. We deduct this charge daily from the subaccounts corresponding to the
funds you select. We do not deduct this fee from any fixed interest option.
Purpose. This charge compensates us for the mortality and expense risks we
assume under the contract.
> The mortality risks are those risks associated with our promise to make
lifetime income phase payments based on annuity rates specified in the
contract.
> The expense risk is the risk that the actual expenses we incur under the
contract will exceed the maximum costs that we can charge.
If the amount we deduct for this charge is not enough to cover our mortality
costs and expenses under the contract, 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 charge.
Administrative Expense Charge
Maximum Amount. During the accumulation phase the amount of this charge, on an
annual basis, is equal to the following percentages of your account value
invested in the subaccounts:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Option Package I Option Package II Option Package III
- ------------------------------------------------------------------
<S> <C> <C>
0.15% 0.15% 0.15%
- ------------------------------------------------------------------
</TABLE>
There is currently no administrative expense charge during the income phase. We
reserve the right, however, to charge an administrative expense charge of up to
0.25% during the income phase.
When/How. If imposed, we deduct this charge daily from the subaccounts
corresponding to the funds you select. We do not deduct this charge from the
fixed interest options. If we are imposing this charge when you enter the income
phase, the charge will apply to you during the entire income phase.
Purpose. This charge helps defray our administrative expenses that cannot be
covered by the mortality and expense risk charges described above. This charge
is not intended to exceed the average expected cost of administering the
contract. We do not expect to make a profit from this charge.
REDUCTION OR ELIMINATION OF CERTAIN FEES
When sales of the contract are made to individuals or a group of individuals in
a manner that results in savings of sales or administrative expenses, we may
reduce or eliminate the early withdrawal charge, annual maintenance fee,
mortality and expense risk charge or administrative expense charge. Our decision
to reduce or eliminate any of these fees will be based on one or more of the
following:
> The size and type of group to whom the contract is issued;
> The amount of expected purchase payments;
31
<PAGE>
> A prior or existing relationship with the Company, such as being an
employee or former employee of the Company or one of our affiliates,
receiving distributions or making transfers from other contracts issued by
us or one of our affiliates or transferring amounts held under qualified
retirement plans sponsored by us or one of our affiliates;
> The type and frequency of administrative and sales services provided; or
> The level of annual maintenance fee and early withdrawal charges.
In the case of an exchange of another contract issued by us or one of our
affiliates where the early withdrawal charge has been waived, the early
withdrawal charge for certain contracts offered by this prospectus may be
determined based on the dates purchase payments were received in the prior
contract.
The reduction or elimination of any of these fees will not be unfairly
discriminatory against any person and will be done according to our rules in
effect at the time the contract is issued. We reserve the right to change these
rules from time to time. The right to reduce or eliminate any of these fees may
be subject to state approval.
FEES DEDUCTED BY THE FUNDS
Maximum Amount. Each fund's advisory fee and expenses are different. They are
set forth in "Fee Table--Fees Deducted by the Funds" and described in more
detail in each fund prospectus.
When/How. A fund's fees and expenses are not deducted from your account value.
Instead, they are reflected in the daily value of fund shares which, in turn,
will affect the daily value of the subaccounts.
Purpose. These fees and expenses help to pay the fund's investment adviser and
operating expenses.
PREMIUM AND OTHER TAXES
Maximum Amount. Some states and municipalities charge a premium tax on
annuities. These taxes currently range from 0% to 4%, depending upon the
jurisdiction.
When/How. We reserve the right to deduct premium taxes from your account value
or from purchase payments to the account 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 complete withdrawal or, at the commencement of income phase
payments, to reflect the cost of premium taxes in our income phase payment
rates.
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
> The current dollar values of amounts invested in the fixed interest
options, including interest earnings to date.
32
<PAGE>
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 shares. The value of your interests 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 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, and any other fees deducted from
investments in the separate account, such as guarantee charges for the
Aetna GET fund. See "Fees."
The net investment rate may be either positive or negative.
33
<PAGE>
Hypothetical Illustration. As a hypothetical illustration assume that your
initial purchase payment to a qualified contract is $5,000 and you direct us to
invest $3,000 in Fund A and $2,000 in Fund B. Also assume that on the day we
receive the purchase payment the applicable AUVs after the next close of
business of the New York Stock Exchange are $10 for Subaccount A and $20 for
Subaccount B. Your account is credited with 300 accumulation units of
Subaccount A, and 100 accumulation units of Subaccount B.
[graphic]
$5,000 Purchase Payment
Step 1 (down arrow)
Aetna Life Insurance and Annuity Company
Step 2 (down arrow)
Variable Annuity Account B
Subaccount A Subaccount B Etc.
300 80
accumulation accumulation
units units
(down arrow) Step 3 (down arrow)
Fund A Fund B
[end graphic]
Step 1: You make an initial purchase payment of $5,000.
Step 2:
A. You direct us to invest $3,000 in Fund A. The purchase payment purchases
300 accumulation units of Subaccount A ($3,000 divided by the current $10
AUV).
B. You direct us to invest $2,000 in Fund B. The purchase payment purchases
100 accumulation units of Subaccount B ($2,000 divided by the current $20
AUV).
Step 3: The separate account purchases shares of the applicable funds at the
then current market value (net asset value or NAV).
Each fund's subsequent investment performance, expenses and charges, and the
daily charges deducted from the subaccount, will cause the AUV to move up or
down on a daily basis.
Purchase Payments to Your Account. If all or a portion of your initial purchase
payment is directed to the subaccounts, it will purchase subaccount accumulation
units at the AUV next computed after our acceptance of your application as
described in "Purchase and Rights." Subsequent purchase payments or transfers
directed to the subaccounts will purchase subaccount accumulation units at the
AUV next computed following our receipt of the purchase payment or transfer
request in good order. The value of subaccounts may vary day to day.
34
<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")
> Market Value Adjustment for amounts held in the Guaranteed Account (see
Appendix I and the Guaranteed Account prospectus)
> 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 sales representative or call us at the number listed in
"Contract Overview--Questions: Contacting the Company."
[End sidebar]
Withdrawals
- --------------------------------------------------------------------------------
You may withdraw all or a portion of your account value at any time during the
accumulation phase. If you participate in the contract through a 403(b) plan,
certain restrictions apply. See "Restrictions on Withdrawals From 403(b) Plan
Accounts."
Steps for Making A Withdrawal
> Select the withdrawal amount.
(1) Full Withdrawal: You will receive, reduced by any required withholding tax,
your account value allocated to the subaccounts, the Guaranteed Account
(plus or minus any applicable market value adjustment) and the Fixed
Account, minus any applicable early withdrawal charge and 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 and any positive or negative market value
adjustment for amounts withdrawn from the Guaranteed Account. See
Appendices I and II and the Guaranteed Account prospectus for more
information about withdrawals from the Guaranteed Account and the Fixed
Account.
> 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 deliver it to our Home Office.
Restrictions on Withdrawals From 403(b) Plan Accounts
Under Section 403(b) contracts the withdrawal of salary reduction contributions
and earnings on such contributions is generally prohibited prior to the
participant's death, disability, attainment of age 59-1/2, separation from
service or financial hardship. See "Taxation."
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 on your account value as of the next valuation after we receive a
request for withdrawal in good order at our Home Office.
Delivery of Payment. Payments for withdrawal requests will be made in accordance
with SEC requirements. Normally, your withdrawal amount 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
your withdrawal. We must receive any reinvested amounts within 60 days of the
withdrawal. We reserve the right, however, to accept a reinvestment election
received more than 30 days after the withdrawal and accept proceeds received
more than 60 days after the withdrawal. We will credit your account for the
amount reinvested based on the subaccount values next computed following our
receipt of your request and the amount to be reinvested. We will credit the
35
<PAGE>
amount reinvested proportionally for annual maintenance fees and 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. If you withdraw amounts from a
series of the Aetna GET Fund and then elect to reinvest them, we will reinvest
them in a GET Fund series that is then accepting deposits, if one is available.
If one is not available, we will reallocate your GET amounts among other
investment options in which you invested, on a pro rata basis. The reinvestment
privilege may be used only once. Special rules apply to reinvestments of amounts
withdrawn from the Guaranteed Account (see Appendix I and the Guaranteed Account
prospectus). We will not credit your account for market value adjustments that
we deducted at the time of your withdrawal. Seek competent advice regarding the
tax consequences associated with reinvestment.
36
<PAGE>
[Begin sidebar]
Features of a Systematic Distribution Option
A systematic distribution option 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 may be 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.
> ECO--Estate Conservation Option. ECO offers the same investment flexibility
as SWO, but is designed for those who want to receive only the minimum
distribution that the Tax Code requires each year. Under ECO we calculate
the minimum distribution amount required by law, generally at age 70-1/2,
and pay you that amount once a year. ECO is not available under
nonqualified contracts. An early withdrawal charge will not be deducted
from and a market value adjustment will not be applied to any part of your
account value paid under an ECO.
> LEO--Life Expectancy Option. LEO provides for annual payments for a number
of years equal to your life expectancy or the life expectancy of you and a
designated beneficiary. It is designed to meet the substantially equal
periodic payment exception to the 10% premature distribution penalty under
Tax Code section 72. See "Taxation."
Other Systematic Distribution Options. We may add additional systematic
distribution options from time to time. You may obtain additional information
relating to any of the systematic distribution options from your sales
representative or by calling us at the number listed in "Contract Overview--
Questions: Contacting the Company."
Systematic Distribution Option Availability. If allowed by applicable law, we
may discontinue the availability of one or more of the systematic distribution
options for new elections at any time and/or to change the terms of future
elections.
Eligibility for a Systematic Distribution Option. To determine if you meet the
age and account value criteria and to assess terms and conditions that may
apply, contact your sales representative or the Company at the number listed in
"Contract Overview--Questions: Contacting the Company."
Terminating a Systematic Distribution Option. You may revoke a systematic
distribution option at any time by submitting a written request to our Home
Office. ECO, once revoked, may not, unless allowed under the Tax Code, be
elected again.
Charges and Taxation. When you elect a systematic distribution option 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 systematic distribution option may have tax consequences. If you are
concerned about tax implications, consult a qualified tax adviser before
electing an option.
37
<PAGE>
[Begin sidebar]
This section provides information about the death benefit during the
accumulation phase. For death benefit information applicable to the income
phase, see "The Income Phase."
Terms to Understand:
Account Year/Account Anniversary: A period of 12 months measured from the date
we established your account and each anniversary of this date. Account
anniversaries are measured from this date.
Annuitant(s): The person(s) on whose life or life expectancy(ies) the income
phase payments are based.
Beneficiary(ies): The person(s) or entity(ies) entitled to receive a death
benefit under the contract.
Claim Date: The date proof of death and the beneficiary's right to receive the
death benefit are received in good order at our Home Office.
Contract Holder (You/Your): The contract holder of an individually owned
contract or the certificate holder of a group contract. The contract holder and
annuitant may be the same person.
Schedule Effective Date: The date an option package and benefits become
effective. The initial schedule effective date equals the date we established
your account. Thereafter, this date can occur only on an account anniversary.
[End sidebar]
Death Benefit
- --------------------------------------------------------------------------------
During the Accumulation Phase
Who Receives the Death Benefit? If you would like certain individuals or
entities to receive the death benefit when it becomes payable, you may name them
as your beneficiaries. However, if you are a joint contract holder and you die,
the beneficiary will automatically be the surviving joint contract holder. In
this circumstance any other beneficiary you named will be treated as the
primary or contingent beneficiary, as originally named, of the surviving joint
contract holder. The surviving joint contract holder may change the beneficiary
designation. If you die and no beneficiary exists, the death benefit will be
paid in a lump sum to your estate.
Designating Your Beneficiary. You may designate a beneficiary on your
application or by contacting your sales representative or us as indicated in
"Contract Overview--Questions: Contacting the Company."
When is a Death Benefit Payable? During the accumulation phase a death benefit
is payable when the contract holder or the annuitant dies. If there are joint
contract holders, the death benefit is payable when either one dies.
Death Benefit Amount. The death benefit depends upon the option package in
effect on the date the annuitant dies.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Option Package I Option Package II Option Package III
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Death Benefit The greater of: The greatest of: The greatest of:
on Death of (1) The sum of (1) The sum of (1) The sum of
the Annuitant: all purchase all purchase all purchase
payments, payments, payments,
adjusted for adjusted for adjusted for
amounts amounts amounts
withdrawn or withdrawn or withdrawn or
applied to an applied to an applied to an
income phase income phase income phase
payment option payment option payment option
as of the claim as of the claim as of
date; or date; or the claim date; or
(2) The account (2) The account (2) The account
value on the value on the value on the
claim date. claim date; or claim date; or
(3) The "step-up (3) The "step-up
value" (as value" (as
described below) described below)
on the claim date. on the claim
date; or
(4) The "roll-up
value" (as
described below)
on the claim
date.*
- --------------------------------------------------------------------------------
</TABLE>
*The roll-up value is not available on contracts issued in the State of New
York.
Step-up Value. On the schedule effective date, the step-up value is equal to the
greater of:
> The account value; or
38
<PAGE>
> The step-up value, if any, calculated on the account anniversary prior to
the schedule effective date, adjusted for purchase payments made and
amounts withdrawn or applied to an income phase payment option during the
prior account year.
Thereafter, once each year on the anniversary of the schedule effective date
until the anniversary immediately preceding the annuitant's 85th birthday or
death, whichever is earlier, the step-up value is equal to the greater of:
> The step-up value most recently calculated, adjusted for purchase payments
made and amounts withdrawn or applied to an income phase payment option
during the prior account year; or
> The account value on that anniversary of the schedule effective date.
On each anniversary of the schedule effective date after the annuitant's 85th
birthday, the step-up value shall be equal to the step-up value on the
anniversary immediately preceding the annuitant's 85th birthday, adjusted for
purchase payments made and amounts withdrawn or applied to an income phase
payment option since that anniversary.
On the claim date, the step-up value shall equal the step-up value on the
anniversary of the schedule effective date immediately preceding the annuitant's
death, adjusted for purchase payments made and amounts withdrawn or applied to
an income phase payment option since that anniversary.
Roll-up Value. On the schedule effective date, the roll-up value is equal to the
account value. Thereafter, once each year on the anniversary of the schedule
effective date until the anniversary immediately preceding the annuitant's 76th
birthday or death, whichever is earlier, the roll-up value is equal to the
roll-up value most recently calculated multiplied by a factor of 1.05, adjusted
for purchase payments made and amounts withdrawn or applied to an income phase
payment option during the prior account year. The roll-up value may not exceed
200% of the account value on the schedule effective date, adjusted for purchase
payments made and amounts withdrawn or applied to an income phase payment option
since that date.
On each anniversary of the schedule effective date after the annuitant's 76th
birthday, the roll-up value shall be equal to the roll-up value on the
anniversary immediately preceding the annuitant's 76th birthday, adjusted for
purchase payments made and amounts withdrawn or applied to an income phase
payment option since that anniversary. On the claim date, the roll-up value
shall equal the roll-up value on the anniversary of the schedule effective date
immediately preceding the annuitant's death, adjusted for purchase payments made
and amounts withdrawn or applied to an income phase payment option since that
anniversary.
The "roll-up value" is not available on contracts issued in the State of New
York. For contracts issued in the state of New York, the benefit payable upon
the death of the annuitant under Option Package III is the same as that
described under Option Package II. Therefore, contract holders of contracts
issued in New York should seriously consider whether Option Package III is
suitable for their circumstances.
Adjustment. For purposes of determining the death benefit, the adjustment for
purchase payments made will be dollar for dollar. The adjustment for amounts
withdrawn or applied to an income phase payment option will be
39
<PAGE>
proportionate, reducing the sum of all purchase payments made, the step-up value
and the roll-up value in the same proportion that the account value was reduced
on the date of the withdrawal or application to an income phase payment option.
Death Benefit Greater than the Account Value. Notwithstanding which option
package is selected, on the claim date, if the amount of the death benefit is
greater than the account value, the amount by which the death benefit exceeds
the account value will be deposited and allocated to the money market subaccount
available under the contract, thereby increasing the account value available to
the beneficiary to an amount equal to the death benefit.
Prior to the election of a method of payment of the death benefit 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 has the right to allocate or transfer any amount to any available
investment option (subject to a market value adjustment, as applicable). The
amount paid to the beneficiary will equal the adjusted account value on the day
the payment is processed.
Death Benefit Amounts in Certain Cases
If a Spousal Beneficiary Continues the Account Following the Death of the
Contract Holder/Annuitant. If a spousal beneficiary continues the account at the
death of a contract holder who was also the annuitant, the spousal beneficiary
becomes the annuitant. The option package in effect at the death of the contract
holder will also apply to the spousal beneficiary, unless later changed by the
spousal beneficiary.
The amount of the death benefit payable at the death of a spousal beneficiary
who has continued the account shall be determined under the option package then
in effect, except that:
(1) In calculating the sum of all purchase payments, adjusted for amounts
withdrawn or applied to an income phase payment option, the account value
on the claim date following the original contract holder's/ annuitant's
death shall be treated as the spousal beneficiary's initial purchase
payment;
(2) In calculating the step-up value, the step-up value on the claim date
following the original contract holder's/annuitant's death shall be treated
as the spousal beneficiary's initial step-up value; and
(3) In calculating the roll-up value, the roll-up value on the claim date
following the original contract holder's/annuitant's death shall be treated
as the initial roll-up value.
If the Contract Holder is not the Annuitant. Under nonqualified contracts only
the death benefit described above under Option Packages I, II and III will not
apply if a contract holder (including a spousal beneficiary who has continued
the account) who is not also the annuitant dies. In these circumstances the
amount paid will be equal to the account value on the date the payment is
processed, plus or minus any market value adjustment. An early withdrawal charge
may apply to any full or partial payment of this death benefit.
Because the death benefit in these circumstances equals the account value, plus
or minus any market value adjustment, a contract holder who is not also the
40
<PAGE>
annuitant should seriously consider whether Option Packages II and III are
suitable for their circumstances.
If the spousal beneficiary who is the annuitant continues the account at the
death of the contract holder who was not the annuitant, the annuitant will not
change. The option package in effect at the death of the contract holder will
also apply to the spousal beneficiary, unless later changed by the spousal
beneficiary, and the death benefit payable at the spousal beneficiary's death
shall be determined under the option package then in effect.
Guaranteed Account. For amounts held in the Guaranteed Account, see Appendix I
for a discussion of the calculation of the death benefit.
Death Benefit--Methods of Payment
For Qualified Contracts. Under a qualified contract if the annuitant dies the
beneficiary may choose one of the following three methods of payment:
> Apply some or all of the account value, plus or minus any market value
adjustment, to any of the income phase payment options (subject to the Tax
Code distribution rules (see "Taxation - Minimum Distribution
Requirements"));
> Receive, at any time, a lump-sum payment equal to all or a portion of the
account value, plus or minus any market value adjustment; or
> Elect SWO, ECO or LEO (described in "Systematic Distribution Options"),
provided the election would satisfy the Tax Code minimum distribution
rules.
Payments from a Systematic Distribution Option. If the annuitant was receiving
payments under a systematic distribution option and died before the Tax Code's
required beginning date for minimum distributions, payments under the systematic
distribution option will stop. The beneficiary, or contract holder on behalf of
the beneficiary, may elect a systematic distribution option provided the
election is permitted under the Tax Code minimum distribution rules. If the
annuitant dies after the required beginning date for minimum distributions,
payments will continue as permitted under the Tax Code minimum distribution
rules, unless the option is revoked.
Distribution Requirements. Subject to Tax Code limitations, a beneficiary may be
able to defer distribution of the death benefit. Death benefit payments must
satisfy the distribution rules in Tax Code Section 401(a)(9). See "Taxation."
For Nonqualified Contracts.
(1) If you die and the beneficiary is your surviving spouse, or if you are a
non-natural person and the annuitant dies and the beneficiary is the
annuitant's surviving spouse, then the beneficiary becomes the successor
contract holder. In this circumstance the Tax Code does not require
distributions under the contract until the successor contract holder's
death.
As the successor contract holder, the beneficiary may exercise all rights
under the account and has the following options:
(a) Continue the contract in the accumulation phase;
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<PAGE>
(b) Elect to apply some or all of the account value, plus or minus any
market value adjustment, to any of the income phase payment options;
or
(c) Receive at any time a lump-sum payment equal to all or a portion of
the account value, plus or minus any market value adjustment.
If you die and are not the annuitant, an early withdrawal charge will apply
if a lump sum is elected.
(2) If you die and the beneficiary is not your surviving spouse, he or she may
elect option 1(b) or option 1(c) above (subject to the Tax Code
distribution rules). See "Taxation--Minimum Distribution Requirements."
In this circumstance the Tax Code requires any portion of the account
value, plus or minus any market value adjustment, not distributed in
installments over the beneficiary's life or life expectancy, beginning
within one year of your death, must be paid within five years of your
death. See "Taxation."
(3) If you are a natural person but not the annuitant and the annuitant dies,
the beneficiary may elect option 1(b) or 1(c) above. If the beneficiary
does not elect option 1(b) within 60 days from the date of death, the gain,
if any, will be included in the beneficiary's income in the year the
annuitant dies.
Payments from a Systematic Distribution Option. If the contract holder or
annuitant dies and payments were made under SWO, payments will stop. A
beneficiary, however, may elect to continue SWO.
Taxation. In general, payments received by your beneficiary after your death are
taxed to the beneficiary in the same manner as if you had received those
payments. Additionally, your beneficiary may be subject to tax penalties if he
or she does not begin receiving death benefit payments within the time-frame
required by the Tax Code. See "Taxation."
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<PAGE>
[Begin sidebar]
We may have used the following terms in prior prospectuses:
Annuity Phase--Income Phase
Annuity Option--Income Phase Payment Option
Annuity Payment--Income Phase Payment
[End sidebar]
The Income Phase
- --------------------------------------------------------------------------------
During the income phase you stop contributing dollars to your account and start
receiving payments from your accumulated account value.
Initiating Payments. At least 30 days prior to the date you want to start
receiving payments you must notify us in writing of all of the following:
> Payment start date;
> Income phase payment option (see the income phase payment options table in
this section);
> Payment frequency (i.e., monthly, quarterly, semi-annually or annually);
> Choice of fixed, variable or a combination of both fixed and variable
payments; and
> Selection of an assumed net investment rate (only if variable payments are
elected).
Your account will continue in the accumulation phase until you properly initiate
income phase payments. Once an income phase payment option is selected it may
not be changed.
What Affects Payment Amounts? Some of the factors that may affect the amount of
your income phase payments include your age, gender, account value, the income
phase payment option selected, the number of guaranteed payments (if any)
selected and whether you select fixed, variable or a combination of both fixed
and variable payments and, for variable payments, the assumed net investment
rate selected.
Fixed Payments. Amounts funding fixed income phase payments will be held in the
Company's general account. The amount of fixed payments does not vary with
investment performance over time.
Variable Payments. Amounts funding your variable income phase payments will be
held in the subaccount(s) you select. Not all subaccounts available during the
accumulation phase may be available during the income phase. Payment amounts
will vary depending upon the performance of the subaccounts you select. For
variable income phase payments, you must select an assumed net investment rate.
Assumed Net Investment Rate. If you select variable income phase payments, you
must also select an assumed net investment rate of either 5% or 3-1/2%. If you
select a 5% rate, your first income phase 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 income phase 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 "Contract Overview--Questions: Contacting the Company."
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<PAGE>
Minimum Payment Amounts. The income phase payment option you select must result
in:
> A first income phase payment of at least $50; or
> Total yearly income phase payments of at least $250.
If your account value is too low to meet these minimum payment amounts, you will
receive one lump-sum payment. Unless prohibited by law, we reserve the right to
increase the minimum payment amount based on increases reflected in the Consumer
Price Index-Urban (CPI-U) since July 1, 1993.
Restrictions on Start Dates and the Duration of Payments. Income phase payments
may not begin during the first account year, or, unless we consent, later than
the later of:
(a) The first day of the month following the annuitant's 85th birthday; or
(b) The tenth anniversary of the last purchase payment made to your account.
Income phase payments will not begin until you have selected an income phase
payment option. Failure to select an income phase payment option by the later of
the annuitant's 85th birthday or the tenth anniversary of your last purchase
payment may have adverse tax consequences. You should consult with a qualified
tax adviser if you are considering delaying the selection of an income phase
payment option before the later of these dates.
For qualified contracts only, income phase payments may not extend beyond:
(a) The life of the annuitant;
(b) The joint lives of the annuitant and beneficiary;
(c) A guaranteed period greater than the annuitant's life expectancy; or
(d) A guaranteed period greater than the joint life expectancies of the
annuitant and beneficiary.
When income phase payments start the age of the annuitant plus the number of
years for which payments are guaranteed may not exceed 95.
See "Taxation" for further discussion of rules relating to income phase
payments.
Charges Deducted. We make a daily deduction for mortality and expense risks from
amounts held in the subaccounts. Therefore, if you choose variable income phase
payments and a nonlifetime income phase 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 "Income Phase Payment Options" 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 the payment in good order at our Home Office. If continuing income
phase payments are elected, the beneficiary may not elect to receive a lump sum
at a future date unless the income phase payment option specifically allows a
withdrawal 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 made after the date of death.
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<PAGE>
Beneficiary Rights. A beneficiary's right to elect an income phase payment
option or receive a lump-sum payment may have been restricted by the contract
holder. If so, such rights or options will not be available to the beneficiary.
Partial Entry into the Income Phase. You may elect an income phase 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; therefore, you should consult with a qualified tax adviser before
electing this option. The same or different income phase 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 an
income phase payment option, the Tax Code requires that your expected payments
will not exceed certain durations. See "Taxation" for additional information.
Payment Options.
The following table lists the income phase payment options and accompanying
death benefits available during the income phase. We may offer additional income
phase payment options under the contract from time to time.
Once income phase payments begin the income phase payment option selected may
not be changed.
Terms to understand:
Annuitant(s): The person(s) on whose life expectancy(ies) the income phase
payments are based.
Beneficiary(ies): The person(s) or entity(ies) entitled to receive a death
benefit under the contract.
45
<PAGE>
<TABLE>
<CAPTION>
Lifetime Payment Options
- -------------------------------------------------------------------------------------------------------------------------------
<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 to 30 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 continue to pay the beneficiary the remaining payments, unless the
Payments beneficiary elects to receive a lump-sum payment equal 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: When you select this option you choose for:
Life Income-- (a) 100%, 66-2/3% or 50% of the payment to continue to the surviving annuitant after the first
Two Lives death; or
(b) 100% of the payment to continue to the annuitant on the second annuitant's death, and 50%
of the payment to 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 from 5 to 30
years or as otherwise specified in the contract.
Life Income -- Continuing Payments: 100% of the payment to continue to the surviving annuitant after the first death.
Two Lives -- Death Benefit--Payment to the Beneficiary: If both annuitants die before we have made all the
Guaranteed guaranteed payments, we will continue to pay the beneficiary the remaining payments, unless the
Payments beneficiary elects to receive a lump-sum payment equal to the present value of the remaining
guaranteed payments.
- -------------------------------------------------------------------------------------------------------------------------------
Life Income--
Cash Refund Length of Payments: For as long as the annuitant lives.
Option (limited Death Benefit--Payment to the Beneficiary: Following the annuitant's death, we will pay a lump
availability -- sum payment equal to the amount originally applied to the income phase payment option (less
fixed payments any applicable premium tax) and less the total amount of income payments paid.
only)
- -------------------------------------------------------------------------------------------------------------------------------
Life Income-- Length of Payments: For as long as either annuitant lives.
Two Lives--Cash Continuing Payments: 100% of the payment to continue after the first death.
Refund Option Death Benefit--Payment to the Beneficiary: When both annuitants die we will pay a lump-sum
(limited payment equal to the amount applied to the income phase payment option (less any applicable
availability--fixed premium tax) and less the total amount of income payments paid.
payments only)
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Nonlifetime Payment Option
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Length of Payments: You may select payments for 5 to 30 years. In certain cases a lump-sum pay-
ment may be requested at any time (see below).
Nonlifetime-- Death Benefit--Payment to the Beneficiary: If the annuitant dies before we make all the guaran-
Guaranteed teed payments, we will continue to pay the beneficiary the remaining payments, unless the benefi-
Payments ciary elects to receive a lump-sum payment equal to the present value of the remaining guaran-
teed payments. We will not impose any early withdrawal charge.
- -------------------------------------------------------------------------------------------------------------------------------
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. Any such lump-sum
payments will be treated as a withdrawal during the accumulation phase and we will charge any applicable early withdrawal
charge. See "Fees--Early Withdrawal Charge." Lump-sum payments will be sent within seven calendar days after we receive the
request for payment in good order at the Home Office.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Calculation of Lump-Sum Payments: If a lump-sum payment is available under the
income phase payment options above, the rate used to calculate the present value
of the remaining guaranteed payments is the same rate we used to calculate the
income phase payments (i.e., the actual fixed rate used for fixed payments or
the 3-1/2% or 5% assumed net investment rate used for variable payments).
46
<PAGE>
[Begin sidebar]
In this Section
INTRODUCTION
CONTRACT TYPE
WITHDRAWALS AND OTHER DISTRIBUTIONS
o Taxation of Distributions
o 10% Penalty Tax
o Withholding for Federal Income Tax Liability
MINIMUM DISTRIBUTION REQUIREMENTS
o 50% Excise Tax
o Minimum Distribution of Death Benefit Proceeds (403(b) Plans and
408(b) and 408A IRAs)
o Minimum Distribution of Death Benefit Proceeds (Nonqualified
Contracts)
RULES SPECIFIC TO CERTAIN PLANS
o 403(b) Plans
o 408(b) and 408A IRAs
TAXATION OF NONQUALIFIED CONTRACTS
TAXATION OF THE COMPANY
When consulting a tax adviser, be certain that he or she has expertise in the
Tax Code sections applicable to your tax concerns.
[End sidebar]
Taxation
- --------------------------------------------------------------------------------
INTRODUCTION
This section discusses our understanding of current federal income tax laws
affecting the contract. You should keep the following in mind when reading it:
> 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;
> We do not make any guarantee about the tax treatment of the contract or any
transaction involving the contract; and
> Contract holder means the contract holder of an individually owned contract
or the certificate holder of a group contract.
- --------------------------------------------------------------------------------
We do not intend this information to be tax advice. For advice about the effect
of federal income taxes or any other taxes on amounts held or paid out under the
contract, consult a tax adviser.
- --------------------------------------------------------------------------------
Taxation of Gains Prior to Distribution. You generally will not pay taxes on any
earnings from the annuity contract described in this prospectus until they are
withdrawn. Tax-qualified retirement arrangements under Tax Code sections 403(b),
408(b) and 408A also generally defer payment of taxes on earnings until they are
withdrawn. (See "Taxation of Distributions" later in this "Taxation" section for
a discussion of how distributions under the various types of arrangements are
taxed.) If you are considering funding one of these tax-qualified retirement
arrangements with an annuity contract, you should know that the annuity contract
does not provide any additional tax deferral of earnings beyond the tax deferral
provided by the tax-qualified retirement arrangement. However, annuities do
provide other features and benefits which may be valuable to you. You should
discuss your decision with your financial representative.
Additionally, although earnings under the contract are generally not taxed until
withdrawn, the Internal Revenue Service (IRS) has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of investment control over the
assets. In these circumstances income and gains from the separate account
assets would be currently 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 therefore reserves the right to
modify the contract as necessary to attempt to prevent the 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
47
<PAGE>
with Treasury Regulations in order for the contract to qualify as an annuity
contract 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.
CONTRACT TYPE
The contract is designed for use on a non-tax qualified basis as a nonqualified
contract or with certain retirement arrangements that qualify under Tax Code
sections 403(b), 408(b) or 408A.
Tax Rules. The tax rules vary according to whether the contract is a
nonqualified contract or used with a qualified retirement arrangement. If used
with a qualified retirement arrangement, you need to know the Tax Code section
under which your arrangement qualifies. Contact your plan sponsor, sales
representative or the Company to learn which Tax Code section applies to your
arrangement.
The Contract. Contract holders are responsible for determining that
contributions, distributions and other transactions satisfy applicable laws.
Legal counsel and a tax adviser should be consulted regarding the suitability of
the contract. If the contract is purchased in conjunction with a retirement
plan, the plan is not a part of the contract and we are not bound by the plan's
terms or conditions.
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 phase payments,
rollovers, exchanges and death benefit proceeds.
We report the taxable portion of all distributions to the IRS.
Taxation of Distributions
Nonqualified Contracts. 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 account 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 income phase 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(c). The entire annuity payment will be taxable once the recipient has
recovered the investment in the contract.
For variable income phase 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 payment will be taxable once the recipient has
recovered the investment in the contract.
48
<PAGE>
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.
403(b) Plans. All distributions from these plans are taxed as received unless
either of the following is true:
> The distribution is rolled over to another plan of the same type or to a
traditional IRA in accordance with the Tax Code; or
> You made after-tax contributions to the plan. In this case, depending upon
the type of distribution, the amount will be taxed according to the rules
detailed in the Tax Code.
408(b) IRAs. All distributions from a traditional IRA are taxed as received
unless either one of the following is true:
> The distribution is rolled over to another traditional IRA or, if the IRA
contains only amounts previously rolled over from a 401(a), 401(k) or
403(b) plan, the distribution is transferred to another plan of the same
type; or
> You made after-tax contributions to the plan. In this case the distribution
will be taxed according to rules detailed in the Tax Code.
408A Roth IRAs. A qualified distribution from a Roth IRA is not taxed when it is
received. A qualified distribution is a distribution:
> Made after the five-taxable year period beginning with the first taxable
year for which a contribution was made; and
> Made after you attain age 59-1/2, die, become disabled as defined in the
Tax Code or for a qualified first-time home purchase.
If a distribution is not qualified, it will be taxable to the extent of the
accumulated earnings. A partial distribution will first be treated as a return
of contributions which is not taxable and then as taxable accumulated earnings.
Taxation of 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
Under certain circumstances the Tax Code may impose a 10% penalty tax on the
taxable portion of any distribution from a nonqualified contract or from a
contract used with a 403(b), 408(b) or 408A arrangement.
Nonqualified Contracts. The 10% penalty tax applies to the taxable portion of a
distribution from a nonqualified annuity unless certain exceptions apply,
including one or more of the following:
(a) You have attained age 59-1/2;
(b) You have become disabled as defined in the Tax Code;
(c) You have died;
49
<PAGE>
(d) The distribution is made in substantially equal periodic payments (at least
annually) over your life or life expectancy or the joint lives or joint
life expectancies of you and your beneficiary; or
(e) The distribution is allocable to investment in the contract before August
14, 1982.
403(b) Plans. The 10% penalty tax applies to the taxable portion of a
distribution from a 403(b) plan, unless certain exceptions apply, including one
or more of the following:
(a) You have attained age 59-1/2;
(b) You have become disabled as defined in the Tax Code;
(c) You have died;
(d) You have separated from service with the plan sponsor at or after age 55;
(e) The distribution is rolled over into another plan of the same type or to an
IRA in accordance with the Tax Code;
(f) You have separated from service with the plan sponsor and the distribution
is made in substantially equal periodic payments (at least annually) over
your life or life expectancy or the joint lives or joint life expectancies
of you and your beneficiary; or
(g) The distribution is equal to unreimbursed medical expenses that qualify for
deduction as specified in the Tax Code.
408(b) and 408A IRAs. In general, except for (d), the exceptions for 403(b)
plans also apply to distributions from an IRA, including a distribution from a
Roth IRA that is not a qualified distribution or a rollover to a Roth IRA that
is not a qualified rollover contribution. The penalty tax is also waived on a
distribution made from an IRA to pay for health insurance premiums for certain
unemployed individuals or used for a qualified first-time home purchase or for
higher education expenses.
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.
Nonqualified Contracts. Generally, you or a beneficiary may elect not to have
tax withheld from distributions.
403(b) Plans. Generally, distributions from these plans are subject to a
mandatory 20% federal income tax withholding. However, withholding will not be
required if you elect a direct rollover of the distributions or in the case of
certain distributions described in the Tax Code.
408(b) and 408A IRAs. Generally, you or a beneficiary may elect not to have tax
withheld from distributions.
Non-resident Aliens. 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 REQUIREMENTS
To avoid certain tax penalties, you and any beneficiary must meet the minimum
distribution requirements imposed by the Tax Code. The requirements do not apply
to either nonqualified contracts or Roth IRA
50
<PAGE>
contracts, except with regard to death benefits. These rules may dictate one or
more of the following:
> Start date for distributions;
> The time period in which all amounts in your account(s) must be
distributed; or
> Distribution amounts.
Start Date. Generally, you must begin receiving distributions by April 1 of the
calendar year following the calendar year in which you attain age 70-1/2 or
retire, whichever occurs later, unless:
> You are a 5% owner or the contract is an IRA, in which case such
distributions must begin by April 1 of the calendar year following the
calendar year in which you attain age 70-1/2; or
> Under 403(b) plans, if the Company maintains separate records of amounts
held as of December 31, 1986. In this case distribution of these amounts
generally must begin by the end of the calendar year in which you attain
age 75 or retire, if later. However, if you take any distributions in
excess of the minimum required amount, then special rules require that some
or all of the December 31, 1986 balance be distributed earlier.
Time Period. We must pay out distributions from the contract over one of the
following time periods:
> Over your life or the joint lives of you and your beneficiary; or
> Over a period not greater than your life expectancy or the joint life
expectancies of you and your beneficiary.
50% Excise Tax
If you fail to receive the minimum required distribution for any tax year, a 50%
excise tax is imposed on the required amount that was not distributed.
Minimum Distribution of Death Benefit Proceeds
(403(b) Plans and 408(b) and 408A IRAs)
The following applies to 403(b), 408(b) and 408A arrangements. Different
distribution requirements apply if your death occurs:
> After you begin receiving minimum distributions under the contract; or
> Before you begin receiving such distributions.
If your death occurs after you begin receiving minimum distributions under the
contract, distributions must be made at least as rapidly as under the method in
effect at the time of your death. Tax Code section 401(a)(9) provides specific
rules for calculating the minimum required distributions at your death. The
rules differ, depending upon:
> Whether your minimum required distribution was calculated each year based
on your single life expectancy or the joint life expectancies of you and
your beneficiary; or
> Whether life expectancy was recalculated.
The rules are complex and any beneficiary should consult with a tax adviser
before electing the method of calculation to satisfy the minimum distribution
requirements.
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If your death occurs before you begin receiving minimum distributions under the
contract, your entire balance must be distributed by December 31 of the calendar
year containing the fifth anniversary of the date of your death. For example, if
you die on September 1, 2000, your entire balance must be distributed to the
beneficiary by December 31, 2005. However, if distributions begin by December 31
of the calendar year following the calendar year of your death, then payments
may be made over either of the following time-frames:
> Over the life of the beneficiary; or
> Over a period not extending beyond the life expectancy of the beneficiary.
Start Dates for Spousal Beneficiaries. If the beneficiary is your spouse,
distributions must begin on or before the later of the following:
> December 31 of the calendar year following the calendar year of your death;
or
> December 31 of the calendar year in which you would have attained age
70-1/2.
Special Rule for IRA Spousal Beneficiaries. In lieu of taking a distribution
under these rules, a spousal beneficiary may elect to treat the account as his
or her own IRA and defer taking a distribution until his or her age 70-1/2. The
surviving spouse is deemed to have made such an election if the surviving spouse
makes a rollover to or from the account or fails to take a distribution within
the required time period.
Minimum Distribution of Death Benefit Proceeds
(Nonqualified Contracts)
Death of the Contract Holder. The following requirements apply to nonqualified
contracts at your death. Different distribution requirements apply if your death
occurs:
> After you begin receiving income phase payments under the contract; or
> Before you begin receiving such distributions.
If your death occurs after you begin receiving income phase payments,
distributions 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 income phase payments, your
entire balance must be distributed within five years after the date of your
death. For example, if you die on September 1, 2000, your entire balance must be
distributed by August 31, 2005. However, if distributions begin within one year
of your death, then payments may be made over 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 account may be
continued with the surviving spouse as the new contract holder.
Death of Annuitant. If the contract holder is a non-natural person and the
annuitant dies, the same rules apply as outlined above for death of a contract
holder. If the contract holder is a natural person but not the annuitant and the
annuitant dies, the beneficiary must elect an income phase payment option within
60 days of the date of death, or any gain under the contract will be includible
in the beneficiary's income in the year the annuitant dies.
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RULES SPECIFIC TO CERTAIN PLANS
403(b) Plans
Under Tax Code section 403(b), contributions made by public school systems or
nonprofit healthcare organizations and other Tax Code section 501(c)(3) tax
exempt organizations to purchase annuity contracts for their employees are
generally excludable from the gross income of the employee.
Assignment or Transfer of Contracts. Adverse tax consequences to the plan and/or
to you may result if your beneficial interest in the contract is assigned or
transferred to any person except to an alternate payee under a qualified
domestic relations order in accordance with Tax Code section 414(p) or to the
Company as collateral for a loan.
Exclusions from Gross Income. In order to be excludable from gross income, total
annual contributions made by you and your employer to a 403(b) plan cannot
exceed the lesser of the following limits set by the Tax Code:
> The first limit, under Tax Code section 415, is generally the lesser of 25%
of your compensation or $30,000. Compensation means your compensation from
the employer sponsoring the plan and, for years beginning after December
31, 1997, includes any elective deferrals under Tax Code section 402(g) and
any amounts not includible in gross income under Tax Code sections 125 or
457;
> The second limit, which is the exclusion allowance under Tax Code section
403(b), is usually calculated according to a formula that takes into
account your length of employment, any pretax contributions you and your
employer have already made under the plan and any pretax contributions to
certain other retirement plans; or
> An additional limit specifically limits your salary reduction contributions
to generally no more than $10,000 annually (subject to indexing). Your own
limit may be higher or lower, depending upon certain conditions.
The first two limits apply to your contributions as well as to any contributions
made by your employer on your behalf.
Purchase payments to your account(s) will be excluded from your gross income
only if the plan meets certain nondiscrimination requirements.
Restrictions on Distributions. Tax Code section 403(b)(11) restricts the
distribution under Tax Code section 403(b) contracts of:
(1) Salary reduction contributions made after December 31, 1988;
(2) Earnings on those contributions; and
(3) Earnings during such period on amounts held as of December 31, 1988.
Distribution of those amounts may only occur upon your death, attainment of age
59-1/2, separation from service, disability or financial hardship. Income
attributable to salary reduction contributions and credited on or after January
1, 1989, may not be distributed in the case of hardship.
408(b) and 408A IRAs
Tax Code section 408(b) permits eligible individuals to contribute to a
traditional IRA on a pre-tax (deductible) basis. Employers may establish
Simplified Employee Pension (SEP) plans and contribute to a traditional IRA
owned by the employee. Tax Code section 408A permits eligible individuals to
contribute to a Roth IRA on an after-tax (nondeductible) basis.
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Assignment or Transfer of Contracts. Adverse tax consequences may result if you
assign or transfer your interest in the contract to persons other than your
spouse incident to a divorce.
Eligibility. Eligibility to contribute to a traditional IRA on a pre-tax basis
or to establish a Roth IRA or to roll over or transfer from a traditional IRA to
a Roth IRA depends upon your adjusted gross income.
Rollovers and Transfers. Rollovers and direct transfers are permitted from a
401, 403(a) or a 403(b) arrangement to a traditional IRA. Distributions from
these arrangements are not permitted to be transferred or rolled over to a Roth
IRA. A Roth IRA can accept transfers/rollovers only from a traditional IRA,
subject to ordinary income tax, or from another Roth IRA.
TAXATION OF NONQUALIFIED CONTRACTS
In General. Tax Code section 72 governs taxation of annuities in general. Under
a nonqualified contract if you are a natural person you generally are not taxed
on increases in the account value until distribution occurs by withdrawing all
or part of such account value. The taxable portion of a distribution is taxable
as ordinary income.
Non-Natural Holders of a Nonqualified Contract. If you are 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 this rule and a non-natural person should consult with
its tax adviser prior to purchasing the contract. A non-natural person exempt
from federal income taxes should consult with its 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.
Transfers, Assignments or Exchanges of a Nonqualified Contract. A transfer of
ownership of a nonqualified contract, the designation of an annuitant, payee 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 account 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
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
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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
account value invested in the subaccounts.
Other Topics
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The Company
We issue the contract described in this prospectus and are 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
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 contract are
obligations of the Company.
Contract Distribution
We 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. (NASD).
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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 contract 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 contract directly. All individuals
offering and selling the contract must be registered representatives of a
broker-dealer, or employees of a bank exempt from registration under the
Securities Exchange Act of 1934, and must be licensed as insurance agents to
sell variable annuity contracts.
Occasionally we may enter into arrangements with independent entities to help
find broker-dealers or banks interested in distributing the contract or to
provide training, marketing and other sales-related functions or administrative
services. We will reimburse such entities for expenses related to and may pay
fees to such entities in return for these services.
We may offer customers of certain broker-dealers special guaranteed rates in
connection with the Guaranteed Account offered through the contract and may
negotiate different commissions for these broker-dealers.
We may also contract with independent third party broker-dealers who will act as
wholesalers by assisting us in selecting broker-dealers or banks interested in
acting as distributors. These wholesalers may also provide training, marketing
and other sales related functions for the Company and the distributors and may
provide certain administrative services in connection with the contract. We may
pay such wholesalers compensation based on payments to contracts purchased
through distributors that they select.
We may also designate third parties to provide services in connection with the
contracts such as reviewing applications for completeness and compliance with
insurance requirements and providing the distributors with approved marketing
material, prospectuses or other supplies. These parties will also receive
payments for their services based on purchase payments, to the extent such
payments are allowed by applicable securities laws. We will pay all costs and
expenses related to these services.
Payment of Commissions
We pay distributors and their registered representatives who sell the contract
commissions and service fees. Distributors will be paid commissions up to an
amount currently equal to 7% of purchase payments or as a combination of a
certain percentage of purchase payments at time of sale and a trail commission
as a percentage of assets. Under the latter arrangement commission payments may
exceed 7% of purchase payments over the life of the 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 pay these commissions, fees and related distribution expenses out of any
early withdrawal charges assessed or out of our general assets, including
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investment income and any profit from investment advisory fees and mortality and
expense risk charges. No additional deductions or charges are imposed for
commissions and related expenses.
Payment Delay or Suspension
We reserve the right to suspend or postpone the date of any payment of benefits
or values under any one of the following circumstances:
> On any valuation date when the New York Stock Exchange is closed (except
customary weekend and holiday 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; or
> During any other periods the SEC may by order permit for the protection of
investors.
The conditions under which restricted trading or an emergency exists shall be
determined by the rules and regulations of the SEC.
Performance Reporting
We may advertise different types of historical performance for the subaccounts
including:
> Standardized average annual total returns; and
> Non-standardized average annual total returns.
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 the subaccounts over the
most recent one, five and ten-year periods. If the investment option was not
available for the full period, we give a history from the date money was first
received in that option under the separate account. Standardized average annual
total returns reflect deduction of all recurring charges during each period
(i.e., 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 a maintenance fee. If we
reflected these charges in the calculation, they would decrease the level of
performance reflected by the calculation. Non-standardized returns may also
include performance from the fund's inception date, if that date is earlier than
the one we use for standardized returns.
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We may also advertise 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
(SAI) by calling us at the number listed in "Contract Overview--Questions:
Contacting the Company."
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 subaccount. If you are a contract holder under a group
contract, you have a fully vested interest in the contract and may instruct the
group contract holder how to direct the Company to cast a certain number of
votes. We will vote shares for which instructions have not been received in the
same proportion as those for which we received instructions. Each person who has
a voting interest in the separate account will receive periodic reports relating
to the funds in which he or she has an interest, as well as any proxy materials
and a form on which to give voting instructions. Voting instructions will be
solicited by a written communication at least 14 days before the 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 Modifications
We may change the contract as required by federal or state law or as otherwise
permitted in the contract. In addition, we may, upon 30 days' written notice to
the group contract holder, make other changes to a group contract that would
apply only to individuals who become participants under that contract after the
effective date of such changes. If a group contract holder does not agree to a
change, we reserve the right to refuse to establish new accounts under the
contract. 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 of a nonqualified contract
or a qualified contract where such assignments or transfers are not prohibited,
with proper notification. The date of any 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 and you should 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 the Company at our Home Office. We will use reasonable
procedures to confirm that the assignment is authentic, including
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verification of signature. If we fail to follow our own procedures, we will be
liable for any losses to you directly resulting from such failure. Otherwise, we
are not responsible for the validity of any assignment. The rights of the
contract holder and the interest of the annuitant and any beneficiary will be
subject to the rights of any assignee we have on our records.
Involuntary Terminations
We reserve the right to terminate any account with a value of $2,500 or less
immediately following a partial withdrawal. However, an IRA may only be closed
out when payments to the contract have not been received for a 24-month period
and the paid-up annuity benefit at maturity would be less than $20 per month. If
such right is exercised, you will be given 90 days' advance written notice. No
early withdrawal charge will be deducted for involuntary terminations. We do not
intend to exercise this right in cases where the account value is reduced to
$2,500 or less solely due to investment performance.
Legal Matters and Proceedings
We are aware of no material legal proceedings pending which involve the separate
account 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
In recent years, several life insurance and annuity companies have been named as
defendants in lawsuits, including class action lawsuits, relating to life
insurance and annuity pricing and sales practices. A purported class action
complaint was filed in the Circuit Court of Lauderdale County, Alabama on March
28, 2000, by Loretta Shaner against the Company (the "Shaner Complaint"). The
Shaner Complaint seeks unspecified compensatory damages from the Company and
unnamed affiliates of the Company. The Shaner Complaint claims that the
Company's sale of deferred annuity products for use as investments in
tax-deferred contibutory retirement plans (e.g., IRAs) is improper. This
litigation is in the preliminary stages. The Company intends to defend the
action vigorously.
The Company also is a party to other litigation and arbitration proceedings in
the ordinary course of its business, none of which is expected to have a
material adverse effect on the Company.
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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.
<TABLE>
<S> <C>
General Information and History .................................... 2
Variable Annuity Account B ......................................... 2
Offering and Purchase of Contracts .................................. 3
Performance Data ................................................... 3
General .......................................................... 3
Average Annual Total Return Quotations ........................... 4
Income Phase Payments .............................................. 7
Sales Material and Advertising ..................................... 8
Independent Auditors ............................................... 9
Financial Statements of the Separate Account ....................... S-1
Financial Statements of Aetna Life Insurance and Annuity Company and
Subsidiaries ....................................................... F-1
</TABLE>
You may request an SAI by calling the Company at the number listed in "Contract
Overview--Questions: Contacting the Company."
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Appendix I
ALIAC Guaranteed Account
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The ALIAC Guaranteed Account (the Guaranteed Account) is a fixed interest option
available during the accumulation phase under the contract. This appendix is
only a summary of certain facts about the Guaranteed Account. Please read the
Guaranteed Account prospectus carefully before investing in this option.
In General. Amounts invested in the Guaranteed Account earn specified interest
rates if left in the Guaranteed Account for specified periods of time. If you
withdraw or transfer those amounts before the specified periods elapse, we may
apply a market value adjustment (described below) which may be positive or
negative.
When deciding to invest in the Guaranteed Account, contact your sales
representative or the Company to learn:
> The interest rate(s) we will apply to amounts invested in the Guaranteed
Account.
We change the rate(s) periodically. Be certain you know the rate we
guarantee on the day your account dollars are invested in the Guaranteed
Account. Guaranteed interest rates will never be less than an annual
effective rate of 3%.
> The period of time your account dollars need to remain in the Guaranteed
Account in order to earn the rate(s).
You are required to leave your account dollars in the Guaranteed Account
for a specified period of time in order to earn the guaranteed interest
rate(s).
Deposit Period. During a deposit period, we offer a specific interest rate for
dollars invested for a certain guaranteed term. For a specific interest rate and
guaranteed term to apply, account dollars must be invested in the Guaranteed
Account during the deposit period for which that rate and term are offered.
Interest Rates. We guarantee different interest rates, depending upon when
account dollars are invested in the Guaranteed Account. For guaranteed terms one
year or longer, we may apply more than one specified interest rate. The interest
rate we guarantee is an annual effective yield. That means the rate reflects a
full year's interest. We credit interest daily at a rate that will provide the
guaranteed annual effective yield over one year. Guaranteed interest rates will
never be less than an annual effective rate of 3%. The interest rate guarantees
are based on the Company's claims-paying ability.
Guaranteed Terms. The guaranteed term is the period of time account dollars must
be left in the Guaranteed Account in order to earn the guaranteed interest rate.
For guaranteed terms one year or longer, we may offer different rates for
specified time periods within a guaranteed term. We offer different guaranteed
terms at different times. We also may offer more than one guaranteed term of the
same duration with different interest rates. Check with your sales
representative or the Company to learn what terms are being offered. The Company
also reserves the right to limit the number of guaranteed terms or the
availability of certain guaranteed terms.
Fees and Other Deductions. If all or a portion of your account value in the
Guaranteed Account is withdrawn or transferred, you may incur one or more of the
following:
> Market Value Adjustment (MVA)--as described in this appendix and in the
Guaranteed Account prospectus;
> Tax penalties and/or tax withholding--see "Taxation;"
> Early withdrawal charge--see "Fees;" or
> Maintenance fee--see "Fees."
We do not make deductions from amounts in the Guaranteed Account to cover
mortality and expense risks. Rather, we consider these risks when determining
the interest rate to be credited.
Market Value Adjustment (MVA). If your account value is withdrawn or transferred
from the Guaranteed Account before the guaranteed term is completed, an MVA may
apply. The MVA reflects investment value changes caused by changes in interest
rates occurring since the date of deposit. The MVA may be positive or negative.
If interest rates at the time of withdrawal or transfer have increased since the
date of deposit, the value of the investment decreases and the MVA will be
negative. This could result in your receiving less than the amount you
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paid into the Guaranteed Account. If interest rates at the time of withdrawal or
transfer have decreased since the date of deposit, the value of the investment
increases and the MVA will be positive.
MVA Waiver. For withdrawals or transfers from a guaranteed term before the
guaranteed term matures, the MVA may be waived for:
> Transfers due to participation in the dollar cost averaging program;
> Withdrawals taken due to your election of SWO or ECO (described in
"Systematic Distribution Options"), if available;
> Withdrawals for minimum distributions required by the Tax Code and for
which the early withdrawal charge is waived; and
> Withdrawals due to your exercise of the right to cancel your contract
(described in "Right to Cancel").
Death Benefit. When a death benefit is paid under the contract within six months
of the date of death, only a positive aggregate MVA amount, if any, is applied
to the account value attributable to amounts withdrawn from the Guaranteed
Account. This provision does not apply upon the death of a spousal beneficiary
or joint contract holder who continued the account after the first death. If a
death benefit is paid more than six months from the date of death, a positive or
negative aggregate MVA amount, as applicable, will be applied.
Partial Withdrawals. For partial withdrawals during the accumulation phase,
amounts to be withdrawn from the Guaranteed Account will be withdrawn
proportionally from each group of deposits having the same length of time until
the maturity date ("Guaranteed Term Group"). Within a Guaranteed Term Group, the
amount will be withdrawn first from the oldest deposit period, then from the
next oldest and so on until the amount requested is satisfied.
Guaranteed Terms Maturity. As a guaranteed term matures, assets accumulating
under the Guaranteed Account may be (a) transferred to a new guaranteed term,
(b) transferred to other available investment options, or (c) withdrawn. Amounts
withdrawn may be subject to an early withdrawal charge, taxation and, if you are
under age 59-1/2, tax penalties may apply.
If no direction is received from you at our Home Office by the maturity date of
a guaranteed term, the amount from the maturing guaranteed term will be
transferred to a new guaranteed term of a similar length. If the same guaranteed
term is no longer available, the next shortest guaranteed term available in the
current deposit period will be used. If no shorter guaranteed term is available,
the next longer guaranteed term will be used.
If you do not provide instructions concerning the maturity value of a maturing
guaranteed term, the maturity value transfer provision applies. This provision
allows transfers or withdrawals without an MVA if the transfer or withdrawal
occurs during the calendar month immediately following a guaranteed term
maturity date. This waiver of the MVA only applies to the first transaction
regardless of the amount involved in the transaction.
Under the Guaranteed Account each guaranteed term is counted as one funding
option. If a guaranteed term matures and is renewed for the same term, it will
not count as an additional investment option for purposes of any limitation on
the number of investment options.
Subsequent Purchase Payments. Purchase payments received after your initial
purchase payment to the Guaranteed Account will be allocated in the same
proportions as the last allocation, unless you properly instruct us to do
otherwise. If the same guaranteed term(s) are not available, the next shortest
term will be used. If no shorter guaranteed term is available, the next longer
guaranteed term will be used.
Dollar Cost Averaging. The Company may offer more than one guaranteed term of
the same duration and credit one with a higher rate contingent upon use only
with the dollar cost averaging program. If amounts are applied to a guaranteed
term which is credited with a higher rate using dollar cost averaging and the
dollar cost averaging is discontinued, the amounts will be transferred to
another guaranteed term of the same duration and an MVA will apply.
Transfer of Account Dollars. Generally, account dollars invested in the
Guaranteed Account may be transferred among guaranteed terms offered through the
Guaranteed Account and/or to other investment options offered through the
contract. However, transfers may not be made during the deposit period in which
your account
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dollars are invested in the Guaranteed Account or for 90 days after the close of
that deposit period. We will apply an MVA to transfers made before the end of a
guaranteed term. The 90-day wait does not apply to (1) amounts transferred on
the maturity date or under the maturity value transfer provision; (2) amounts
transferred from the Guaranteed Account before the maturity date due to the
election of an income phase payment option; (3) amounts distributed under the
ECO or SWO (see "Systematic Distribution Options"); and (4) amounts transferred
from an available guaranteed term in connection with the dollar cost averaging
program.
Transfers after the 90-day period are permitted from guaranteed term(s) to other
guaranteed term(s) available during a deposit period or to other available
investment options. Transfers of the Guaranteed Account values on or within one
calendar month of a term's maturity date are not counted as one of the 12 free
transfers of accumulated values in the account.
Reinvesting Amounts Withdrawn from the Guaranteed Account. If amounts are
withdrawn and then reinvested in the Guaranteed Account, we apply the reinvested
amount to the current deposit period. This means the guaranteed annual interest
rate and guaranteed terms available on the date of reinvestment will apply. We
reinvest amounts proportionately in the same way as they were allocated before
withdrawal. Your account value will not be credited for any negative MVA that
was deducted at the time of withdrawal.
The Income Phase. The Guaranteed Account cannot be used as an investment option
during the income phase. However, you may notify us at least 30 days in advance
to elect a fixed or variable payment option and to transfer your Guaranteed
Account dollars to the general account or any of the subaccounts available
during the income phase. Transfers made due to the election of a lifetime income
phase payment option will be subject to only a positive aggregate MVA.
Distribution. The Company is the principal underwriter of the contract. The
Company is registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc. From time to time the Company
may offer customers of certain broker-dealers special guaranteed rates in
connection with the Guaranteed Account offered through the contract and may
negotiate different commissions for these broker-dealers.
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Appendix II
Fixed Account
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General Disclosure.
> The Fixed Account is an investment option available during the accumulation
phase under the contract.
> Amounts allocated to the Fixed Account are held in the Company's general
account which supports insurance and annuity obligations.
> Interests in the Fixed Account have not been registered with the SEC in
reliance on exemptions under the Securities Act of 1933, as amended.
> Disclosure in this prospectus regarding the Fixed Account may be subject to
certain generally applicable provisions of the federal securities laws
relating to the accuracy and completeness of the statements.
> Disclosure in this appendix regarding the Fixed Account has not been
reviewed by the SEC.
> Additional information about this option may be found in the contract.
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 reflect a compound
interest rate as credited by us. The rate we quote is an annual effective
yield. Interest rate guarantees are based on the Company's claims-paying
ability.
> Our determination of credited interest rates reflects a number of factors,
including mortality and expense risks, interest rate guarantees, 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.
Dollar Cost Averaging. Amounts you invest in the Fixed Account must be
transferred into the other investment options available under the contract over
a period not to exceed 12 months. If you discontinue dollar cost averaging, the
remaining balance amounts in the Fixed Account will be transferred into the
money market subaccount available under the contract, unless you direct us to
transfer the balance into other available options.
Withdrawals. Under certain emergency conditions we may defer payment of any
withdrawal for a 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. 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 phase payments
begin, you may elect to have amounts transferred to one or more of the
subaccounts available during the income phase to provide variable payments.
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Appendix III
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. Investments in the
funds are not bank deposits and are not insured or guaranteed by 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: equities such as common and preferred stocks; and debt, such as bonds,
mortgage-related and other asset-backed securities, U.S. Government securities,
and money market instruments. 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 or
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.
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
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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 in certain foreign
countries. 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 appreciation 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). May invest principally in common stocks having
significant potential for capital appreciation, or may purchase common stocks
principally for their income potential through dividends and option writing, or
may acquire securities having a mix of these characteristics.
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. Although the investment adviser
emphasizes large cap stocks, to the extent the Fund is diversified across asset
classes, it may not perform as well as less diversified funds when large cap
stocks are in favor. Additionally, stocks of medium-sized and smaller companies
tend to be more volatile and less liquid than stocks of larger companies.
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, 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.
Risks
It is possible to lose money by investing in the fund. There is no guaranty the
fund will achieve its investment objective. An investment in the fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
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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 Variable Portfolios, Inc.--Aetna Growth VP
Investment Objective
Seeks growth of capital through investment in a diversified portfolio consisting
primarily of common stocks and securities convertible into common stocks
believed to offer growth potential.
Policies
Under normal market conditions, invests at least 65% of total assets in common
stocks and securities convertible into common stock. Tends to emphasize stocks
of larger companies, although may invest in companies of any size. Uses
internally developed quantitative computer models to evaluate the financial
characteristics of approximately 1,000 companies. The investment adviser
analyzes these characteristics in an attempt to identify companies it believes
have strong growth characteristics or demonstrate a positive trend in earnings
estimates, but whose full value is not reflected in the stock price. Focuses on
companies that the investment adviser believes have strong, sustainable and
improving earnings growth, and established market positions in a particular
industry.
Risks
Principal risks are those generally attributable to stock investing. They
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. Growth-oriented stocks typically
sell at relatively high valuations as compared to other types of stocks. If a
growth stock does not exhibit the consistent level of growth expected, its price
may drop sharply. Historically, growth-oriented stocks have been more volatile
than value-oriented stocks.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP
Investment Objective
Seeks to outperform the total return performance of the Standard & Poor's 500
Composite Index (S&P 500), while maintaining a market level of risk.
Policies
Invests at least 80% of net assets in stocks included in the S&P 500 (other than
Aetna Inc. common stock). The investment adviser attempts to achieve the
objective by overweighting those stocks in the S&P 500 that the investment
adviser believes will outperform the index, and underweighting (or avoiding
altogether) those stocks that the investment adviser believes will underperform
the index. In determining stock weightings, uses internally developed
quantitative computer models to evaluate various criteria, such as the financial
strength of each company and its potential for strong, sustained earnings
growth. At any one time, the fund's portfolio generally includes approximately
400 of the stocks included in the S&P 500. Although the fund will not hold all
the stocks in the S&P 500, the investment adviser expects that there will be a
close correlation between the performance of the fund and that of the S&P 500 in
both rising and falling markets.
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 depends significantly on the investment adviser's skill in determining
which securities to overweight, underweight or avoid altogether.
Investment Adviser: Aeltus Investment Management, Inc.
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Aetna Variable Portfolios, Inc.--Aetna International VP
Investment Objective
Seeks long-term capital growth primarily though investment in a diversified
portfolio of common stocks principally traded in countries outside of the United
States. The fund will not target any given level of current income.
Policies
Under normal market conditions, invests at least 65% of total assets in
securities principally traded in three or more countries outside of the United
States. These securities may include common stocks as well as securities
convertible into common stock. Diversifies the fund by investing in a mix of
stocks that the investment adviser believes have the potential for long-term
growth, as well as stocks that appear to be trading below their perceived value.
Allocates assets among several geographic regions and individual countries,
investing primarily in those areas that the investment adviser believes have the
greatest potential for growth as well as stable exchange rates. Invests
primarily in established foreign securities markets, although may invest in
emerging markets as well. Uses internally developed quantitative computer models
to evaluate the financial characteristics of over 2,000 companies in an attempt
to select companies with long-term sustainable growth characteristics. Employs
currency hedging strategies to protect from adverse effects on the U.S. dollar.
Risks
Principal risks are those generally attributable to stock investing which
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. Stocks of foreign companies tend
to be less liquid and more volatile than their U.S. counterparts. Accounting
standards and market regulations tend to be less standardized in certain foreign
countries, and economic and political climates tend to be less stable. Stocks of
foreign companies may be denominated in foreign currency. Exchange rate
fluctuations may reduce or eliminate gains or create losses. Hedging strategies
intended to reduce this risk may not perform as expected. Investments in
emerging markets are subject to the same risks applicable to foreign investments
generally, although those risks may be increased due to conditions in such
countries.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Real Estate Securities VP
Investment Objective
Seeks maximum total return primarily through investment in a diversified
portfolio of equity securities of real estate companies, the majority of which
are real estate investment trusts (REITs).
Policies
Under normal market conditions, invests at least 65% of total assets in stocks,
convertible securities and preferred stocks of companies principally engaged in
the real estate industry. These companies may invest in, among other things,
shopping malls, healthcare facilities, office parks and apartment communities,
or may provide real estate management and development services. In selecting
investments, uses internally developed quantitative models to forecast the
returns of each security. Evaluates real estate companies based on their
earnings history and long-term growth prospects, analyst estimates of future
earnings, safety and growth in dividends, balance sheet strength and quality of
management. The investment adviser also considers whether the securities appear
to be trading below their real value. Allocates assets among property types and
economic and geographic regions. Attempts to construct the fund's portfolio so
that the overall level of risk is not in excess of its benchmark index, the
National Association of Real Estate Investment Trusts Equity (NAREIT) Index.
Risks
Concentrating in stocks of real estate-related companies presents certain risks
that are more closely associated with investing in real estate directly than
with investing in the stock market generally. Those risks include: periodic
declines in the value of real estate, generally, or in the rents and other
income generated by real estate; periodic over-building, which creates gluts in
the market, as well as changes in laws (such as zoning laws) that impair the
property rights of real estate owners; adverse developments in the real estate
industry, which may have a greater
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impact on this fund than on a fund that is more broadly diversified. Performance
also may be adversely affected by sudden and unpredictable drops in the value of
the market as a whole and periods of lackluster or negative performance.
Although the fund is subject to the risks generally attributable to stock
investing, because the fund has concentrated its assets in one industry it may
be subject to more abrupt swings in value than would a fund that does not
concentrate its assets in one industry.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Small Company VP
Investment Objective
Seeks growth of capital primarily through investment in a diversified portfolio
of common stocks and securities convertible into common stocks of companies with
smaller market capitalizations.
Policies
Under normal market conditions, invests at least 65% of total assets in common
stocks and securities convertible into common stock of small-capitalization
companies, defined as: the 2,000 smallest of the 3,000 largest U.S. companies
(as measured by market capitalization); all companies not included above that
are included in the Standard & Poor's SmallCap 600 Index or the Russell 2000
Index; and companies with market capitalizations lower than any companies
included in the first two categories. For purposes of the 65% policy, the
largest company in this group in which the fund intends to invest currently has
a market capitalization of approximately $1.5 billion. Invests in stocks that
the investment adviser believes have the potential for long-term growth, as well
as those that appear to be trading below their perceived value. Uses internally
developed quantitative computer models to evaluate financial characteristics of
over 2,000 companies in an attempt to identify companies whose perceived value
is not reflected in the stock price. Considers the potential of each company to
create or take advantage of unique product opportunities, its potential to
achieve long-term sustainable growth and the quality of its management.
Risks
Principal risks are those generally attributable to stock investing which
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 carry
higher risks than stocks of larger companies. This is because smaller companies
may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In many
instances, the frequency and volume of trading in small cap stocks are
substantially less than of stocks of larger companies. As a result, the stocks
of smaller companies may be subject to wider price fluctuations and/or may be
less liquid. When selling a large quantity of a particular stock, the fund may
have to sell at a discount from quoted prices or may have to make a series of
small sales over an extended period of time due to the more limited trading
volume of smaller company stocks. Stocks of smaller companies can be
particularly sensitive to expected changes in interest rates, borrowing costs
and earnings.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Technology VP
Investment Objective
Seeks long-term capital appreciation.
Policies
Primarily invests in common stocks and securities convertible into common stock
of companies in the information technology industry sector. These companies
include companies that the subadviser considers to be principally engaged in the
development, production, or distribution of products or services related to the
processing, storage, transmission, or presentation of information or data. A
particular company will be considered to be principally engaged in the
information technology industries if, at the time of investment, the investment
adviser determines that at least 50% of the company's assets, gross income, or
net profits are committed to, or derived from, those industries. A company will
also be considered to be principally engaged if the subadviser considers that
the
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company has the potential for capital appreciation primarily as a result of
particular products, technology, patents, or other market advantages in those
industries. In selecting stocks, the subadviser looks at a company's valuation
relative to its potential long-term growth rate. May look to see whether a
company offers a new or improved product, service or business operation; whether
it has experienced a positive change in its financial or business condition;
whether the market for its goods or services has expanded or experienced a
positive change; and whether there is a potential catalyst for positive change
in the company's business or stock price. May sell a security if the subadviser
determines that the company has become overvalued due to price appreciation or
has experienced a change in its business fundamentals, if the company's growth
rate slows substantially, or if the subadviser believes that another investment
offers a better opportunity.
Risks
Principal risks are those generally attributable to stock investing which
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. Further,
stocks of smaller companies also can be particularly sensitive to expected
changes in interest rates, borrowing costs and earnings. Because the fund's
investments are concentrated in the information technology industries, the Fund
may be subject to more abrupt swings in value than a fund which invests in a
broader range of industries. Investments in information technology companies may
be highly volatile. The fund may experience difficulty in establishing or
closing out positions in these securities at prevailing market prices. Also,
there may be less publicly available information about small companies or less
market interest in their securities as compared to larger companies, and it may
take longer for the prices of the securities to reflect the full value of their
issuers' earnings potential or assets.
Investment Adviser: Aeltus Investment Management, Inc.; Subadviser: Elijah
Asset Management, LLC
AIM V.I. Capital Appreciation Fund
Investment Objective
Seeks growth of capital through investment in common stocks, with emphasis on
medium- and small-sized growth companies.
Policies
The portfolio managers focus on companies they believe are likely to benefit
from new or innovative products, services or processes as well as those that
have experienced above-average, long-term growth in earnings and have excellent
prospects for future growth. The portfolio managers consider whether to sell a
particular security when any of those factors materially changes. The fund may
also invest up to 20% of its total assets in foreign securities.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. This is especially true with respect to common stocks of smaller
companies, whose prices may go up and down more than common stocks of larger,
more-established companies. Also, since common stocks of smaller companies may
not be traded as often as common stocks of larger, more-established companies,
it may be difficult or impossible for the fund to sell securities at a desirable
price.
Investment Adviser: A I M Advisors, Inc.
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AIM V.I. Growth Fund
Investment Objective
Seeks growth of capital primarily by investing in seasoned and better
capitalized companies considered to have strong earnings momentum.
Policies
The portfolio managers focus on companies that have experienced above-average
growth in earnings and have excellent prospects for future growth. The portfolio
managers consider whether to sell a particular security when any of those
factors materially changes. The fund may also invest up to 20% of its total
assets in foreign securities.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. The fund may participate in the initial public offering (IPO) market.
Because of the fund's small asset base any investment the fund may make in IPOs
may significantly increase the fund's total returns. As the fund's assets grow,
the impact of IPO investments will decline, which may reduce the fund's total
returns.
Investment Adviser: A I M Advisors, Inc.
AIM V.I. Growth and Income Fund
Investment Objective
Seeks growth of capital with a secondary objective of current income.
Policies
The fund seeks to meet these objectives by investing at least 65% of its net
assets in income-producing securities, including dividend-paying common stocks
and convertible securities. The portfolio managers purchase securities of
established companies that have long-term above-average growth in earnings and
dividends, and growth companies that they believe have the potential for
above-average growth in earnings and dividends. The portfolio managers consider
whether to sell a particular security when they believe the security no longer
has that potential or the capacity to generate income. The fund may also invest
up to 20% of its total assets in foreign securities.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objectives. If the fund does trade in this way, it may
incur increased transaction costs and brokerage commissions, both of which can
lower the actual return on your investment.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. The values of the convertible securities in which the fund may invest
also will be affected by market interest rates, the risk that the issuer may
default on interest or principal payments and the value of the underlying common
stock into which these securities may be converted. Specifically, since these
types of convertible securities pay fixed interest and dividends, their values
may fall if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to the fund.
Investment Adviser: A I M Advisors, Inc.
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AIM V.I. Value Fund
Investment Objective
Seeks to achieve long-term growth of capital by investing primarily in equity
securities judged by the fund's investment adviser to be undervalued relative to
the investment adviser's appraisal of the current or projected earnings of the
companies issuing the securities, or relative to current market values of assets
owned by the companies issuing the securities or relative to the equity market
generally. Income is a secondary objective.
Policies
The fund also may invest in preferred stocks and debt instruments that have
prospects for growth of capital. The fund may also invest up to 25% of its total
assets in foreign securities.
The portfolio managers focus on undervalued equity securities of (1)
out-of-favor cyclical growth companies; (2) established growth companies that
are undervalued compared to historical relative valuation parameters; (3)
companies where there is early but tangible evidence of improving prospects that
are not yet reflected in the price of the company's equity securities; and (4)
companies whose equity securities are selling at prices that do not reflect the
current market value of their assets and where there is reason to expect
realization of this potential in the form of increased equity values. The
portfolio managers consider whether to sell a particular security when they
believe the company no longer fits into any of the above categories.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. If the seller of a repurchase agreement in which the fund invests
defaults on its obligation or declares bankruptcy, the fund may experience
delays in selling the securities underlying the repurchase agreement. As a
result, the fund may incur losses arising from decline in the value of those
securities, reduced levels of income and expenses of enforcing its rights.
Investment Adviser: A I M Advisors, Inc.
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
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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
Fidelity Variable Insurance Products Fund--High Income Portfolio
Investment Objective
Seeks a high level of current income while also considering growth of capital.
Policies
Normally invests at least 65% of total assets in income-producing debt
securities, preferred stocks and convertible securities, with an emphasis on
lower-quality debt securities. May also invest in non-income producing
securities, including defaulted securities and common stocks. Currently intends
to limit common stocks to 10% of total assets. 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, interest rates or other factors that affect security values.
Risks
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. 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
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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.
Investment Adviser: Fidelity Management & Research Company; Subadvisers:
Fidelity Management & Research (U.K.) Inc.; Fidelity Management & Research Far
East Inc.; Fidelity Investments Japan Limited
Fidelity Variable Insurance Products Fund II--Contrafund[RegTM] 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; Subadvisers:
Fidelity Management & Research (U.K.) Inc.; Fidelity Management & Research Far
East Inc.; Fidelity Investments Japan Limited
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% 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, 1999, they ranged from
approximately $170 million to $37 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
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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% of its assets in securities selected primarily for their
growth potential and 40-60% of its assets in securities selected primarily for
their income potential. Will normally invest at least 25% 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 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--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
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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--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
MFS Total Return Series
Investment Objective
Seeks primarily to provide above-average income (compared to a portfolio
invested entirely in equity securities) consistent with the prudent employment
of capital. Its secondary objective is to provide a reasonable opportunity for
growth of capital and income.
Policies
Under normal market conditions, invests at least 40%, but no more than 75%, of
net assets in common stocks and related securities (referred to as equity
securities); bonds, warrants or rights convertible into stock; and depositary
receipts for those securities. Invests at least 25% of net assets in
non-convertible fixed income securities. May vary the percentage of assets
invested in any one type of security (within the limits described above). May
invest in foreign securities and may have exposure to foreign currencies through
its investment in these securities. Generally, seeks to purchase equity
securities that the investment adviser believes are undervalued in the market
relative to their long-term potential focusing on companies with relatively
large market capitalization (i.e., market capitalizations of $5 billion or
more). Fixed income securities include U.S. government securities,
mortgage-backed and asset-backed securities, and corporate bonds. The series has
engaged and may engage in active and frequent trading to achieve its principal
investment strategies.
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Risks
In allocating investments, the series could miss attractive investment
opportunities by underweighting markets where there are significant returns, and
could lose value by overweighting markets where there are significant declines.
The value of securities held by the series may decline due to changing economic,
political or market conditions, or disappointing earnings results. If
anticipated events do not occur or are delayed, or if investor perceptions about
undervalued securities do not improve, the market price of these securities may
not rise or may fall. Fixed income securities are subject to interest rate risk
(the risk that when interest rates rise, the prices of fixed income securities
will generally fall) and credit risk (the risk that the issuer of a fixed income
security will not be able to pay principal and interest when due). Securities
with longer maturities are affected more by interest rate risk. Investing in
foreign securities involves risks relating to political social and economic
developments abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers are subject. Fixed income
securities traded in the over-the-counter market may be harder to purchase or
sell at a fair price. The inability to purchase or sell these fixed income
securities at a fair price could have a negative impact on the series'
performance. Frequent trading may result in the realization and distribution to
shareholders of higher capital gains as compared to a series with less active
trading policies. Frequent trading also increases transaction costs, which could
detract from the series' performance.
Investment Adviser: Massachusetts Financial Services Company
Oppenheimer Aggressive Growth Fund/VA
Investment Objective
Seeks to achieve long-term capital appreciation by investing in "growth-type"
companies.
Policies
The Fund invests mainly in equity securities, such as common stocks, and can
invest in other securities, such as preferred stocks and convertible securities.
The Fund emphasizes investments in companies that the Manager believes have
significant growth potential. Growth companies can include established companies
entering a growth cycle in their business, as well as newer companies. The Fund
can invest in securities of issuers of all market capitalizations, but currently
focuses on companies with market capitalizations of "mid-cap" issuers (currently
those issuers between $2.5 and $11.5 billion). The Fund can invest in domestic
and foreign companies, although most of its investments are in stocks of U.S.
companies.
Risks
The fund's investments in stocks are subject to changes in their value from a
number of factors. They include stock market movements and events affecting
particular industries. Stocks of growth companies may provide greater
opportunities for capital appreciation, but may be more volatile than other
stocks. The Fund invests mainly in small and medium-size companies, which tend
to have more volatile stock prices than large companies.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Global Securities Fund/VA
Investment Objective
Seeks long-term capital appreciation by investing a substantial portion of its
assets in securities of foreign issuers, "growth-type" companies, cyclical
industries, and special situations which are considered to have appreciation
possibilities.
Policies
Invests mainly in common stocks and can also buy other equity securities,
including preferred stocks and convertible securities. The fund buys securities
of issuers in the U.S. and foreign countries. The fund can invest without limit
in any country, including countries with developed or emerging markets, but
currently emphasizes investments in developed markets. The fund will normally
invest in at least three countries (one of which may be the United States). In
selecting securities for the fund, the fund's portfolio manager looks primarily
for foreign and U.S. companies with high growth potential, using fundamental
analysis of a company's financial statements
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and management structure, and analysis of the company's operations and product
development, as well as the industry of which the issuer is part.
Risks
Stocks fluctuate in price, and their short-term volatility at times may be
great. The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, changes in governmental economic or monetary policy in the U.S. or abroad
or other political and economic factors. The fund can use derivatives to seek
increased returns or to try to hedge investment risks. If the issuer of the
derivative does not pay the amount due, the fund can lose money on the
investment.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Main Street Growth & Income Fund/VA
Investment Objective
Seeks a high total return (which includes growth in the value of its shares as
well as current income) from equity and debt securities.
Policies
Invests mainly in common stocks of U.S. companies, and can also invest in other
equity securities such as preferred stocks and convertible securities. Although
the fund can invest in securities of issuers of all market capitalization
ranges, it currently focuses on companies with large capitalizations. While the
fund can buy foreign securities and debt securities such as bonds and notes,
currently it does not emphasize those investments. The fund can also use hedging
instruments and certain derivative investments to try to manage investment
risks.
Risks
The fund's investments in stocks and bonds are subject to changes in their value
from a number of factors. They include changes in general stock and bond market
movements, or the change in value of particular stocks or bonds because of an
event affecting the issuer. Changes in interest rates can also affect stock and
bond prices. Because the Fund currently focuses its investments in stocks of
U.S. issuers, it will be affected primarily by changes in the U.S. Stock Market.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Strategic Bond Fund/VA
Investment Objective
Seeks a high level of current income principally derived from interest on debt
securities and seeks to enhance such income by writing covered call options on
debt securities.
Policies
Invests mainly in debt securities of issuers in three market sectors: foreign
governments and companies, U.S. government securities, and lower-rated
high-yield securities of U.S. and foreign companies. Under normal market
conditions, the fund invests in each of those three market sectors. However, the
fund is not obligated to do so, and the amount of its assets in each of the
three sectors will vary over time. The fund can invest up to 100% of its assets
in any one sector at any time, if the manager believes that in doing so the fund
can achieve its objective without undue risk. The fund can invest in securities
having short, medium or long-term maturities and may invest without limit in
lower-grade high-yield debt obligations also called "junk bonds." The fund's
foreign investments can include debt securities of issuers in developed markets
as well as emerging markets, which have special risks. The fund can also use
hedging instruments and certain derivative investments to try to enhance income
or try to manage investment risks.
Risks
The fund's investments in debt securities are subject to changes in their value
from a number of factors. They include changes in general bond market movements
in the U.S. and abroad, or the change in value of particular
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<PAGE>
bonds because of an event affecting the issuer. The fund can focus significant
amounts of its investments in foreign debt securities. Therefore, it will be
subject to the risks that economic, political or other events can have on the
values of securities of issuers in particular foreign countries. These risks are
heightened in the case of emerging market debt securities. Changes in interest
rates can also affect securities prices.
Investment Adviser: OppenheimerFunds, Inc.
Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (formerly
known as PPI MFS Value Equity Portfolio)
Investment Objective
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 listed on a securities exchange or 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 foreign currency
exchange contracts for the purchase or sale of a fixed quantity of a foreign
currency at a future date.
May engage in active and frequent trading to achieve its principal investment
strategies.
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: 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: 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 Active or Frequent Trading Risk: The Portfolio may engage in active and
frequent trading. This may result in higher capital gains as compared to
portfolios with less active trading policies. Frequent trading also
increases transaction costs, which can detract from fund performance.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Massachusetts Financial Services Company
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Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
Invests primarily (at least 65% 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 early in their life cycle and that have the potential to become
major enterprises, or major enterprises whose rates of earnings growth are
expected to accelerate. Investments may include securities listed on a
securities exchange traded in the over-the-counter markets.
May also 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
foreign currency exchange contracts for the purchase or sale of a fixed quantity
of foreign currency at a future date.
May engage in active and frequent trading to achieve its principal investment
strategies.
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.
o Currency Risk: 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.
o Emerging Markets Risk: Investments in emerging market securities involve
all the risks of investment in foreign markets. Additionally, markets of
emerging market countries have been more volatile, and involve greater
risks, than the markets of developed countries with more mature economies.
o Active or Frequent Trading Risk: The Portfolio may engage in active and
frequent trading. This may result in higher capital gains as compared to
portfolios with less active trading policies. Frequent trading also
increases transaction costs, which can detract from fund performance.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Massachusetts Financial Services Company
Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio
Investment Objective
Seeks long-term growth of capital and future income.
Policies
Invests primarily (at least 80% 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 (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 foreign currency
exchange contracts for the purchase or sale of a fixed quantity of foreign
currency at a future date.
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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: 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: 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, Inc. (PPI) 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. 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:
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 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: 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: 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: 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.
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Appendix IV
Condensed Financial Information
- --------------------------------------------------------------------------------
(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, 1999 (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, 1999 are included in
the Statement of Additional Information.
<TABLE>
<CAPTION>
0.95% Total Charges
-------------------
1999 1998
---- ----
<S> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $10.337 $9.555(1)
Value at end of period $11.632 $10.337
Number of accumulation units outstanding at end of period 417,961 5,235
AETNA BOND VP
Value at beginning of period $10.319 $10.157(3)
Value at end of period $10.145 $10.319
Number of accumulation units outstanding at end of period 708,744 16,582
AETNA GROWTH VP
Value at beginning of period $10.489 $8.387(3)
Value at end of period $14.022 $10.489
Number of accumulation units outstanding at end of period 453,570 8,460
AETNA GROWTH AND INCOME VP
Value at beginning of period $9.886 $7.862(3)
Value at end of period $11.498 $9.886
Number of accumulation units outstanding at end of period 1,093,630 125,488
AETNA INDEX PLUS LARGE CAP VP
Value at beginning of period $10.716 $8.469(3)
Value at end of period $13.193 $10.716
Number of accumulation units outstanding at end of period 2,135,759 31,054
AETNA INTERNATIONAL VP
Value at beginning of period $9.149 $8.583(1)
Value at end of period $13.715 $9.149
Number of accumulation units outstanding at end of period 75,017 587
AETNA MONEY MARKET VP
Value at beginning of period $10.199 $10.122(3)
Value at end of period $10.615 $10.199
Number of accumulation units outstanding at end of period 2,174,383 103,626
AETNA REAL ESTATE SECURITIES VP
Value at beginning of period $8.903 $8.690(1)
Value at end of period $8.446 $8.903
Number of accumulation units outstanding at end of period 36,876 10,325
AETNA SMALL COMPANY VP
Value at beginning of period $9.357 $8.799(1)
Value at end of period $12.128 $9.357
Number of accumulation units outstanding at end of period 163,679 13,538
AIM V.I. CAPITAL APPRECIATION FUND
Value at beginning of period $10.245 $7.522(3)
Value at end of period $14.675 $10.245
Number of accumulation units outstanding at end of period 190,831 10,913
AIM V.I. GROWTH FUND
Value at beginning of period $10.779 $7.856(3)
Value at end of period $14.438 $10.779
Number of accumulation units outstanding at end of period 300,327 11,163
AIM V.I. GROWTH AND INCOME FUND
Value at beginning of period $10.663 $7.948(3)
Value at end of period $14.179 $10.663
Number of accumulation units outstanding at end of period 370,289 3,666
<CAPTION>
1.25% Total Charges 1.40% Total Charges
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $10.323 $9.276(2) $10.316 $9.581(1)
Value at end of period $11.581 $10.323 $11.555 $10.316
Number of accumulation units outstanding at end of period 403,187 17,681 237,246 9,447
AETNA BOND VP
Value at beginning of period $10.305 $10.119(3) $10.298 $10.188(1)
Value at end of period $10.101 $10.305 $10.078 $10.298
Number of accumulation units outstanding at end of period 806,343 30,949 300,240 3,930
AETNA GROWTH VP
Value at beginning of period $10.475 $8.359(3) $10.468 $8.899(1)
Value at end of period $13.961 $10.475 $13.930 $10.468
Number of accumulation units outstanding at end of period 536,727 8,297 114,036 2,298
AETNA GROWTH AND INCOME VP
Value at beginning of period $9.872 $7.672(3) $9.866 $8.961(1)
Value at end of period $11.447 $9.872 $11.422 $9.866
Number of accumulation units outstanding at end of period 1,317,642 55,707 407,605 47,020
AETNA INDEX PLUS LARGE CAP VP
Value at beginning of period $10.702 $8.964(2) $10.694 $9.134(3)
Value at end of period $13.136 $10.702 $13.107 $10.694
Number of accumulation units outstanding at end of period 2,394,661 94,255 926,393 4,957
AETNA INTERNATIONAL VP
Value at beginning of period $9.137 $8.497(1) $9.131 $8.663(4)
Value at end of period $13.655 $9.137 $13.625 $9.131
Number of accumulation units outstanding at end of period 79,291 4,529 28,091 718
AETNA MONEY MARKET VP
Value at beginning of period $10.186 $10.086(2) $10.179 $10.120(1)
Value at end of period $10.569 $10.186 $10.546 $10.179
Number of accumulation units outstanding at end of period 1,313,322 44,014 707,569 47,079
AETNA REAL ESTATE SECURITIES VP
Value at beginning of period $8.891 $8.833(1) $8.885 $8.648(1)
Value at end of period $8.409 $8.891 $8.391 $8.885
Number of accumulation units outstanding at end of period 34,137 2,082 6,188 19
AETNA SMALL COMPANY VP
Value at beginning of period $9.345 $7.219(3) $9.338 $8.739(4)
Value at end of period $12.074 $9.345 $12.048 $9.338
Number of accumulation units outstanding at end of period 114,138 7,787 39,754 396
AIM V.I. CAPITAL APPRECIATION FUND
Value at beginning of period $10.231 $7.914(3) $10.224 $9.078(1)
Value at end of period $14.611 $10.231 $14.579 $10.224
Number of accumulation units outstanding at end of period 317,266 17,420 156,884 857
AIM V.I. GROWTH FUND
Value at beginning of period $10.764 $8.120(3) $10.757 $9.702(4)
Value at end of period $14.375 $10.764 $14.343 $10.757
Number of accumulation units outstanding at end of period 722,832 14,904 228,578 1,498
AIM V.I. GROWTH AND INCOME FUND
Value at beginning of period $10.649 $8.179(3) $10.641 $8.830(3)
Value at end of period $14.117 $10.649 $14.086 $10.641
Number of accumulation units outstanding at end of period 938,411 9,968 259,387 7,172
</TABLE>
82
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
0.95% Total Charges
-------------------
1999 1998
---- ----
<S> <C> <C>
AIM V.I. VALUE FUND
Value at beginning of period $10.616 $7.820(3)
Value at end of period $13.659 $10.616
Number of accumulation units outstanding at end of period 895,401 27,668
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $9.911 $8.459(3)
Value at end of period $10.438 $9.911
Number of accumulation units outstanding at end of period 735,175 48,260
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.265(5)
Value at end of period $12.649
Number of accumulation units outstanding at end of period 84,394
FIDELITY VIP HIGH INCOME PORTFOLIO
Value at beginning of period $8.949 $8.626(1)
Value at end of period $9.586 $8.949
Number of accumulation units outstanding at end of period 590,621 40,909
FIDELITY VIP II CONTRAFUND[RegTM] PORTFOLIO
Value at beginning of period $10.535 $8.083(3)
Value at end of period $12.966 $10.535
Number of accumulation units outstanding at end of period 1,126,347 42,196
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $11.042 $7.183(3)
Value at end of period $24.654 $11.042
Number of accumulation units outstanding at end of period 1,018,787 18,318
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $10.945 $9.175(3)
Value at end of period $13.742 $10.945
Number of accumulation units outstanding at end of period 1,721,022 114,603
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $10.938 $7.907(3)
Value at end of period $15.599 $10.938
Number of accumulation units outstanding at end of period 1,611,327 138,459
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $9.576 $7.245(3)
Value at end of period $15.599 $9.576
Number of accumulation units outstanding at end of period 1,828,183 63,712
MFS TOTAL RETURN SERIES
Value at beginning of period $10.171 $9.712(1)
Value at end of period $10.385 $10.171
Number of accumulation units outstanding at end of period 321,447 11,625
OPPENHEIMER AGGRESSIVE GROWTH FUND/VA
Value at beginning of period $9.362 $7.289(3)
Value at end of period $17.027 $9.362
Number of accumulation units outstanding at end of period 102,852 730
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Value at beginning of period $9.080 $6.913(3)
Value at end of period $10.946 $9.080
Number of accumulation units outstanding at end of period 341,458 27,241
OPPENHEIMER STRATEGIC BOND FUND/VA
Value at beginning of period $9.823 $9.550(1)
Value at end of period $10.005 $9.823
Number of accumulation units outstanding at end of period 247,095 21,480
PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO
Value at beginning of period $10.193 $9.507(1)
Value at end of period $15.023 $10.193
Number of accumulation units outstanding at end of period 207,410 10,086
PPI MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period $10.371 $7.999(3)
Value at end of period $15.499 $10.371
Number of accumulation units outstanding at end of period 360,244 11,391
<CAPTION>
1.25% Total Charges 1.40% Total Charges
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
AIM V.I. VALUE FUND
Value at beginning of period $10.601 $8.093(3) $10.594 $9.664(4)
Value at end of period $13.599 $10.601 $13.569 $10.594
Number of accumulation units outstanding at end of period 1,538,846 29,486 492,467 9,219
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $9.897 $8.314(3) $9.891 $9.412(4)
Value at end of period $10.392 $9.897 $10.369 $9.891
Number of accumulation units outstanding at end of period 1,507,320 59,609 471,012 9,907
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.231(5) $10.793(6)
Value at end of period $12.628 $12.618
Number of accumulation units outstanding at end of period 124,948 35,352
FIDELITY VIP HIGH INCOME PORTFOLIO
Value at beginning of period $8.936 $8.411(1) $8.930 $8.987(4)
Value at end of period $9.544 $8.936 $9.523 $8.930
Number of accumulation units outstanding at end of period 712,099 19,661 244,927 48,476
FIDELITY VIP II CONTRAFUND[RegTM] PORTFOLIO
Value at beginning of period $10.521 $8.746(2) $10.514 $8.946(1)
Value at end of period $12.909 $10.521 $12.881 $10.514
Number of accumulation units outstanding at end of period 1,682,680 29,543 604,942 3,861
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $11.027 $6.858(3) $11.020 $9.497(4)
Value at end of period $24.546 $11.027 $24.492 $11.020
Number of accumulation units outstanding at end of period 994,780 21,356 368,330 944
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $10.930 $8.301(3) $10.923 $9.275(2)
Value at end of period $13.681 $10.930 $13.651 $10.923
Number of accumulation units outstanding at end of period 2,130,090 27,397 778,170 9,108
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $10.923 $7.596(3) $10.915 $9.157(1)
Value at end of period $15.531 $10.923 $15.497 $10.915
Number of accumulation units outstanding at end of period 2,407,010 35,759 647,596 6,648
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $9.563 $8.027(2) $9.557 $8.519(1)
Value at end of period $15.531 $9.563 $15.497 $9.557
Number of accumulation units outstanding at end of period 2,118,680 39,602 583,969 7,974
MFS TOTAL RETURN SERIES
Value at beginning of period $10.157 $9.772(1) $10.150 $9.737(1)
Value at end of period $10.339 $10.157 $10.317 $10.150
Number of accumulation units outstanding at end of period 675,246 12,838 307,463 27,534
OPPENHEIMER AGGRESSIVE GROWTH FUND/VA
Value at beginning of period $9.350 $6.300(3) $9.343 $8.309(4)
Value at end of period $16.952 $9.350 $16.915 $9.343
Number of accumulation units outstanding at end of period 139,615 12,609 58,765 407
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Value at beginning of period $9.067 $6.647(3) $9.061 $8.449(1)
Value at end of period $10.898 $9.067 $10.874 $9.061
Number of accumulation units outstanding at end of period 737,210 41,656 255,253 1,468
OPPENHEIMER STRATEGIC BOND FUND/VA
Value at beginning of period $9.810 $9.566(3) $9.803 $9.768(4)
Value at end of period $9.961 $9.810 $9.939 $9.803
Number of accumulation units outstanding at end of period 321,797 13,169 118,824 10
PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO
Value at beginning of period $10.180 $9.302(1) $10.173 $9.421(4)
Value at end of period $14.957 $10.180 $14.924 $10.173
Number of accumulation units outstanding at end of period 361,089 9,561 99,417 161
PPI MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period $10.357 $6.702(3) $10.350 $8.599(1)
Value at end of period $15.431 $10.357 $15.397 $10.350
Number of accumulation units outstanding at end of period 421,059 13,509 173,671 12,479
</TABLE>
83
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
0.95% Total Charges 1.25% Total Charges
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
PPI MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period $10.113 $8.805(1) $10.099 $9.089(1)
Value at end of period $12.424 $10.113 $12.370 $10.099
Number of accumulation units outstanding at end of period 208,889 4,604 434,221 36,363
PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period $9.248 $8.553(1) $9.236 $8.395(3)
Value at end of period $14.511 $9.248 $14.448 $9.236
Number of accumulation units outstanding at end of period 292,270 46,182 180,822 25,860
<CAPTION>
1.40% Total Charges
-------------------
1999 1998
---- ----
<S> <C> <C>
PPI MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period $10.092 $8.886(1)
Value at end of period $12.343 $10.092
Number of accumulation units outstanding at end of period 145,910 6,259
PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period $9.229 $8.841(1)
Value at end of period $14.416 $9.229
Number of accumulation units outstanding at end of period 122,089 2,368
</TABLE>
- -----------------
(1) Funds were first received in this option during November 1998.
(2) Funds were first received in this option during September 1998.
(3) Funds were first received in this option during October 1998.
(4) Funds were first received in this option during December 1998.
(5) Funds were first received in this option during September 1999.
(6) Funds were first received in this option during October 1999.
(7) Funds were first received in this option during May 1999.
(8) Funds were first received in this option during July 1999.
(9) Funds were first received in this option during June 1999.
84
<PAGE>
Contract Prospectus - May 1, 2000
- --------------------------------------------------------------------------------
[Begin sidebar]
The Funds
o Aetna Balanced VP, Inc.
o Aetna Income Shares d/b/a Aetna Bond VP
o Aetna Growth VP
o Aetna Variable Fund d/b/a Aetna Growth and Income VP
o Aetna Index Plus Large Cap VP
o Aetna International VP
o Aetna Variable Encore Fund d/b/a Aetna Money Market VP
o Aetna Real Estate Securities VP*
o Aetna Small Company VP
o Aetna Technology VP
o AIM V.I. Capital Appreciation Fund
o AIM V.I. Growth Fund
o AIM V.I Growth and Income Fund
o AIM V.I. Value Fund
o Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio
o Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio
o Fidelity Variable Insurance Products Fund (VIP) High Income Portfolio
o Fidelity Variable Insurance Products Fund II (VIP II) Contrafund[RegTM]
Portfolio
o Janus Aspen Aggressive Growth Portfolio
o Janus Aspen Balanced Portfolio
o Janus Aspen Growth Portfolio
o Janus Aspen Worldwide Growth Portfolio
o MFS Total Return Series
o Mitchell Hutchins Series Trust Growth and Income Portfolio
o Mitchell Hutchins Series Trust Small Cap Portfolio
o Mitchell Hutchins Series Trust Tactical Allocation Portfolio
o Oppenheimer Aggressive Growth Fund/VA
o Oppenheimer Main Street Growth & Income Fund/VA
o Oppenheimer Strategic Bond Fund/VA
o Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (formerly
PPI MFS Value Equity Portfolio)
o Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio
o Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio
o Portfolio Partners, Inc. (PPI) Scudder International Growth Portfolio
[End sidebar]
The Contract. The contract described in this prospectus is a group or individual
Aetna Variable Annuity deferred variable annuity contract issued by Aetna Life
Insurance and Annuity Company (the Company, we, us). It is issued to you, the
contract holder, as either a nonqualified deferred annuity, including contracts
offered to a custodian for an Individual Retirement Account as described in
Section 408(a) of the Internal Revenue Code of 1986, as amended (Tax Code); a
qualified individual retirement annuity (IRA); a qualified Roth IRA; or as a
qualified contract for use with certain employer sponsored retirement plans.
The Contract is not available as a SIMPLE IRA under Tax Code Section 408(p).
- --------------------------------------------------------------------------------
Why Reading this Prospectus Is Important. This prospectus contains facts about
the contract and its investment options that you should know before purchasing.
This information will help you decide if the contract is right for you. Please
read this prospectus carefully.
Table of Contents . . . page 3
- --------------------------------------------------------------------------------
Investment Options. The contract offers variable investment options and fixed
interest options. When we establish your account you instruct us to direct
account dollars to any of the available 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 fund. You do not invest
directly in or hold shares of the funds.
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 on page 20, in Appendix
III--Description of Underlying Funds and in each fund prospectus. Read this
prospectus in conjunction with the fund prospectuses, and retain the
prospectuses for future reference.
Getting Additional Information. You may obtain the May 1, 2000, Statement of
Additional Information (SAI) about the separate account by indicating your
request on your application or calling us at 1-800-238-6219. You may also obtain
an SAI for any of the funds by calling that number. The SEC also makes available
to the public reports and information about the separate account and the funds.
Certain reports and information, including this prospectus and SAI, are
available on the EDGAR Database on the Securities and Exchange Commission (SEC)
web site, www.sec.gov, or at the SEC Public Reference Room in Washington, D.C.
You may call 1-202-942-8090 to get information about the operations of the
Public Reference Room. You may obtain copies of reports and other information
about the separate account and the funds, after paying a duplicating fee, by
sending an e-mail request to [email protected] or by writing to the SEC Public
Reference Section, Washington, D.C. 20549-0102. The SAI table of contents is
listed on page 60 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 than that contained in
this prospectus.
*Effective May 15, 2000, transfers or deposits are not allowed into the
subaccount investing in this fund except those made pursuant to standing
instructions (e.g., dollar cost averaging, account rebalancing) in effect prior
to this date. See "Important Information Regarding the Aetna Real Estate
Securities VP Subaccount."
<PAGE>
Prospectus - May 1, 2000 (continued)
- --------------------------------------------------------------------------------
Fixed Interest Options.
> ALIAC Guaranteed Account (the Guaranteed Account)
> Fixed Account
Except as specifically mentioned, this prospectus describes only the investment
options offered through the separate account. However, we describe the fixed
interest options in appendices to this prospectus. There is also a separate
Guaranteed Account prospectus.
Availability of Options. Some funds or fixed interest options may be unavailable
through your contract or in your state.
Important Information Regarding the Aetna Real Estate Securities VP Subaccount
Subaccount to be Closed to New Investments. Effective May 15, 2000, the Aetna
Real Estate Securities VP subaccount will no longer be available for new
investments. After that date we will only accept deposits into the subaccount
investing in this fund if they are made pursuant to standing instructions (e.g.,
dollar cost averaging, account rebalancing, etc.) in effect before the close of
business on May 12, 2000.
Fund Shares to be Substituted with Shares of Aetna Money Market VP.
Plan of Substitution. On or before September 1, 2000, subject to applicable
regulatory approvals and the requisite vote of shareholders of the applicable
fund, any existing balance in Aetna Real Estate Securities VP will be invested
in (substituted with) shares of Aetna Money Market VP. You will not incur any
fees or charges as a result of the substitution. In addition, on and after
September 1, 2000, all investment allocations then being directed to the Aetna
Real Estate Securities VP subaccount will be redirected to the Aetna Money
Market VP subaccount. We do not believe that the substitution will create any
tax liability.
Transfer Rights. At any time prior to the date of substitution, you may transfer
your accumulated values from the subaccounts investing in substituted funds into
any other investment option available under your contract and no transfer fees
or other charges will be imposed. From and after the date of substitution, you
may, if you had values transferred from a subaccount as a result of a
substitution, transfer among any of the remaining investment options in
accordance with the terms of your contract and free of any transfer fees and
charges. Any such transfer will not be counted as one of the free transfers
permitted under your contract, provided that the transfer occurs prior to, or
within 90 days after, the substitution.
Surrender Rights. If you had shares substituted and elect to make a surrender
under the contract (if permitted by applicable tax law) within 30 days after the
date of the substitution, we will waive any early withdrawal charge on amounts
transferred as a result of the substitution. This offer to waive the early
withdrawal charge will not apply to amounts transferred after April 10, 2000
from the other investment options to the Aetna Real Estate Securities VP
subaccount. If you exercise this surrender right, you may incur income tax
liability and a tax penalty. See the "Taxation" section of this prospectus for a
discussion of tax consequences resulting from surrender. You should seek
qualified tax advice before exercising your surrender rights.
The contract is not a deposit with, obligation of or guaranteed or endorsed by
any bank, nor is it insured by the FDIC. The contract is subject to investment
risk, including the possible loss of the principal amount of your investment.
<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)
Sending Additional Purchase Payments (sidebar)
Contract Phases: The Accumulation Phase, The Income Phase
</TABLE>
- ---------------------------------------------------------------
<TABLE>
<S> <C>
Fee Table .................................. 7
Condensed Financial Information ............ 20
Investment Options ......................... 20
Transfers Among Investment Options ......... 22
Purchase and Rights ........................ 23
Right to Cancel ............................ 26
Transfers Between Option Packages .......... 27
Fees ....................................... 28
Your Account Value ......................... 32
Withdrawals ................................ 35
Systematic Distribution Options ............ 37
Death Benefit .............................. 38
The Income Phase ........................... 43
Taxation ................................... 47
Other Topics ............................... 55
</TABLE>
The Company -- Variable Annuity Account B -- Contract Distribution -- Payment
of Commissions -- Payment Delay or Suspension -- Performance Reporting --
Voting Rights -- Contract Modifications -- Transfer of Ownership: Assignment --
Involuntary Terminations -- Legal Matters and Proceedings
<TABLE>
<S> <C>
Contents of the Statement of Additional Information ......... 60
Appendix I -- ALIAC Guaranteed Account ...................... 61
Appendix II -- Fixed Account ................................ 64
Appendix III -- Description of Underlying Funds ............. 65
Appendix IV -- Condensed Financial Information .............. 84
</TABLE>
3
<PAGE>
[Begin sidebar]
Questions: Contacting the Company. To answer your questions, contact your sales
representative or write or call our Home Office at:
Aetna Financial Services
Annuity Services
151 Farmington Avenue
Hartford, CT 06156-1258
1-800-238-6219
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 us or your sales representative 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.
Sending Additional Purchase Payments.
Use one of the following addresses when sending additional purchase payments.
If using the U.S. Postal Service:
ALIAC
Attn: New Business Unit
P.O. Box 30670
Hartford, CT 06150-0670
If using express mail:
Fleet Bank/ALIAC #30670
Lockbox-CT/EH F03E
99 Founders Plaza, 3rd Floor
East Hartford, CT 06108
Express mail packages should not be sent to the P.O. Box address.
[End sidebar]
Contract Overview
- --------------------------------------------------------------------------------
The following is intended as a summary. Please read each section of this
prospectus for additional detail.
- --------------------------------------------------------------------------------
Contract Design
- --------------------------------------------------------------------------------
The contract described in this prospectus is a group or individual deferred
variable annuity contract. It is intended to be a retirement savings vehicle
that offers a variety of investment options to help meet long-term financial
goals. The term "contract" in this prospectus refers to individual contracts and
to certificates issued under group contracts.
- --------------------------------------------------------------------------------
Contract Facts
- --------------------------------------------------------------------------------
Option Packages: There are three option packages available under the contract.
You select an option package at the time of application. Each option package is
distinct. The differences are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Option Package I Option Package II Option Package III
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortality and
Expense Risk
Charge(1): 0.80% 1.10% 1.25%
- ------------------------------------------------------------------------------------------------------------
Death Benefit(2) The greater of: The greatest of: Outside of New In New York:
on Death of the (1) The sum of (1) The sum of York: The greatest of:
Annuitant(3): all purchase all purchase The greatest of: (1) The sum of
payments, payments, (1) The sum of all purchase
adjusted for adjusted for all purchase payments,
amounts amounts payments, adjusted for
withdrawn or withdrawn or adjusted for amounts
applied to an applied to an amounts withdrawn or
income phase income phase withdrawn or applied to an
payment option payment option applied to an income phase
as of the claim as of the claim income phase payment
date; or date; or payment option as
(2) The account (2) The account option as of of the claim
value on the value on the the claim date; date; or
claim date. claim date; or or (2) The account
(3) The "step-up (2) The account value on the
value" on the value on the claim date; or
claim date. claim date; (3) The "step-up
or value" on the
(3) The "step-up claim date.(4)
value" on the
claim date; or
(4) The "roll-up
value" on the
claim date.
- ------------------------------------------------------------------------------------------------------------
Minimum Initial Non- Non- Non-
Purchase Payment(5): Qualified: Qualified: Qualified: Qualified: Qualified: Qualified:
$15,000 $1,500 $5,000 $1,500 $5,000 $1,500
- ------------------------------------------------------------------------------------------------------------
Free Withdrawals(6): 10% of your account 10% of your account 10% of your account value each
value each account value each account account year, cumulative to a
year, non-cumulative. year, non-cumulative. maximum 30%.
- ------------------------------------------------------------------------------------------------------------
Outside
Nursing Home of New In New Outside In New In
Waiver -- Waiver York: York: of New York: Outside of New York:
of Early With- Not Not York: Not New York: Not
drawal Charge(6): Available Available Available Available Available Available
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Fee Table" and "Fees."
(2) See "Death Benefit."
(3) When a contract holder who is not the annuitant dies, the amount of the
death benefit is not the same as shown above under each option package. See
"Death Benefit." Therefore, contract holders who are not also the annuitant
should seriously consider whether Option Packages II and III are suitable
for their circumstances.
(4) For contracts issued in New York, the benefit payable upon the death of the
annuitant under Option Package III is the same as that described under
Option Package II. Therefore, contract holders of contracts issued in New
York should seriously consider whether Option Package III is suitable for
their circumstances.
(5) See "Purchase and Rights."
(6) See "Fees."
4
<PAGE>
Transferability. You may transfer from one option package to another.
> Transfers must occur on an account anniversary.
> A written request for the transfer must be received by us within 60 days of
an account anniversary.
> Certain minimum account values must be met.
See "Transfers Between Option Packages."
Free Look/Right to Cancel. You may cancel your contract within ten days (some
states require more than ten 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. The amount of the death benefit will
depend upon the option package selected. See "Death Benefit." Any death benefit
during the income phase will depend upon the income phase payment option
selected. See "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. In
addition, the Tax Code restricts full and partial withdrawals in some
circumstances. See "Withdrawals." Amounts withdrawn from the Guaranteed Account
may be subject to a market value adjustment. See Appendix I.
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 and Expenses. Certain fees and expenses are deducted from the value of your
contract. The fees and expenses deducted may vary depending upon the option
package you select. See "Fee Table" and "Fees."
Taxation. You will generally not pay taxes on any earnings from the annuity
contract described in this prospectus until they are withdrawn. Tax-qualified
retirement arrangements (e.g., IRAs or 403(b) plans) also defer payment of taxes
on earnings until they are withdrawn. If you are considering funding a
tax-qualified retirement arrangement with an annuity contract, you should know
that the annuity contract does not provide any additional tax deferral of
earnings beyond the tax deferral provided by the tax-qualified retirement
arrangement. However, annuities do provide other features and benefits which may
be valuable to you. You should discuss your decision with your financial
representative.
Taxes will generally be due when you receive a distribution. Tax penalties may
apply in some circumstances. See "Taxation."
5
<PAGE>
- --------------------------------------------------------------------------------
Contract Phases
- --------------------------------------------------------------------------------
[graphic]
Payments to
Your Account
Step 1 (down arrow)
Aetna Life Insurance and Annuity Company
(a) (down arrow) Step 2 (b) (down arrow)
Variable Annuity
Fixed Account B
Interest
Options Variable Investment Options
The Subaccounts
A B Etc.
(down arrow) Step 3 (down arrow)
Mutual Mutual
Fund A Fund B
[end graphic]
I. The Accumulation Phase (accumulating dollars under your contract)
STEP 1: You provide us with your completed application and initial purchase
payment. We establish an account for you and credit that account with your
initial purchase payment.
STEP 2: You direct us to invest your purchase payment in one or more of the
following investment options:
(a) Fixed Interest Options; or
(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 (receiving income phase payments from your contract)
When you want to begin receiving payments from your contract, you may select
from the options available. The contract offers several income phase payment
options (see "The Income Phase"). In general, you may:
> Receive income phase payments for a specified period of time or for life;
> Receive income phase payments monthly, quarterly, semi-annually or
annually;
> Select an income phase payment option that provides for payments to your
beneficiary; or
> Select income phase payments that are fixed or vary depending upon the
performance of the variable investment options you select.
6
<PAGE>
[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 the "Fees" section for:
> How, When and Why Fees are Deducted
> Reduction, Waiver and/or Elimination of Certain Fees
> Premium and Other Taxes
[End sidebar]
Fee Table
- --------------------------------------------------------------------------------
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 payments under the contract. The fees
shown do not reflect any premium tax that may apply.
Maximum Transaction Fees
Early Withdrawal Charge. (As a percentage of payments withdrawn.)
FOR CONTRACTS ISSUED OUTSIDE OF THE STATE OF NEW YORK:
<TABLE>
<CAPTION>
- ---------------------------------------------
Contracts Other Than Roth IRA Contracts:
- ---------------------------------------------
Early
Years From Receipt Withdrawal
of Purchase Payment Charge
- ------------------- ----------
<S> <C>
Less than 2 7%
2 or more but less than 4 6%
4 or more but less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more 0%
- ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Roth IRA Contracts:
- ---------------------------------------------
Early
Withdrawal
Completed Account Years Charge
- ----------------------- ----------
<S> <C>
Less than 1 5%
1 or more but less than 2 4%
2 or more but less than 3 3%
3 or more but less than 4 2%
4 or more but less than 5 1%
5 or more 0%
- ---------------------------------------------
</TABLE>
FOR CONTRACTS ISSUED IN THE STATE OF NEW YORK:
<TABLE>
<CAPTION>
For All Contracts
- ---------------------------------------------
Early
Years From Receipt Withdrawal
of Purchase Payment Charge
- ------------------- ----------
<S> <C>
Less than 1 7%
1 or more but less than 2 6%
2 or more but less than 3 5%
3 or more but less than 4 4%
4 or more but less than 5 3%
5 or more but less than 6 2%
6 or more but less than 7 1%
7 or more 0%
- ---------------------------------------------
</TABLE>
Annual Maintenance Fee............................................... $30.00(1)
Transfer Charge....................................................... $0.00(2)
(1) The annual maintenance fee will be waived if your account value is $50,000
or greater on the date this fee is due. See "Fees--Annual Maintenance Fee."
(2) During the accumulation phase we currently allow you 12 free transfers each
account year. We reserve the right to charge $10 for each additional
transfer. We currently do not impose this charge. See "Transfers" for
additional information.
7
<PAGE>
Maximum Fees Deducted from Investments in the Separate Account
Amount During the Accumulation Phase
(Daily deductions, equal to the following percentages on an annual basis, from
amounts invested in the subaccounts.)
> Option Package I--
Mortality and Expense Risk Charge 0.80%
Administrative Expense Charge 0.15%
-----
Total Separate Account Expenses 0.95%
=====
> Option Package II--
Mortality and Expense Risk Charge 1.10%
Administrative Expense Charge 0.15%
-----
Total Separate Account Expenses 1.25%
=====
> Option Package III--
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.15%
-----
Total Separate Account Expenses 1.40%
=====
Amount During the Income Phase
(Daily deductions, equal to the following percentages on an annual basis, from
amounts invested in the subaccounts.)
> All Option Packages--
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.00% - 0.25%(3)
----- -----
Total Separate Account Expenses 1.25% - 1.50%
===== =====
(3) We currently do not deduct an administrative expense charge during the
income phase; however, we reserve the right to deduct a daily charge of not
more than 0.25% per year. See "The Income Phase--Charges Deducted."
8
<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. The fund fees are not deducted from account values.
Instead, they are deducted from the value of the fund shares on a daily basis,
which in turn affects the value of each subaccount that purchases fund shares.
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,
1999.
Fund Expense Table
<TABLE>
<CAPTION>
Total Fund Net Fund
Annual Annual
Expenses Expenses
Investment Without Total After
Advisory Other Waivers or Waivers and Waivers
Fund Name Fees(1) Expenses Reductions Reductions or Reductions
- --------- ------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. 0.50% 0.09% 0.59% -- 0.59%
Aetna Bond VP 0.40% 0.09% 0.49% -- 0.49%
Aetna Growth VP(2) 0.60% 0.11% 0.71% 0.00% 0.71%
Aetna Growth and Income VP 0.50% 0.08% 0.58% -- 0.58%
Aetna Index Plus Large Cap VP(2) 0.35% 0.10% 0.45% 0.00% 0.45%
Aetna International VP(2) 0.85% 0.77% 1.62% 0.47% 1.15%
Aetna Money Market VP 0.25% 0.09% 0.34% -- 0.34%
Aetna Real Estate Securities VP(2) 0.75% 0.74% 1.49% 0.54% 0.95%
Aetna Small Company VP(2) 0.75% 0.13% 0.88% 0.00% 0.88%
Aetna Technology VP(2)(3) 0.95% 0.25% 1.20% 0.05% 1.15%
AIM V.I. Capital Appreciation Fund 0.62% 0.11% 0.73% -- 0.73%
AIM V.I. Growth Fund 0.63% 0.10% 0.73% -- 0.73%
AIM V.I. Growth and Income Fund 0.61% 0.16% 0.77% -- 0.77%
AIM V.I. Value Fund 0.61% 0.15% 0.76% -- 0.76%
Fidelity VIP Equity-Income Portfolio(4) 0.48% 0.09% 0.57% -- 0.57%
Fidelity VIP Growth Portfolio(4) 0.58% 0.08% 0.66% -- 0.66%
Fidelity VIP High Income Portfolio(4) 0.58% 0.11% 0.69% -- 0.69%
Fidelity VIP II Contrafund[RegTM] Portfolio(4) 0.58% 0.09% 0.67% -- 0.67%
Janus Aspen Aggressive Growth Portfolio(5) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Balanced Portfolio(5) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Growth Portfolio(5) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Worldwide Growth Portfolio(5) 0.65% 0.05% 0.70% 0.00% 0.70%
MFS Total Return Series(6) 0.75% 0.15% 0.90% 0.00% 0.90%
Mitchell Hutchins Growth and Income Portfolio(8) 0.70% 0.78% 1.48% -- 1.48%
Mitchell Hutchins Small Cap Portfolio(8) 1.00% 3.05% 4.05% -- 4.05%
Mitchell Hutchins Tactical Allocation Portfolio(8) 0.50% 0.49% 0.99% -- 0.99%
Oppenheimer Aggressive Growth Fund/VA 0.66% 0.01% 0.67% -- 0.67%
Oppenheimer Main Street Growth & Income
Fund/VA 0.73% 0.05% 0.78% -- 0.78%
Oppenheimer Strategic Bond Fund/VA 0.74% 0.04% 0.78% -- 0.78%
PPI MFS Capital Opportunities Portfolio(7) 0.65% 0.25% 0.90% 0.00% 0.90%
PPI MFS Emerging Equities Portfolio(7) 0.67% 0.13% 0.80% 0.00% 0.80%
PPI MFS Research Growth Portfolio(7) 0.70% 0.15% 0.85% 0.00% 0.85%
PPI Scudder International Growth Portfolio(7) 0.80% 0.20% 1.00% 0.00% 1.00%
</TABLE>
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 Investment Advisory Fees and are not charged to investors. For the AIM
Funds, the reimbursements may be paid out of fund assets in an amount up to
0.25% annually. Any such reimbursements paid from the AIM Funds' assets are
included in the "Other Expenses" column.
9
<PAGE>
(2) The investment adviser is contractually obligated through December 31,
2000 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 fund's "Total Fund Annual Expenses
Without Waivers or Reductions" do not exceed the percentage reflected
under "Net Fund Annual Expenses After Waivers or Reductions."
(3) Aetna Technology VP commenced operations on May 1, 2000. Amounts reflected
in "Other Expenses" and "Total Fund Annual Expenses Without Waivers or
Reductions" are estimated amounts for the current fiscal year based on
expenses for comparable funds. Actual expenses may vary from those shown.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain
funds', or the investment adviser on behalf of certain funds', custodian,
credits realized as a result of uninvested cash balances were used to
reduce a portion of each applicable fund's expenses. These credits are not
included under Total Waivers and Reductions. If these credits had been
included, the amounts shown under Net Fund Annual Expenses After Waivers
or Reductions presented in the table would have been 0.56% for Fidelity
VIP Equity-Income Portfolio; 0.65% for Fidelity VIP Growth Portfolio; and
0.65% for Fidelity VIP II Contrafund[RegTM] Portfolio.
(5) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for Aggressive
Growth, Balanced, Growth and Worldwide Growth Portfolios. All expenses are
shown without the effect of expense offset arrangements.
(6) The series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. The series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. The "Other
Expenses" shown above do not take into account these expense reductions,
and are therefore higher than the actual expenses of the series. Had these
fee reductions been taken into account, Net Fund Annual Expenses After
Waivers or Reductions would be lower and would equal 0.89% for the series.
(7) The investment adviser has agreed to reimburse the portfolios for expenses
and/or waive its fees, so that, through at least April 30, 2001, 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.
(8) The "Other Expenses" include an annual 0.25% fee imposed under a
distribution plan pursuant to Rule 12b-1 under the Investment Company Act
of 1940. This plan provides that each portfolio pays to the distributor of
the portfolios a distribution fee at an annual rate of 0.25% of its
average daily net assets attributable to its Class I shares. The
distributor of the portfolios uses the distribution fee to pay insurance
companies whose separate accounts purchase Class I shares for
distribution-related services that the insurance companies provide with
respect to the Class I shares.
10
<PAGE>
For Contracts Issued Outside of the State of New York
Hypothetical Example: Option Package I -- For Contracts Other than ROTH IRA
Contracts
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package I (i.e., a mortality and expense risk charge of 0.80%, an administrative
expense charge of 0.15% annually and an annual maintenance fee of $30 (converted
to a percentage of assets equal to 0.022%)). The total annual fund expenses used
are those shown in the column "Total Fund Annual Expenses Without Waiver or
Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early with-
- ----------------------------------------------- drawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ 79 $103 $120 $186 $16 $ 49 $ 85 $186
Aetna Bond VP $ 78 $100 $115 $175 $15 $ 46 $ 80 $175
Aetna Growth VP $ 80 $106 $127 $199 $17 $ 53 $ 91 $199
Aetna Growth and Income VP $ 79 $102 $120 $185 $16 $ 49 $ 85 $185
Aetna Index Plus Large Cap VP $ 77 $ 98 $113 $170 $14 $ 45 $ 78 $170
Aetna International VP $ 89 $134 $173 $293 $26 $ 81 $138 $293
Aetna Money Market VP $ 76 $ 95 $107 $158 $13 $ 42 $ 72 $158
Aetna Real Estate Securities VP $ 88 $130 $167 $280 $25 $ 77 $131 $280
Aetna Small Company VP $ 82 $112 $135 $217 $19 $ 58 $100 $217
Aetna Technology VP $ 85 $121 $152 $251 $22 $ 68 $117 $251
AIM V.I. Capital Appreciation Fund $ 80 $107 $128 $201 $17 $ 54 $ 92 $201
AIM V.I. Growth Fund $ 80 $107 $128 $201 $17 $ 54 $ 92 $201
AIM V.I. Growth and Income Fund $ 80 $108 $130 $205 $18 $ 55 $ 94 $205
AIM V.I. Value Fund $ 80 $108 $129 $204 $18 $ 55 $ 94 $204
Fidelity VIP Equity-Income Portfolio $ 78 $102 $119 $184 $16 $ 49 $ 84 $184
Fidelity VIP Growth Portfolio $ 79 $105 $124 $193 $17 $ 51 $ 89 $193
Fidelity VIP High Income Portfolio $ 80 $106 $126 $197 $17 $ 52 $ 90 $197
Fidelity VIP II Contrafund[RegTM] Portfolio $ 79 $105 $125 $195 $17 $ 52 $ 89 $195
Janus Aspen Aggressive Growth Portfolio $ 79 $105 $125 $195 $17 $ 52 $ 89 $195
Janus Aspen Balanced Portfolio $ 79 $105 $125 $195 $17 $ 52 $ 89 $195
Janus Aspen Growth Portfolio $ 79 $105 $125 $195 $17 $ 52 $ 89 $195
Janus Aspen Worldwide Growth Portfolio $ 80 $106 $126 $198 $17 $ 53 $ 91 $198
MFS Total Return Series $ 82 $112 $137 $219 $19 $ 59 $101 $219
Mitchell Hutchins Growth & Income Portfolio $ 88 $130 $166 $279 $25 $ 76 $131 $279
Mitchell Hutchins Small Cap Portfolio $113 $205 $287 $502 $50 $151 $251 $502
Mitchell Hutchins Tactical Allocation Portfolio $ 83 $115 $141 $229 $20 $ 62 $106 $229
Oppenheimer Aggressive Growth Fund/VA $ 79 $105 $125 $195 $17 $ 52 $ 89 $195
Oppenheimer Main Street Growth & Income Fund/VA $ 81 $109 $130 $206 $18 $ 55 $ 95 $206
Oppenheimer Strategic Bond Fund/VA $ 81 $109 $130 $206 $18 $ 55 $ 95 $206
PPI MFS Capital Opportunities Portfolio $ 82 $112 $137 $219 $19 $ 59 $101 $219
PPI MFS Emerging Equities Portfolio $ 81 $109 $131 $209 $18 $ 56 $ 96 $209
PPI MFS Research Growth Portfolio $ 81 $111 $134 $214 $19 $ 57 $ 99 $214
PPI Scudder International Growth Portfolio $ 83 $115 $142 $230 $20 $ 62 $106 $230
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
11
<PAGE>
For Contracts Issued Outside of the State of New York
Hypothetical Example: Option Package I -- For ROTH IRA Contracts
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package I (i.e., a mortality and expense risk charge of 0.80%, an administrative
expense charge of 0.15% annually and an annual maintenance fee of $30 (converted
to a percentage of assets equal to 0.022%)). The total annual fund expenses used
are those shown in the column "Total Fund Annual Expenses Without Waiver or
Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $52 $ 67 $ 85 $186 $16 $ 49 $ 85 $186
Aetna Bond VP $51 $ 64 $ 80 $175 $15 $ 46 $ 80 $175
Aetna Growth VP $53 $ 71 $ 91 $199 $17 $ 53 $ 91 $199
Aetna Growth and Income VP $52 $ 67 $ 85 $185 $16 $ 49 $ 85 $185
Aetna Index Plus Large Cap VP $50 $ 63 $ 78 $170 $14 $ 45 $ 78 $170
Aetna International VP $62 $ 98 $138 $293 $26 $ 81 $138 $293
Aetna Money Market VP $49 $ 59 $ 72 $158 $13 $ 42 $ 72 $158
Aetna Real Estate Securities VP $61 $ 95 $131 $280 $25 $ 77 $131 $280
Aetna Small Company VP $55 $ 76 $100 $217 $19 $ 58 $100 $217
Aetna Technology VP $58 $ 86 $117 $251 $22 $ 68 $117 $251
AIM V.I. Capital Appreciation Fund $53 $ 71 $ 92 $201 $17 $ 54 $ 92 $201
AIM V.I. Growth Fund $53 $ 71 $ 92 $201 $17 $ 54 $ 92 $201
AIM V.I. Growth and Income Fund $54 $ 73 $ 94 $205 $18 $ 55 $ 94 $205
AIM V.I. Value Fund $53 $ 72 $ 94 $204 $18 $ 55 $ 94 $204
Fidelity VIP Equity-Income Portfolio $52 $ 66 $ 84 $184 $16 $ 49 $ 84 $184
Fidelity VIP Growth Portfolio $52 $ 69 $ 89 $193 $17 $ 51 $ 89 $193
Fidelity VIP High Income Portfolio $53 $ 70 $ 90 $197 $17 $ 52 $ 90 $197
Fidelity VIP II Contrafund[RegTM] Portfolio $53 $ 70 $ 89 $195 $17 $ 52 $ 89 $195
Janus Aspen Aggressive Growth Portfolio $53 $ 70 $ 89 $195 $17 $ 52 $ 89 $195
Janus Aspen Balanced Portfolio $53 $ 70 $ 89 $195 $17 $ 52 $ 89 $195
Janus Aspen Growth Portfolio $53 $ 70 $ 89 $195 $17 $ 52 $ 89 $195
Janus Aspen Worldwide Growth Portfolio $53 $ 71 $ 91 $198 $17 $ 53 $ 91 $198
MFS Total Return Series $55 $ 77 $101 $219 $19 $ 59 $101 $219
Mitchell Hutchins Growth & Income Portfolio $61 $ 94 $131 $279 $25 $ 76 $131 $279
Mitchell Hutchins Small Cap Portfolio $86 $169 $251 $502 $50 $151 $251 $502
Mitchell Hutchins Tactical Allocation Portfolio $56 $ 79 $106 $229 $20 $ 62 $106 $229
Oppenheimer Aggressive Growth Fund/VA $53 $ 70 $ 89 $195 $17 $ 52 $ 89 $195
Oppenheimer Main Street Growth & Income Fund/VA $54 $ 73 $ 95 $206 $18 $ 55 $ 95 $206
Oppenheimer Strategic Bond Fund/VA $54 $ 73 $ 95 $206 $18 $ 55 $ 95 $206
PPI MFS Capital Opportunities Portfolio $55 $ 77 $101 $219 $19 $ 59 $101 $219
PPI MFS Emerging Equities Portfolio $54 $ 74 $ 96 $209 $18 $ 56 $ 96 $209
PPI MFS Research Growth Portfolio $54 $ 75 $ 99 $214 $19 $ 57 $ 99 $214
PPI Scudder International Growth Portfolio $56 $ 80 $106 $230 $20 $ 62 $106 $230
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
12
<PAGE>
For Contracts Issued in the State of New York:
Hypothetical Example: Option Package I
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package I (i.e., a mortality and expense risk charge of 0.80%, an administrative
expense charge of 0.15% annually and an annual maintenance fee of $30 (converted
to a percentage of assets equal to 0.022%)). The total annual fund expenses used
are those shown in the column "Total Fund Annual Expenses Without Waivers or
Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ 70 $ 85 $103 $186 $16 $ 49 $ 85 $186
Aetna Bond VP $ 69 $ 82 $ 97 $175 $15 $ 46 $ 80 $175
Aetna Growth VP $ 71 $ 89 $109 $199 $17 $ 53 $ 91 $199
Aetna Growth and Income VP $ 70 $ 85 $102 $185 $16 $ 49 $ 85 $185
Aetna Index Plus Large Cap VP $ 68 $ 81 $ 95 $170 $14 $ 45 $ 78 $170
Aetna International VP $ 80 $116 $155 $293 $26 $ 81 $138 $293
Aetna Money Market VP $ 67 $ 77 $ 90 $158 $13 $ 42 $ 72 $158
Aetna Real Estate Securities VP $ 79 $112 $149 $280 $25 $ 77 $131 $280
Aetna Small Company VP $ 73 $ 94 $118 $217 $19 $ 58 $100 $217
Aetna Technology VP $ 76 $104 $134 $251 $22 $ 68 $117 $251
AIM V.I. Capital Appreciation Fund $ 71 $ 89 $110 $201 $17 $ 54 $ 92 $201
AIM V.I. Growth Fund $ 71 $ 89 $110 $201 $17 $ 54 $ 92 $201
AIM V.I. Growth and Income Fund $ 72 $ 90 $112 $205 $18 $ 55 $ 94 $205
AIM V.I. Value Fund $ 71 $ 90 $112 $204 $18 $ 55 $ 94 $204
Fidelity VIP Equity-Income Portfolio $ 69 $ 84 $102 $184 $16 $ 49 $ 84 $184
Fidelity VIP Growth Portfolio $ 70 $ 87 $106 $193 $17 $ 51 $ 89 $193
Fidelity VIP High Income Portfolio $ 71 $ 88 $108 $197 $17 $ 52 $ 90 $197
Fidelity VIP II Contrafund[RegTM] Portfolio $ 70 $ 87 $107 $195 $17 $ 52 $ 89 $195
Janus Aspen Aggressive Growth Portfolio $ 70 $ 87 $107 $195 $17 $ 52 $ 89 $195
Janus Aspen Balanced Portfolio $ 70 $ 87 $107 $195 $17 $ 52 $ 89 $195
Janus Aspen Growth Portfolio $ 70 $ 87 $107 $195 $17 $ 52 $ 89 $195
Janus Aspen Worldwide Growth Portfolio $ 71 $ 88 $108 $198 $17 $ 53 $ 91 $198
MFS Total Return Series $ 73 $ 94 $119 $219 $19 $ 59 $101 $219
Mitchell Hutchins Growth & Income Portfolio $ 79 $112 $148 $279 $25 $ 76 $131 $279
Mitchell Hutchins Small Cap Portfolio $104 $187 $269 $502 $50 $151 $251 $502
Mitchell Hutchins Tactical Allocation Portfolio $ 74 $ 97 $124 $229 $20 $ 62 $106 $229
Oppenheimer Aggressive Growth Fund/VA $ 70 $ 87 $107 $195 $17 $ 52 $ 89 $195
Oppenheimer Main Street Growth & Income Fund/VA $ 72 $ 91 $113 $206 $18 $ 55 $ 95 $206
Oppenheimer Strategic Bond Fund/VA $ 72 $ 91 $113 $206 $18 $ 55 $ 95 $206
PPI MFS Capital Opportunities Portfolio $ 73 $ 94 $119 $219 $19 $ 59 $101 $219
PPI MFS Emerging Equities Portfolio $ 72 $ 91 $114 $209 $18 $ 56 $ 96 $209
PPI MFS Research Growth Portfolio $ 72 $ 93 $116 $214 $19 $ 57 $ 99 $214
PPI Scudder International Growth Portfolio $ 74 $ 98 $124 $230 $20 $ 62 $106 $230
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
13
<PAGE>
For Contracts Issued Outside of the State of New York
Hypothetical Example: Option Package II -- For Contracts Other than ROTH IRA
Contracts
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package II (i.e., a mortality and expense risk charge of 1.10%, an
administrative expense charge of 0.15% annually and an annual maintenance fee of
$30 (converted to a percentage of assets equal to 0.022%)). The total annual
fund expenses used are those shown in the column "Total Fund Annual Expenses
Without Waiver or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ 82 $112 $136 $218 $19 $ 59 $101 $218
Aetna Bond VP $ 81 $109 $131 $208 $18 $ 55 $ 96 $208
Aetna Growth VP $ 83 $116 $142 $231 $20 $ 62 $107 $231
Aetna Growth and Income VP $ 82 $112 $135 $217 $19 $ 58 $100 $217
Aetna Index Plus Large Cap VP $ 80 $108 $129 $203 $18 $ 54 $ 93 $203
Aetna International VP $ 92 $143 $188 $322 $29 $ 90 $152 $322
Aetna Money Market VP $ 79 $104 $123 $191 $16 $ 51 $ 88 $191
Aetna Real Estate Securities VP $ 91 $139 $182 $309 $28 $ 86 $146 $309
Aetna Small Company VP $ 85 $121 $151 $248 $22 $ 67 $116 $248
Aetna Technology VP $ 88 $131 $167 $281 $25 $ 77 $132 $281
AIM V.I. Capital Appreciation Fund $ 83 $116 $143 $233 $20 $ 63 $108 $233
AIM V.I. Growth Fund $ 83 $116 $143 $233 $20 $ 63 $108 $233
AIM V.I. Growth and Income Fund $ 84 $117 $145 $237 $21 $ 64 $110 $237
AIM V.I. Value Fund $ 83 $117 $145 $236 $21 $ 64 $109 $236
Fidelity VIP Equity-Income Portfolio $ 81 $111 $135 $216 $19 $ 58 $100 $216
Fidelity VIP Growth Portfolio $ 82 $114 $140 $226 $20 $ 61 $104 $226
Fidelity VIP High Income Portfolio $ 83 $115 $141 $229 $20 $ 62 $106 $229
Fidelity VIP II Contrafund[RegTM] Portfolio $ 83 $114 $140 $227 $20 $ 61 $105 $227
Janus Aspen Aggressive Growth Portfolio $ 83 $114 $140 $227 $20 $ 61 $105 $227
Janus Aspen Balanced Portfolio $ 83 $114 $140 $227 $20 $ 61 $105 $227
Janus Aspen Growth Portfolio $ 83 $114 $140 $227 $20 $ 61 $105 $227
Janus Aspen Worldwide Growth Portfolio $ 83 $115 $142 $230 $20 $ 62 $106 $230
MFS Total Return Series $ 85 $121 $152 $251 $22 $ 68 $117 $251
Mitchell Hutchins Growth & Income Portfolio $ 91 $139 $181 $308 $28 $ 85 $146 $308
Mitchell Hutchins Small Cap Portfolio $116 $213 $300 $524 $53 $159 $264 $524
Mitchell Hutchins Tactical Allocation Portfolio $ 86 $124 $157 $260 $23 $ 71 $121 $260
Oppenheimer Aggressive Growth Fund/VA $ 83 $114 $140 $227 $20 $ 61 $105 $227
Oppenheimer Main Street Growth & Income Fund/VA $ 84 $118 $146 $238 $21 $ 64 $110 $238
Oppenheimer Strategic Bond Fund/VA $ 84 $118 $146 $238 $21 $ 64 $110 $238
PPI MFS Capital Opportunities Portfolio $ 85 $121 $152 $251 $22 $ 68 $117 $251
PPI MFS Emerging Equities Portfolio $ 84 $118 $147 $240 $21 $ 65 $111 $240
PPI MFS Research Growth Portfolio $ 84 $120 $149 $245 $22 $ 66 $114 $245
PPI Scudder International Growth Portfolio $ 86 $124 $157 $261 $23 $ 71 $122 $261
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
14
<PAGE>
For Contracts Issued Outside of the State of New York
Hypothetical Example: Option Package II -- For ROTH IRA Contracts
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package II (i.e., a mortality and expense risk charge of 1.10%, an
administrative expense charge of 0.15% annually and an annual maintenance fee of
$30 (converted to a percentage of assets equal to 0.022%)). The total annual
fund expenses used are those shown in the column "Total Fund Annual Expenses
Without Waiver or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $55 $ 76 $101 $218 $19 $ 59 $101 $218
Aetna Bond VP $54 $ 73 $ 96 $208 $18 $ 55 $ 96 $208
Aetna Growth VP $56 $ 80 $107 $231 $20 $ 62 $107 $231
Aetna Growth and Income VP $55 $ 76 $100 $217 $19 $ 58 $100 $217
Aetna Index Plus Large Cap VP $53 $ 72 $ 93 $203 $18 $ 54 $ 93 $203
Aetna International VP $65 $107 $152 $322 $29 $ 90 $152 $322
Aetna Money Market VP $52 $ 69 $ 88 $191 $16 $ 51 $ 88 $191
Aetna Real Estate Securities VP $64 $104 $146 $309 $28 $ 86 $146 $309
Aetna Small Company VP $58 $ 85 $116 $248 $22 $ 67 $116 $248
Aetna Technology VP $61 $ 95 $132 $281 $25 $ 77 $132 $281
AIM V.I. Capital Appreciation Fund $56 $ 81 $108 $233 $20 $ 63 $108 $233
AIM V.I. Growth Fund $56 $ 81 $108 $233 $20 $ 63 $108 $233
AIM V.I. Growth and Income Fund $57 $ 82 $110 $237 $21 $ 64 $110 $237
AIM V.I. Value Fund $57 $ 82 $109 $236 $21 $ 64 $109 $236
Fidelity VIP Equity-Income Portfolio $55 $ 76 $100 $216 $19 $ 58 $100 $216
Fidelity VIP Growth Portfolio $55 $ 78 $104 $226 $20 $ 61 $104 $226
Fidelity VIP High Income Portfolio $56 $ 79 $106 $229 $20 $ 62 $106 $229
Fidelity VIP II Contrafund[RegTM] Portfolio $56 $ 79 $105 $227 $20 $ 61 $105 $227
Janus Aspen Aggressive Growth Portfolio $56 $ 79 $105 $227 $20 $ 61 $105 $227
Janus Aspen Balanced Portfolio $56 $ 79 $105 $227 $20 $ 61 $105 $227
Janus Aspen Growth Portfolio $56 $ 79 $105 $227 $20 $ 61 $105 $227
Janus Aspen Worldwide Growth Portfolio $56 $ 80 $106 $230 $20 $ 62 $106 $230
MFS Total Return Series $58 $ 86 $117 $251 $22 $ 68 $117 $251
Mitchell Hutchins Growth & Income Portfolio $64 $103 $146 $308 $28 $ 85 $146 $308
Mitchell Hutchins Small Cap Portfolio $89 $177 $264 $524 $53 $159 $264 $524
Mitchell Hutchins Tactical Allocation Portfolio $59 $ 89 $121 $260 $23 $ 71 $121 $260
Oppenheimer Aggressive Growth Fund/VA $56 $ 79 $105 $227 $20 $ 61 $105 $227
Oppenheimer Main Street Growth & Income Fund/VA $57 $ 82 $110 $238 $21 $ 64 $110 $238
Oppenheimer Strategic Bond Fund/VA $57 $ 82 $110 $238 $21 $ 64 $110 $238
PPI MFS Capital Opportunities Portfolio $58 $ 86 $117 $251 $22 $ 68 $117 $251
PPI MFS Emerging Equities Portfolio $57 $ 83 $111 $240 $21 $ 65 $111 $240
PPI MFS Research Growth Portfolio $57 $ 84 $114 $245 $22 $ 66 $114 $245
PPI Scudder International Growth Portfolio $59 $ 89 $122 $261 $23 $ 71 $122 $261
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
15
<PAGE>
For Contracts Issued in the State of New York:
Hypothetical Example: Option Package II
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package II (i.e., a mortality and expense risk charge of 1.10%, an
administrative expense charge of 0.15% annually and an annual maintenance fee of
$30 (converted to a percentage of assets equal to 0.022%)). The total annual
fund expenses used are those shown in the column "Total Fund Annual Expenses
Without Waivers or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ 73 $ 94 $118 $218 $19 $ 59 $101 $218
Aetna Bond VP $ 72 $ 91 $113 $208 $18 $ 55 $ 96 $208
Aetna Growth VP $ 74 $ 98 $125 $231 $20 $ 62 $107 $231
Aetna Growth and Income VP $ 73 $ 94 $118 $217 $19 $ 58 $100 $217
Aetna Index Plus Large Cap VP $ 71 $ 90 $111 $203 $18 $ 54 $ 93 $203
Aetna International VP $ 83 $125 $170 $322 $29 $ 90 $152 $322
Aetna Money Market VP $ 70 $ 86 $105 $191 $16 $ 51 $ 88 $191
Aetna Real Estate Securities VP $ 82 $121 $164 $309 $28 $ 86 $146 $309
Aetna Small Company VP $ 76 $103 $133 $248 $22 $ 67 $116 $248
Aetna Technology VP $ 79 $113 $149 $281 $25 $ 77 $132 $281
AIM V.I. Capital Appreciation Fund $ 74 $ 98 $126 $233 $20 $ 63 $108 $233
AIM V.I. Growth Fund $ 74 $ 98 $126 $233 $20 $ 63 $108 $233
AIM V.I. Growth and Income Fund $ 75 $100 $128 $237 $21 $ 64 $110 $237
AIM V.I. Value Fund $ 74 $ 99 $127 $236 $21 $ 64 $109 $236
Fidelity VIP Equity-Income Portfolio $ 73 $ 94 $117 $216 $19 $ 58 $100 $216
Fidelity VIP Growth Portfolio $ 73 $ 96 $122 $226 $20 $ 61 $104 $226
Fidelity VIP High Income Portfolio $ 74 $ 97 $124 $229 $20 $ 62 $106 $229
Fidelity VIP II Contrafund[RegTM] Portfolio $ 74 $ 97 $122 $227 $20 $ 61 $105 $227
Janus Aspen Aggressive Growth Portfolio $ 74 $ 97 $122 $227 $20 $ 61 $105 $227
Janus Aspen Balanced Portfolio $ 74 $ 97 $122 $227 $20 $ 61 $105 $227
Janus Aspen Growth Portfolio $ 74 $ 97 $122 $227 $20 $ 61 $105 $227
Janus Aspen Worldwide Growth Portfolio $ 74 $ 98 $124 $230 $20 $ 62 $106 $230
MFS Total Return Series $ 76 $104 $134 $251 $22 $ 68 $117 $251
Mitchell Hutchins Growth & Income Portfolio $ 82 $121 $163 $308 $28 $ 85 $146 $308
Mitchell Hutchins Small Cap Portfolio $107 $195 $282 $524 $53 $159 $264 $524
Mitchell Hutchins Tactical Allocation Portfolio $ 77 $106 $139 $260 $23 $ 71 $121 $260
Oppenheimer Aggressive Growth Fund/VA $ 74 $ 97 $122 $227 $20 $ 61 $105 $227
Oppenheimer Main Street Growth & Income Fund/VA $ 75 $100 $128 $238 $21 $ 64 $110 $238
Oppenheimer Strategic Bond Fund/VA $ 75 $100 $128 $238 $21 $ 64 $110 $238
PPI MFS Capital Opportunities Portfolio $ 76 $104 $134 $251 $22 $ 68 $117 $251
PPI MFS Emerging Equities Portfolio $ 75 $101 $129 $240 $21 $ 65 $111 $240
PPI MFS Research Growth Portfolio $ 75 $102 $132 $245 $22 $ 66 $114 $245
PPI Scudder International Growth Portfolio $ 77 $107 $139 $261 $23 $ 71 $122 $261
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
16
<PAGE>
For Contracts Issued Outside of the State of New York
Hypothetical Example: Option Package III -- For Contracts Other than ROTH IRA
Contracts
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package III (i.e., a mortality and expense risk charge of 1.25%, an
administrative expense charge of 0.15% annually and an annual maintenance fee of
$30 (converted to a percentage of assets equal to 0.022%)). The total annual
fund expenses used are those shown in the column "Total Fund Annual Expenses
Without Waiver or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ 83 $117 $144 $234 $20 $ 63 $108 $234
Aetna Bond VP $ 82 $113 $139 $223 $19 $ 60 $103 $223
Aetna Growth VP $ 84 $120 $150 $246 $22 $ 67 $115 $246
Aetna Growth and Income VP $ 83 $116 $143 $233 $20 $ 63 $108 $233
Aetna Index Plus Large Cap VP $ 82 $112 $137 $219 $19 $ 59 $101 $219
Aetna International VP $ 94 $148 $195 $336 $31 $ 94 $160 $336
Aetna Money Market VP $ 81 $109 $131 $208 $18 $ 55 $ 96 $208
Aetna Real Estate Securities VP $ 92 $144 $189 $323 $29 $ 90 $153 $323
Aetna Small Company VP $ 86 $125 $159 $264 $23 $ 72 $123 $264
Aetna Technology VP $ 89 $135 $175 $296 $27 $ 82 $139 $296
AIM V.I. Capital Appreciation Fund $ 85 $121 $151 $248 $22 $ 67 $116 $248
AIM V.I. Growth Fund $ 85 $121 $151 $248 $22 $ 67 $116 $248
AIM V.I. Growth and Income Fund $ 85 $122 $153 $253 $22 $ 69 $118 $253
AIM V.I. Value Fund $ 85 $122 $152 $252 $22 $ 68 $117 $252
Fidelity VIP Equity-Income Portfolio $ 83 $116 $143 $232 $20 $ 63 $107 $232
Fidelity VIP Growth Portfolio $ 84 $119 $147 $241 $21 $ 65 $112 $241
Fidelity VIP High Income Portfolio $ 84 $120 $149 $244 $21 $ 66 $113 $244
Fidelity VIP II Contrafund[RegTM] Portfolio $ 84 $119 $148 $242 $21 $ 66 $112 $242
Janus Aspen Aggressive Growth Portfolio $ 84 $119 $148 $242 $21 $ 66 $112 $242
Janus Aspen Balanced Portfolio $ 84 $119 $148 $242 $21 $ 66 $112 $242
Janus Aspen Growth Portfolio $ 84 $119 $148 $242 $21 $ 66 $112 $242
Janus Aspen Worldwide Growth Portfolio $ 84 $120 $149 $245 $22 $ 66 $114 $245
MFS Total Return Series $ 86 $126 $160 $266 $24 $ 73 $124 $266
Mitchell Hutchins Growth & Income Portfolio $ 92 $143 $188 $323 $29 $ 90 $153 $323
Mitchell Hutchins Small Cap Portfolio $118 $217 $306 $534 $55 $163 $270 $534
Mitchell Hutchins Tactical Allocation Portfolio $ 87 $129 $164 $275 $24 $ 75 $129 $275
Oppenheimer Aggressive Growth Fund/VA $ 84 $119 $148 $242 $21 $ 66 $112 $242
Oppenheimer Main Street Growth & Income Fund/VA $ 85 $122 $153 $254 $22 $ 69 $118 $254
Oppenheimer Strategic Bond Fund/VA $ 85 $122 $153 $254 $22 $ 69 $118 $254
PPI MFS Capital Opportunities Portfolio $ 86 $126 $160 $266 $24 $ 73 $124 $266
PPI MFS Emerging Equities Portfolio $ 85 $123 $154 $256 $23 $ 69 $119 $256
PPI MFS Research Growth Portfolio $ 86 $124 $157 $261 $23 $ 71 $122 $261
PPI Scudder International Growth Portfolio $ 87 $129 $165 $276 $25 $ 76 $129 $276
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
17
<PAGE>
For Contracts Issued Outside of the State of New York
Hypothetical Example: Option Package III -- For ROTH IRA Contracts
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package III (i.e., a mortality and expense risk charge of 1.25%, an
administrative expense charge of 0.15% annually and an annual maintenance fee of
$30 (converted to a percentage of assets equal to 0.022%)). The total annual
fund expenses used are those shown in the column "Total Fund Annual Expenses
Without Waiver or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $56 $ 81 $108 $234 $20 $ 63 $108 $234
Aetna Bond VP $55 $ 78 $103 $223 $19 $ 60 $103 $223
Aetna Growth VP $58 $ 85 $115 $246 $22 $ 67 $115 $246
Aetna Growth and Income VP $56 $ 81 $108 $233 $20 $ 63 $108 $233
Aetna Index Plus Large Cap VP $55 $ 77 $101 $219 $19 $ 59 $101 $219
Aetna International VP $67 $112 $160 $336 $31 $ 94 $160 $336
Aetna Money Market VP $54 $ 73 $ 96 $208 $18 $ 55 $ 96 $208
Aetna Real Estate Securities VP $65 $108 $153 $323 $29 $ 90 $153 $323
Aetna Small Company VP $59 $ 90 $123 $264 $23 $ 72 $123 $264
Aetna Technology VP $62 $ 99 $139 $296 $27 $ 82 $139 $296
AIM V.I. Capital Appreciation Fund $58 $ 85 $116 $248 $22 $ 67 $116 $248
AIM V.I. Growth Fund $58 $ 85 $116 $248 $22 $ 67 $116 $248
AIM V.I. Growth and Income Fund $58 $ 86 $118 $253 $22 $ 69 $118 $253
AIM V.I. Value Fund $58 $ 86 $117 $252 $22 $ 68 $117 $252
Fidelity VIP Equity-Income Portfolio $56 $ 80 $107 $232 $20 $ 63 $107 $232
Fidelity VIP Growth Portfolio $57 $ 83 $112 $241 $21 $ 65 $112 $241
Fidelity VIP High Income Portfolio $57 $ 84 $113 $244 $21 $ 66 $113 $244
Fidelity VIP II Contrafund[RegTM] Portfolio $57 $ 83 $112 $242 $21 $ 66 $112 $242
Janus Aspen Aggressive Growth Portfolio $57 $ 83 $112 $242 $21 $ 66 $112 $242
Janus Aspen Balanced Portfolio $57 $ 83 $112 $242 $21 $ 66 $112 $242
Janus Aspen Growth Portfolio $57 $ 83 $112 $242 $21 $ 66 $112 $242
Janus Aspen Worldwide Growth Portfolio $57 $ 84 $114 $245 $22 $ 66 $114 $245
MFS Total Return Series $59 $ 90 $124 $266 $24 $ 73 $124 $266
Mitchell Hutchins Growth & Income Portfolio $65 $108 $153 $323 $29 $ 90 $153 $323
Mitchell Hutchins Small Cap Portfolio $91 $181 $270 $534 $55 $163 $270 $534
Mitchell Hutchins Tactical Allocation Portfolio $60 $ 93 $129 $275 $24 $ 75 $129 $275
Oppenheimer Aggressive Growth Fund/VA $57 $ 83 $112 $242 $21 $ 66 $112 $242
Oppenheimer Main Street Growth & Income Fund/VA $58 $ 87 $118 $254 $22 $ 69 $118 $254
Oppenheimer Strategic Bond Fund/VA $58 $ 87 $118 $254 $22 $ 69 $118 $254
PPI MFS Capital Opportunities Portfolio $59 $ 90 $124 $266 $24 $ 73 $124 $266
PPI MFS Emerging Equities Portfolio $58 $ 87 $119 $256 $23 $ 69 $119 $256
PPI MFS Research Growth Portfolio $59 $ 89 $122 $261 $23 $ 71 $122 $261
PPI Scudder International Growth Portfolio $60 $ 93 $129 $276 $25 $ 76 $129 $276
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
18
<PAGE>
For Contracts Issued in the State of New York:
Hypothetical Example: Option Package III
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 and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under Option
Package III (i.e., a mortality and expense risk charge of 1.25%, an
administrative expense charge of 0.15% annually and an annual maintenance fee of
$30 (converted to a percentage of assets equal to 0.022%)). The total annual
fund expenses used are those shown in the column "Total Fund Annual Expenses
Without Waivers or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- -----------------------------------------------
> These examples are purely hypothetical. EXAMPLE A EXAMPLE B
> They should not be considered a --------- ---------
representation of past or future expenses If you withdraw your entire account If at the end of the periods shown you
or expected returns. value at the end of the periods shown, (1) leave your entire account value
> Actual expenses and/or returns may be you would pay the following expenses, invested or (2) select an income phase
more or less than those shown in these including any applicable early payment option, you would pay the
examples. withdrawal charge: following expenses (no early
- ----------------------------------------------- withdrawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ 74 $ 99 $126 $234 $20 $ 63 $108 $234
Aetna Bond VP $ 73 $ 96 $121 $223 $19 $ 60 $103 $223
Aetna Growth VP $ 75 $102 $132 $246 $22 $ 67 $115 $246
Aetna Growth and Income VP $ 74 $ 98 $126 $233 $20 $ 63 $108 $233
Aetna Index Plus Large Cap VP $ 73 $ 94 $119 $219 $19 $ 59 $101 $219
Aetna International VP $ 85 $130 $178 $336 $31 $ 94 $160 $336
Aetna Money Market VP $ 72 $ 91 $113 $208 $18 $ 55 $ 96 $208
Aetna Real Estate Securities VP $ 83 $126 $171 $323 $29 $ 90 $153 $323
Aetna Small Company VP $ 77 $108 $141 $264 $23 $ 72 $123 $264
Aetna Technology VP $ 80 $117 $157 $296 $27 $ 82 $139 $296
AIM V.I. Capital Appreciation Fund $ 76 $103 $133 $248 $22 $ 67 $116 $248
AIM V.I. Growth Fund $ 76 $103 $133 $248 $22 $ 67 $116 $248
AIM V.I. Growth and Income Fund $ 76 $104 $135 $253 $22 $ 69 $118 $253
AIM V.I. Value Fund $ 76 $104 $135 $252 $22 $ 68 $117 $252
Fidelity VIP Equity-Income Portfolio $ 74 $ 98 $125 $232 $20 $ 63 $107 $232
Fidelity VIP Growth Portfolio $ 75 $101 $130 $241 $21 $ 65 $112 $241
Fidelity VIP High Income Portfolio $ 75 $102 $131 $244 $21 $ 66 $113 $244
Fidelity VIP II Contrafund[RegTM] Portfolio $ 75 $101 $130 $242 $21 $ 66 $112 $242
Janus Aspen Aggressive Growth Portfolio $ 75 $101 $130 $242 $21 $ 66 $112 $242
Janus Aspen Balanced Portfolio $ 75 $101 $130 $242 $21 $ 66 $112 $242
Janus Aspen Growth Portfolio $ 75 $101 $130 $242 $21 $ 66 $112 $242
Janus Aspen Worldwide Growth Portfolio $ 75 $102 $132 $245 $22 $ 66 $114 $245
MFS Total Return Series $ 77 $108 $142 $266 $24 $ 73 $124 $266
Mitchell Hutchins Growth & Income Portfolio $ 83 $126 $171 $323 $29 $ 90 $153 $323
Mitchell Hutchins Small Cap Portfolio $109 $199 $288 $534 $55 $163 $270 $534
Mitchell Hutchins Tactical Allocation Portfolio $ 78 $111 $146 $275 $24 $ 75 $129 $275
Oppenheimer Aggressive Growth Fund/VA $ 75 $101 $130 $242 $21 $ 66 $112 $242
Oppenheimer Main Street Growth & Income Fund/VA $ 76 $105 $136 $254 $22 $ 69 $118 $254
Oppenheimer Strategic Bond Fund/VA $ 76 $105 $136 $254 $22 $ 69 $118 $254
PPI MFS Capital Opportunities Portfolio $ 77 $108 $142 $266 $24 $ 73 $124 $266
PPI MFS Emerging Equities Portfolio $ 76 $105 $137 $256 $23 $ 69 $119 $256
PPI MFS Research Growth Portfolio $ 77 $107 $139 $261 $23 $ 71 $122 $261
PPI Scudder International Growth Portfolio $ 78 $111 $147 $276 $25 $ 76 $129 $276
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case 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).
19
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
Understanding Condensed Financial Information. In Appendix IV of this
prospectus, we provide condensed financial information about the 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 from
the time purchase payments were first received in the subaccounts under the
contract.
Investment Options
- --------------------------------------------------------------------------------
The contract offers variable investment options and fixed interest 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 a specific mutual
fund. You do not invest directly in or hold shares of the funds.
> Mutual Fund (fund) Descriptions. We provide brief descriptions of the funds
in Appendix III. Investment results of the 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. Unless otherwise noted, all funds are
diversified as defined under the Investment Company Act of 1940. 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--Questions: Contacting the Company" or
by contacting the SEC Public Reference Room.
Fixed Interest Options. If available in your state, the ALIAC Guaranteed Account
(the Guaranteed Account) or the Fixed Account. The Guaranteed Account offers
certain guaranteed minimum interest rates for a stated period of time. Amounts
must remain in the Guaranteed Account for specific periods to receive the quoted
interest rates, or a market value adjustment will be applied. The market value
adjustment may be positive or negative. The Fixed Account guarantees payment of
the minimum interest rate specified in the contract. The Fixed Account is only
available in certain states. For a description of these options, see Appendices
I and II and the Guaranteed Account prospectus.
20
<PAGE>
- --------------------------------------------------------------------------------
Selecting Investment Options
o Choose options appropriate for you. Your sales 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
subaccounts invest in funds that are considered riskier than others. Funds
with additional risks are expected to have values that 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, the Guaranteed
Account and Fixed Account appendices and the Guaranteed Account prospectus.
- --------------------------------------------------------------------------------
Limits on Availability of Options. Some funds or fixed interest options may be
unavailable through your contract or in your state. We may add, withdraw or
substitute funds, subject to the conditions in your contract and compliance with
regulatory requirements.
Limits on How Many Investment Options You May Select. Although there is
currently no limit, we reserve the right to limit the number of investment
options you may select at any one time or during the life of the contract. For
purposes of determining any limit, each subaccount and each guaranteed term of
the Guaranteed Account, or an investment in the Fixed Account in certain
contracts, will be considered an investment option.
Limits Imposed by the Underlying Fund. 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 a purchase payment 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, are 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, which could adversely impact the value of a fund. For example, if a
conflict of interest occurred and one of the 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 may arise and to
determine what action, if any, should be taken to address such conflicts.
21
<PAGE>
Transfers Among Investment Options
- --------------------------------------------------------------------------------
You may transfer amounts among the available subaccounts. During the
accumulation phase we allow you 12 free transfers each account year. We reserve
the right to charge $10 for each additional transfer. We currently do not impose
this charge. During the income phase, if approved in your state, we allow you
four free transfers each account year. We reserve the right to charge $10 for
each additional transfer. We currently do not impose this charge.
Transfers from the Guaranteed Account are subject to certain restrictions and
may be subject to a market value adjustment. Transfers from the Fixed Account
are subject to certain restrictions and transfers into the Fixed Account from
any of the other investment options are not allowed. Transfers must be made in
accordance with the terms of your contract.
Transfer Requests. Requests may be made in writing, by telephone or, where
applicable, electronically.
Limits on Frequent 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,
organizations or individuals that 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.
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.
Value of Your Transferred Dollars. The value of amounts transferred into or out
of subaccounts will be based on the subaccount unit values next determined after
we receive your transfer request in good order at our Home Office, or if you are
participating in the dollar cost averaging or account rebalancing programs,
after your scheduled transfer or reallocation.
Telephone and Electronic Transactions: Security Measures. To prevent fraudulent
use of telephone and electronic transactions (including, but not limited to,
internet transactions), we have established security procedures. These include
recording calls on our toll-free telephone lines and requiring 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 or other electronic transactions. We are not liable for
losses resulting from telephone or electronic instructions we believe to be
genuine. If a loss occurs when we rely on such instructions, you will bear the
loss.
22
<PAGE>
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 certain subaccounts, the Guaranteed Account or
Fixed Account to any of the other subaccounts. A market value adjustment will
not be applied to dollar cost averaging transfers from a guaranteed term of the
Guaranteed Account during participation in the dollar cost averaging program. If
such participation is discontinued, we will automatically transfer the remaining
balance in that guaranteed term to another guaranteed term of the same duration,
unless you initiate a transfer into another investment option. In either case a
market value adjustment will apply. See Appendix I for more information about
dollar cost averaging from the Guaranteed Account. If dollar cost averaging is
stopped with respect to amounts invested in the Fixed Account, the remaining
balance will be transferred to the money market subaccount.
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. There is no additional charge for
this program and transfers made under this program do not count as transfers
when determining the number of free transfers that may be made each calendar
year. For additional information about this program, contact your sales
representative or call us at the number listed in "Contract Overview--Questions:
Contacting the Company."
In certain states purchase payments allocated to the Fixed Account may require
participation in the dollar cost averaging program.
Dollar cost averaging is not available if you elect to participate in the
account rebalancing program.
The Account Rebalancing Program. Account rebalancing allows you to reallocate
your account value to match the investment allocations you originally selected.
Only account values invested in the subaccounts may be rebalanced. We
automatically reallocate your account value annually (or more frequently as we
allow). Account rebalancing neither ensures a profit nor guarantees against loss
in a declining market. There is no additional charge for this program and
transfers made under this program do not count as transfers when determining the
number of free transfers that may be made each calendar year. You may
participate in this program by completing the account rebalancing section of
your application or by contacting us at the address and/or number listed in
"Contract Overview--Questions: Contacting the Company."
Account rebalancing is not available if you elect to participate in the dollar
cost averaging program.
Purchase And Rights
- --------------------------------------------------------------------------------
How to Purchase
> Individual Contracts. In some states, where group contracts are not
available, you may purchase the contract directly from us by completing an
application and delivering it and your initial purchase payment to us. Upon
our approval we will issue you a contract and set up an account for you
under the contract.
23
<PAGE>
> Group Contracts. In most states we have distributors, usually
broker-dealers or banks, who hold the contract as a group contract (see
"Distribution"). You may purchase an interest (or, in other words,
participate) in the group contract by contacting a distributor and
completing an application and delivering it with your initial purchase
payment to that distributor. Upon our approval, we will set up an account
for you under the group contract and issue you a certificate showing your
rights under the contract.
> Joint Contracts (generally spouses). For a nonqualified contract, you may
participate in a group contract as a joint contract holder. References to
"contract holder" in this prospectus mean both contract holders under joint
contracts. Tax law prohibits the purchase of qualified contracts by joint
contract holders.
Maximum Issue Age. The maximum issue age for you and the annuitant (if you are
not the annuitant) on the date we establish your account is 90.
Your Rights Under the Contract
> Individual Contracts. You have all contract rights.
> Group Contracts. The holder of the group contract has title to the contract
and, generally, only the right to accept or reject any modifications to the
contract. You have all other rights to your account under the contract.
> Joint Contracts. Joint contract holders have equal rights under the
contract with respect to their account. All rights under the contract must
be exercised by both joint contract holders with the exception of transfers
among investment options. See the "Death Benefit" section for the rights of
the surviving joint contract holder upon the death of a joint contract
holder prior to the income phase start date.
Purchase Payment Methods. The following purchase payment methods are allowed:
> One lump sum;
> Periodic payments; or
> Transfer or rollover from a pre-existing retirement plan or account.
We reserve the right to reject any purchase payments to a prospective or
existing account without advance notice.
Purchase Payment Amounts.
The minimum initial purchase payment depends upon the option package selected
at issue.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Option Option Option
Package I Package II Package III
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Minimum Non- Non- Non-
Initial Qualified: Qualified:* Qualified: Qualified:* Qualified: Qualified:*
Purchase ---------- ----------- ---------- ----------- ---------- -----------
Payment $15,000 $1,500 $5,000 $1,500 $5,000 $1,500
- ------------------------------------------------------------------------------------------
</TABLE>
*The Tax Code imposes a maximum limit on annual payments which may be excluded
from your gross income.
Additional purchase payments must be at least $50 (we may change this amount
from time to time.) A purchase payment of more than $1,000,000 will be allowed
only with our consent.
24
<PAGE>
Reduction of Purchase Payment Amounts. In certain circumstances we may reduce
the minimum initial or additional purchase payment amount we will accept under a
contract. Whether such a reduction is available will be based on consideration
of each of the following factors:
> The size and type of the prospective group, if any, to which the reduction
would apply;
> The method and frequency of purchase payments to be made under the
contract; and
> The amount of compensation to be paid to distributors and their registered
representative on each purchase payment.
Any reduction of the minimum initial or additional purchase payment amount will
not be unfairly discriminatory against any person. We will make any such
reduction according to our own rules in effect at the time the purchase payment
is received. We reserve the right to change these rules from time to time.
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 purchase payment(s) for five
business days. We may hold purchase payments for longer periods, pending
acceptance of the application, only with your permission. If the application is
rejected, the application and any purchase payments will be returned to you.
Allocating Purchase Payments to the Investment Options. We will allocate your
purchase payments among the investment options you select. Allocations must be
in whole percentages and there may be limits on the number of investment options
you may select. When selecting investment options you may find it helpful to
review the "Investment Options" section.
25
<PAGE>
Right to Cancel
- --------------------------------------------------------------------------------
When and How to Cancel. You may cancel your contract within ten days of receipt
(some states require more than ten days) 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. Unless your state requires
otherwise or unless you purchased an IRA, your refund will equal the purchase
payments made plus any earnings or minus any losses attributable to those
purchase payments allocated among the subaccounts. In other words, you will bear
the entire investment risk for amounts allocated among the subaccounts during
this period and the amount refunded could be less than the amount paid. If your
state requires or if you purchased an IRA, we will refund all purchase payments
made.
If the purchase payments for your canceled contract came from a rollover from
another contract issued by us or one of our affiliates where an early withdrawal
charge was reduced or eliminated, the purchase payments will be restored to your
prior contract.
26
<PAGE>
Transfers Between Option Packages
- --------------------------------------------------------------------------------
You may transfer from one option package to another.
> Transfers must occur on an account anniversary.
> A written request for the transfer must be received by us within 60 days of
an account anniversary.
> The following minimum account values need to be met:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Transfers to Transfers to
Option Package I Option Packages II or III
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum Account Value Non- Non-
Qualified: Qualified: Qualified: Qualified:
---------- ---------- ---------- ----------
$15,000 $1,500 $5,000 $1,500
- -----------------------------------------------------------------------------------
</TABLE>
> You will receive a new contract schedule page upon transfer.
> Only one option package may be in effect at any time.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Transfers to Transfers to Transfers to
Option Package I Option Package II Option Package III
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Death Benefit(1): Death Benefit(1): Death Benefit(1):
o The sum of all purchase payments o The sum of all purchase payments o The sum of all purchase payments
made, adjusted for amounts made, adjusted for amounts made, adjusted for amounts
withdrawn or applied to an income withdrawn or applied to an income withdrawn or applied to an income
phase payment option as of the phase payment option as of the phase payment option as of the
claim date, will continue to be claim date, will continue to be claim date, will continue to be
calculated from the account calculated from the account calculated from the account
effective date. effective date. effective date.
o The "step-up value" under Option o If transferring from Option Package o If transferring from Option Package
Packages II and III will terminate on I, the "step-up value" will be I, the "step-up value" will be
the new schedule effective date. calculated beginning on the new calculated beginning on the new
o The "roll-up value" under Option schedule effective date. schedule effective date.
Package III will terminate on the o If transferring from Option Package o If transferring from Option Package
new schedule effective date. III, the "step-up value" will continue II, the "step-up value" will continue
to be calculated from the date to be calculated from the date
calculated under Option calculated under Option Package II.
Package III. o The "roll-up value" will be calculated
o The "roll-up value" under Option beginning on the new schedule
Package III will terminate on the effective date.
new schedule effective date.
- -----------------------------------------------------------------------------------------------------------------------------
Nursing Home Waiver(2): Nursing Home Waiver(2): Nursing Home Waiver(2):
o The availability of the waiver of the o If transferring from Option Package o If transferring from Option Package
early withdrawal charge under the I, the waiting period under I, the waiting period under the
Nursing Home Waiver will terminate the Nursing Home Waiver will begin Nursing Home Waiver will begin to
on the new schedule effective date. to be measured from the new be measured from the new schedule
schedule effective date. effective date.
o If transferring from Option Package o If transferring from Option Package
III, the waiting period will have II, the waiting period will have been
been satisfied on the new schedule satisfied on the new schedule
effective date. effective date.
- -----------------------------------------------------------------------------------------------------------------------------
Free Withdrawals(3): Free Withdrawals(3): Free Withdrawals(3):
o If transferring from Option Package o If transferring from Option Package o The cumulative to 30% available
III, any available free withdrawal III, any available free withdrawal free withdrawal amount will begin to
amount in excess of 10% will be lost amount in excess of 10% will be lost be calculated as of the new schedule
as of the new schedule effective date. as of the new schedule effective effective date.
date.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Death Benefit."
(2) See "Fees--Nursing Home Waiver."
(3) See "Fees--Free Withdrawals."
27
<PAGE>
[Begin sidebar]
Types of Fees
There are four types of fees or deductions that may affect your account.
TRANSACTION FEES
o Early Withdrawal Charge
o Annual Maintenance Fee
o Transfer Charge
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
[End sidebar]
Fees
- --------------------------------------------------------------------------------
The following repeats and adds to information provided in the "Fee Table"
section. 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. A percentage of the purchase payments that you withdraw. The percentage
will be determined by the early withdrawal charge schedule that applies to your
account.
Early Withdrawal Charge Schedules
FOR CONTRACTS ISSUED OUTSIDE OF THE STATE OF NEW YORK:
<TABLE>
<CAPTION>
- ---------------------------------------------
Contracts Other Than Roth IRA Contracts:
- ---------------------------------------------
Early
Years From Receipt Withdrawal
of Purchase Payment Charge
- ------------------- ----------
<S> <C>
Less than 2 7%
2 or more but less than 4 6%
4 or more but less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more 0%
- ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------
Roth IRA Contracts:
- ---------------------------------------------
Early
Withdrawal
Completed Account Years Charge
- ----------------------- ----------
<S> <C>
Less than 1 5%
1 or more but less than 2 4%
2 or more but less than 3 3%
3 or more but less than 4 2%
4 or more but less than 5 1%
5 or more 0%
- ---------------------------------------------
</TABLE>
FOR CONTRACTS ISSUED IN THE STATE OF NEW YORK:
<TABLE>
<CAPTION>
- ---------------------------------------------
For All Contracts
- ---------------------------------------------
Early
Years From Receipt Withdrawal
of Purchase Payment Charge
- ------------------- ----------
<S> <C>
Less than 1 7%
1 or more but less than 2 6%
2 or more but less than 3 5%
3 or more but less than 4 4%
4 or more but less than 5 3%
5 or more but less than 6 2%
6 or more but less than 7 1%
7 or more 0%
- ---------------------------------------------
</TABLE>
Purpose. This is a deferred sales charge. It reimburses us for some of the sales
and administrative expenses associated with the contract. If our expenses are
greater than the amount we collect for the early withdrawal charge, we may use
any of our corporate assets, including potential profit that may arise from the
mortality and expense risk charge, to make up any difference.
28
<PAGE>
First In, First Out. The early withdrawal charge is calculated separately for
each purchase payment withdrawn. For purposes of calculating your early
withdrawal charge, we consider that your first purchase payment to the account
(first in) is the first you withdraw (first out).
Examples: For contracts other than Roth IRA contracts issued outside of the
state of New York, the early withdrawal charge is based on the number of years
since the purchase payment was received. If your initial purchase payment was
made three years ago, we will deduct an early withdrawal charge equal to 6% of
the portion of that purchase payment withdrawn.
For Roth IRA contracts issued outside of the state of New York, the early
withdrawal charge is based on the number of completed account years. If your
initial purchase payment was made three years ago, we will deduct an early
withdrawal charge equal to 2% of the portion of that purchase payment withdrawn.
For all contracts issued in the state of New York, the early withdrawal charge
is based on the number of years since the purchase payment was received, and if
your initial purchase payment was made three years ago, we will deduct an early
withdrawal charge equal to 4% of the portion of that purchase payment withdrawn.
In each case the next time you make a withdrawal we will access the early
withdrawal charge, if any, against the portion of the first purchase payment you
did not withdraw and/or subsequent purchase payments to your account in the
order they were received.
Earnings may be withdrawn after all purchase payments have been withdrawn. There
is no early withdrawal charge for withdrawal of earnings.
Free Withdrawals. There is no early withdrawal charge if, during each account
year, the amount withdrawn is 10% or less of your account value on the later of
the date we established your account or the most recent anniversary of that
date. Under Option Package III, any unused percentage of the 10% free withdrawal
amount shall carry forward into successive account years, up to a maximum 30% of
your account value.
The free withdrawal amount will be adjusted for amounts withdrawn under a
systematic distribution option or taken as a required minimum distribution
during the account year.
Waiver. The early withdrawal charge is waived for purchase payments withdrawn if
the withdrawal is:
> Used to provide income phase payments to you;
> Paid due to the annuitant's death during the accumulation phase in an
amount up to the sum of purchase payments made, minus the total of all
partial withdrawals, amounts applied to an income phase payment option and
deductions made prior to the annuitant's death;
> Paid upon a full withdrawal where your account value is $2,500 or less and
no part of the account has been withdrawn during the prior 12 months;
> Taken because of the election of a systematic distribution option (see
"Systematic Distribution Options");
> Applied as a rollover to certain Roth IRAs issued by us or an affiliate;
29
<PAGE>
> If approved in your state, taken under a qualified contract, when the
amount withdrawn is equal to the minimum distribution required by the Tax
Code for your account calculated using a method permitted under the Tax
Code and agreed to by us (including required minimum distributions using
the ECO systematic distribution option (see "Systematic Distribution
Options")); or
> Paid upon termination of your account by us (see "Other Topics --
Involuntary Terminations").
Nursing Home Waiver. Under Option Packages II and III, you may withdraw all or a
portion of your account value without an early withdrawal charge if:
> More than one account year has elapsed since the schedule effective date;
> The withdrawal is requested within three years of the annuitant's admission
to a licensed nursing care facility (in Oregon there is no three year
limitation period and in New Hampshire non-licensed facilities are
included); and
> The annuitant has spent at least 45 consecutive days in such nursing care
facility.
We will not waive the early withdrawal charge if the annuitant was in a nursing
care facility for at least one day during the two week period immediately
preceding or following the schedule effective date. It will also not apply to
contracts issued in New York or as otherwise prohibited by state law.
Annual Maintenance Fee
Maximum Amount. $30.00
When/How. Each year during the accumulation phase we deduct this fee from your
account value. We deduct it on your account anniversary and at the time of full
withdrawal. It is deducted proportionally from each investment option.
Purpose. This fee reimburses us for our administrative expenses relating to the
establishment and maintenance of your account.
Elimination. We will not deduct the annual maintenance fee if your account value
is $50,000 or more on the date this fee is to be deducted.
Transfer Charge
Amount. During the accumulation phase we currently allow you 12 free transfers
each account year. We reserve the right to charge $10 for each additional
transfer. We currently do not impose this charge.
Purpose. This charge reimburses us for administrative expenses associated with
transferring your dollars among investment options.
FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT
Mortality and Expense Risk Charge
Maximum Amount. During the accumulation phase the amount of this charge, on an
annual basis, is equal to the following percentages of your account value
invested in the subaccounts:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Option Package I Option Package II Option Package III
- ------------------------------------------------------------------
<S> <C> <C>
0.80% 1.10% 1.25%
- ------------------------------------------------------------------
</TABLE>
30
<PAGE>
During the income phase this charge, on an annual basis, is equal to 1.25% of
amounts invested in the subaccounts.
When/How. We deduct this charge daily from the subaccounts corresponding to the
funds you select. We do not deduct this fee from any fixed interest option.
Purpose. This charge compensates us for the mortality and expense risks we
assume under the contract.
> The mortality risks are those risks associated with our promise to make
lifetime income phase payments based on annuity rates specified in the
contract.
> The expense risk is the risk that the actual expenses we incur under the
contract will exceed the maximum costs that we can charge.
If the amount we deduct for this charge is not enough to cover our mortality
costs and expenses under the contract, 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 charge.
Administrative Expense Charge
Maximum Amount. During the accumulation phase the amount of this charge, on an
annual basis, is equal to the following percentages of your account value
invested in the subaccounts:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Option Package I Option Package II Option Package III
- ------------------------------------------------------------------
<S> <C> <C>
0.15% 0.15% 0.15%
- ------------------------------------------------------------------
</TABLE>
There is currently no administrative expense charge during the income phase. We
reserve the right, however, to charge an administrative expense charge of up to
0.25% during the income phase.
When/How. If imposed, we deduct this charge daily from the subaccounts
corresponding to the funds you select. We do not deduct this charge from the
fixed interest options. If we are imposing this charge when you enter the income
phase, the charge will apply to you during the entire income phase.
Purpose. This charge helps defray our administrative expenses that cannot be
covered by the mortality and expense risk charges described above. This charge
is not intended to exceed the average expected cost of administering the
contract. We do not expect to make a profit from this charge.
REDUCTION OR ELIMINATION OF CERTAIN FEES
When sales of the contract are made to individuals or a group of individuals in
a manner that results in savings of sales or administrative expenses, we may
reduce or eliminate the early withdrawal charge, annual maintenance fee,
mortality and expense risk charge or administrative expense charge. Our decision
to reduce or eliminate any of these fees will be based on one or more of the
following:
> The size and type of group to whom the contract is issued;
> The amount of expected purchase payments;
31
<PAGE>
> A prior or existing relationship with the Company, such as being an
employee or former employee of the Company or one of our affiliates,
receiving distributions or making transfers from other contracts issued by
us or one of our affiliates or transferring amounts held under qualified
retirement plans sponsored by us or one of our affiliates;
> The type and frequency of administrative and sales services provided; or
> The level of annual maintenance fee and early withdrawal charges.
In the case of an exchange of another contract issued by us or one of our
affiliates where the early withdrawal charge has been waived, the early
withdrawal charge for certain contracts offered by this prospectus may be
determined based on the dates purchase payments were received in the prior
contract.
The reduction or elimination of any of these fees will not be unfairly
discriminatory against any person and will be done according to our rules in
effect at the time the contract is issued. We reserve the right to change these
rules from time to time. The right to reduce or eliminate any of these fees may
be subject to state approval.
FEES DEDUCTED BY THE FUNDS
Maximum Amount. Each fund's advisory fee and expenses are different. They are
set forth in "Fee Table--Fees Deducted by the Funds" and described in more
detail in each fund prospectus.
When/How. A fund's fees and expenses are not deducted from your account value.
Instead, they are reflected in the daily value of fund shares which, in turn,
will affect the daily value of the subaccounts.
Purpose. These fees and expenses help to pay the fund's investment adviser and
operating expenses.
PREMIUM AND OTHER TAXES
Maximum Amount. Some states and municipalities charge a premium tax on
annuities. These taxes currently range from 0% to 4%, depending upon the
jurisdiction.
When/How. We reserve the right to deduct premium taxes from your account value
or from purchase payments to the account 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 complete withdrawal or, at the commencement of income phase
payments, to reflect the cost of premium taxes in our income phase payment
rates.
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
> The current dollar values of amounts invested in the fixed interest
options, including interest earnings to date.
32
<PAGE>
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 shares. The value of your interests 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 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, and any other fees deducted from
investments in the separate account, such as guarantee charges for the
Aetna GET fund. See "Fees."
The net investment rate may be either positive or negative.
33
<PAGE>
Hypothetical Illustration. As a hypothetical illustration assume that your
initial purchase payment to a qualified contract is $5,000 and you direct us to
invest $3,000 in Fund A and $2,000 in Fund B. Also assume that on the day we
receive the purchase payment the applicable AUVs after the next close of
business of the New York Stock Exchange are $10 for Subaccount A and $20 for
Subaccount B. Your account is credited with 300 accumulation units of
Subaccount A, and 100 accumulation units of Subaccount B.
[graphic]
$5,000 Purchase Payment
Step 1 (down arrow)
Aetna Life Insurance and Annuity Company
Step 2 (down arrow)
Variable Annuity Account B
Subaccount A Subaccount B Etc.
300 80
accumulation accumulation
units units
(down arrow) Step 3 (down arrow)
Fund A Fund B
[end graphic]
Step 1: You make an initial purchase payment of $5,000.
Step 2:
A. You direct us to invest $3,000 in Fund A. The purchase payment purchases
300 accumulation units of Subaccount A ($3,000 divided by the current $10
AUV).
B. You direct us to invest $2,000 in Fund B. The purchase payment purchases
100 accumulation units of Subaccount B ($2,000 divided by the current $20
AUV).
Step 3: The separate account purchases shares of the applicable funds at the
then current market value (net asset value or NAV).
Each fund's subsequent investment performance, expenses and charges, and the
daily charges deducted from the subaccount, will cause the AUV to move up or
down on a daily basis.
Purchase Payments to Your Account. If all or a portion of your initial purchase
payment is directed to the subaccounts, it will purchase subaccount accumulation
units at the AUV next computed after our acceptance of your application as
described in "Purchase and Rights." Subsequent purchase payments or transfers
directed to the subaccounts will purchase subaccount accumulation units at the
AUV next computed following our receipt of the purchase payment or transfer
request in good order. The value of subaccounts may vary day to day.
34
<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")
> Market Value Adjustment for amounts held in the Guaranteed Account (see
Appendix I and the Guaranteed Account prospectus)
> 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 sales representative or call us at the number listed in
"Contract Overview--Questions: Contacting the Company."
[End sidebar]
Withdrawals
- --------------------------------------------------------------------------------
You may withdraw all or a portion of your account value at any time during the
accumulation phase. If you participate in the contract through a 403(b) plan,
certain restrictions apply. See "Restrictions on Withdrawals From 403(b) Plan
Accounts."
Steps for Making A Withdrawal
> Select the withdrawal amount.
(1) Full Withdrawal: You will receive, reduced by any required withholding tax,
your account value allocated to the subaccounts, the Guaranteed Account
(plus or minus any applicable market value adjustment) and the Fixed
Account, minus any applicable early withdrawal charge and 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 and any positive or negative market value
adjustment for amounts withdrawn from the Guaranteed Account. See
Appendices I and II and the Guaranteed Account prospectus for more
information about withdrawals from the Guaranteed Account and the Fixed
Account.
> 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 deliver it to our Home Office.
Restrictions on Withdrawals From 403(b) Plan Accounts
Under Section 403(b) contracts the withdrawal of salary reduction contributions
and earnings on such contributions is generally prohibited prior to the
participant's death, disability, attainment of age 59-1/2, separation from
service or financial hardship. See "Taxation."
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 on your account value as of the next valuation after we receive a
request for withdrawal in good order at our Home Office.
Delivery of Payment. Payments for withdrawal requests will be made in accordance
with SEC requirements. Normally, your withdrawal amount 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
your withdrawal. We must receive any reinvested amounts within 60 days of the
withdrawal. We reserve the right, however, to accept a reinvestment election
received more than 30 days after the withdrawal and accept proceeds received
more than 60 days after the withdrawal. We will credit your account for the
amount reinvested based on the subaccount values next computed following our
receipt of your request and the amount to be reinvested. We will credit the
35
<PAGE>
amount reinvested proportionally for annual maintenance fees and 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. If you withdraw amounts from a
series of the Aetna GET Fund and then elect to reinvest them, we will reinvest
them in a GET Fund series that is then accepting deposits, if one is available.
If one is not available, we will reallocate your GET amounts among other
investment options in which you invested, on a pro rata basis. The reinvestment
privilege may be used only once. Special rules apply to reinvestments of amounts
withdrawn from the Guaranteed Account (see Appendix I and the Guaranteed Account
prospectus). We will not credit your account for market value adjustments that
we deducted at the time of your withdrawal. Seek competent advice regarding the
tax consequences associated with reinvestment.
36
<PAGE>
[Begin sidebar]
Features of a Systematic Distribution Option
A systematic distribution option 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 may be 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.
> ECO--Estate Conservation Option. ECO offers the same investment flexibility
as SWO, but is designed for those who want to receive only the minimum
distribution that the Tax Code requires each year. Under ECO we calculate
the minimum distribution amount required by law, generally at age 70-1/2,
and pay you that amount once a year. ECO is not available under
nonqualified contracts. An early withdrawal charge will not be deducted
from and a market value adjustment will not be applied to any part of your
account value paid under an ECO.
> LEO--Life Expectancy Option. LEO provides for annual payments for a number
of years equal to your life expectancy or the life expectancy of you and a
designated beneficiary. It is designed to meet the substantially equal
periodic payment exception to the 10% premature distribution penalty under
Tax Code section 72. See "Taxation."
Other Systematic Distribution Options. We may add additional systematic
distribution options from time to time. You may obtain additional information
relating to any of the systematic distribution options from your sales
representative or by calling us at the number listed in "Contract Overview--
Questions: Contacting the Company."
Systematic Distribution Option Availability. If allowed by applicable law, we
may discontinue the availability of one or more of the systematic distribution
options for new elections at any time and/or to change the terms of future
elections.
Eligibility for a Systematic Distribution Option. To determine if you meet the
age and account value criteria and to assess terms and conditions that may
apply, contact your sales representative or the Company at the number listed in
"Contract Overview--Questions: Contacting the Company."
Terminating a Systematic Distribution Option. You may revoke a systematic
distribution option at any time by submitting a written request to our Home
Office. ECO, once revoked, may not, unless allowed under the Tax Code, be
elected again.
Charges and Taxation. When you elect a systematic distribution option 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 systematic distribution option may have tax consequences. If you are
concerned about tax implications, consult a qualified tax adviser before
electing an option.
37
<PAGE>
[Begin sidebar]
This section provides information about the death benefit during the
accumulation phase. For death benefit information applicable to the income
phase, see "The Income Phase."
Terms to Understand:
Account Year/Account Anniversary: A period of 12 months measured from the date
we established your account and each anniversary of this date. Account
anniversaries are measured from this date.
Annuitant(s): The person(s) on whose life or life expectancy(ies) the income
phase payments are based.
Beneficiary(ies): The person(s) or entity(ies) entitled to receive a death
benefit under the contract.
Claim Date: The date proof of death and the beneficiary's right to receive the
death benefit are received in good order at our Home Office.
Contract Holder (You/Your): The contract holder of an individually owned
contract or the certificate holder of a group contract. The contract holder and
annuitant may be the same person.
Schedule Effective Date: The date an option package and benefits become
effective. The initial schedule effective date equals the date we established
your account. Thereafter, this date can occur only on an account anniversary.
[End sidebar]
Death Benefit
- --------------------------------------------------------------------------------
During the Accumulation Phase
Who Receives the Death Benefit? If you would like certain individuals or
entities to receive the death benefit when it becomes payable, you may name them
as your beneficiaries. However, if you are a joint contract holder and you die,
the beneficiary will automatically be the surviving joint contract holder. In
this circumstance any other beneficiary you named will be treated as the
primary or contingent beneficiary, as originally named, of the surviving joint
contract holder. The surviving joint contract holder may change the beneficiary
designation. If you die and no beneficiary exists, the death benefit will be
paid in a lump sum to your estate.
Designating Your Beneficiary. You may designate a beneficiary on your
application or by contacting your sales representative or us as indicated in
"Contract Overview--Questions: Contacting the Company."
When is a Death Benefit Payable? During the accumulation phase a death benefit
is payable when the contract holder or the annuitant dies. If there are joint
contract holders, the death benefit is payable when either one dies.
Death Benefit Amount. The death benefit depends upon the option package in
effect on the date the annuitant dies.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Option Package I Option Package II Option Package III
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Death Benefit The greater of: The greatest of: The greatest of:
on Death of (1) The sum of (1) The sum of (1) The sum of
the Annuitant: all purchase all purchase all purchase
payments, payments, payments,
adjusted for adjusted for adjusted for
amounts amounts amounts
withdrawn or withdrawn or withdrawn or
applied to an applied to an applied to an
income phase income phase income phase
payment option payment option payment option
as of the claim as of the claim as of
date; or date; or the claim date; or
(2) The account (2) The account (2) The account
value on the value on the value on the
claim date. claim date; or claim date; or
(3) The "step-up (3) The "step-up
value" (as value" (as
described below) described below)
on the claim date. on the claim
date; or
(4) The "roll-up
value" (as
described below)
on the claim
date.*
- --------------------------------------------------------------------------------
</TABLE>
*The roll-up value is not available on contracts issued in the State of New
York.
Step-up Value. On the schedule effective date, the step-up value is equal to the
greater of:
> The account value; or
38
<PAGE>
> The step-up value, if any, calculated on the account anniversary prior to
the schedule effective date, adjusted for purchase payments made and
amounts withdrawn or applied to an income phase payment option during the
prior account year.
Thereafter, once each year on the anniversary of the schedule effective date
until the anniversary immediately preceding the annuitant's 85th birthday or
death, whichever is earlier, the step-up value is equal to the greater of:
> The step-up value most recently calculated, adjusted for purchase payments
made and amounts withdrawn or applied to an income phase payment option
during the prior account year; or
> The account value on that anniversary of the schedule effective date.
On each anniversary of the schedule effective date after the annuitant's 85th
birthday, the step-up value shall be equal to the step-up value on the
anniversary immediately preceding the annuitant's 85th birthday, adjusted for
purchase payments made and amounts withdrawn or applied to an income phase
payment option since that anniversary.
On the claim date, the step-up value shall equal the step-up value on the
anniversary of the schedule effective date immediately preceding the annuitant's
death, adjusted for purchase payments made and amounts withdrawn or applied to
an income phase payment option since that anniversary.
Roll-up Value. On the schedule effective date, the roll-up value is equal to the
account value. Thereafter, once each year on the anniversary of the schedule
effective date until the anniversary immediately preceding the annuitant's 76th
birthday or death, whichever is earlier, the roll-up value is equal to the
roll-up value most recently calculated multiplied by a factor of 1.05, adjusted
for purchase payments made and amounts withdrawn or applied to an income phase
payment option during the prior account year. The roll-up value may not exceed
200% of the account value on the schedule effective date, adjusted for purchase
payments made and amounts withdrawn or applied to an income phase payment option
since that date.
On each anniversary of the schedule effective date after the annuitant's 76th
birthday, the roll-up value shall be equal to the roll-up value on the
anniversary immediately preceding the annuitant's 76th birthday, adjusted for
purchase payments made and amounts withdrawn or applied to an income phase
payment option since that anniversary. On the claim date, the roll-up value
shall equal the roll-up value on the anniversary of the schedule effective date
immediately preceding the annuitant's death, adjusted for purchase payments made
and amounts withdrawn or applied to an income phase payment option since that
anniversary.
The "roll-up value" is not available on contracts issued in the State of New
York. For contracts issued in the state of New York, the benefit payable upon
the death of the annuitant under Option Package III is the same as that
described under Option Package II. Therefore, contract holders of contracts
issued in New York should seriously consider whether Option Package III is
suitable for their circumstances.
Adjustment. For purposes of determining the death benefit, the adjustment for
purchase payments made will be dollar for dollar. The adjustment for amounts
withdrawn or applied to an income phase payment option will be
39
<PAGE>
proportionate, reducing the sum of all purchase payments made, the step-up value
and the roll-up value in the same proportion that the account value was reduced
on the date of the withdrawal or application to an income phase payment option.
Death Benefit Greater than the Account Value. Notwithstanding which option
package is selected, on the claim date, if the amount of the death benefit is
greater than the account value, the amount by which the death benefit exceeds
the account value will be deposited and allocated to the money market subaccount
available under the contract, thereby increasing the account value available to
the beneficiary to an amount equal to the death benefit.
Prior to the election of a method of payment of the death benefit 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 has the right to allocate or transfer any amount to any available
investment option (subject to a market value adjustment, as applicable). The
amount paid to the beneficiary will equal the adjusted account value on the day
the payment is processed.
Death Benefit Amounts in Certain Cases
If a Spousal Beneficiary Continues the Account Following the Death of the
Contract Holder/Annuitant. If a spousal beneficiary continues the account at the
death of a contract holder who was also the annuitant, the spousal beneficiary
becomes the annuitant. The option package in effect at the death of the contract
holder will also apply to the spousal beneficiary, unless later changed by the
spousal beneficiary.
The amount of the death benefit payable at the death of a spousal beneficiary
who has continued the account shall be determined under the option package then
in effect, except that:
(1) In calculating the sum of all purchase payments, adjusted for amounts
withdrawn or applied to an income phase payment option, the account value
on the claim date following the original contract holder's/ annuitant's
death shall be treated as the spousal beneficiary's initial purchase
payment;
(2) In calculating the step-up value, the step-up value on the claim date
following the original contract holder's/annuitant's death shall be treated
as the spousal beneficiary's initial step-up value; and
(3) In calculating the roll-up value, the roll-up value on the claim date
following the original contract holder's/annuitant's death shall be treated
as the initial roll-up value.
If the Contract Holder is not the Annuitant. Under nonqualified contracts only
the death benefit described above under Option Packages I, II and III will not
apply if a contract holder (including a spousal beneficiary who has continued
the account) who is not also the annuitant dies. In these circumstances the
amount paid will be equal to the account value on the date the payment is
processed, plus or minus any market value adjustment. An early withdrawal charge
may apply to any full or partial payment of this death benefit.
Because the death benefit in these circumstances equals the account value, plus
or minus any market value adjustment, a contract holder who is not also the
40
<PAGE>
annuitant should seriously consider whether Option Packages II and III are
suitable for their circumstances.
If the spousal beneficiary who is the annuitant continues the account at the
death of the contract holder who was not the annuitant, the annuitant will not
change. The option package in effect at the death of the contract holder will
also apply to the spousal beneficiary, unless later changed by the spousal
beneficiary, and the death benefit payable at the spousal beneficiary's death
shall be determined under the option package then in effect.
Guaranteed Account. For amounts held in the Guaranteed Account, see Appendix I
for a discussion of the calculation of the death benefit.
Death Benefit--Methods of Payment
For Qualified Contracts. Under a qualified contract if the annuitant dies the
beneficiary may choose one of the following three methods of payment:
> Apply some or all of the account value, plus or minus any market value
adjustment, to any of the income phase payment options (subject to the Tax
Code distribution rules (see "Taxation - Minimum Distribution
Requirements"));
> Receive, at any time, a lump-sum payment equal to all or a portion of the
account value, plus or minus any market value adjustment; or
> Elect SWO, ECO or LEO (described in "Systematic Distribution Options"),
provided the election would satisfy the Tax Code minimum distribution
rules.
Payments from a Systematic Distribution Option. If the annuitant was receiving
payments under a systematic distribution option and died before the Tax Code's
required beginning date for minimum distributions, payments under the systematic
distribution option will stop. The beneficiary, or contract holder on behalf of
the beneficiary, may elect a systematic distribution option provided the
election is permitted under the Tax Code minimum distribution rules. If the
annuitant dies after the required beginning date for minimum distributions,
payments will continue as permitted under the Tax Code minimum distribution
rules, unless the option is revoked.
Distribution Requirements. Subject to Tax Code limitations, a beneficiary may be
able to defer distribution of the death benefit. Death benefit payments must
satisfy the distribution rules in Tax Code Section 401(a)(9). See "Taxation."
For Nonqualified Contracts.
(1) If you die and the beneficiary is your surviving spouse, or if you are a
non-natural person and the annuitant dies and the beneficiary is the
annuitant's surviving spouse, then the beneficiary becomes the successor
contract holder. In this circumstance the Tax Code does not require
distributions under the contract until the successor contract holder's
death.
As the successor contract holder, the beneficiary may exercise all rights
under the account and has the following options:
(a) Continue the contract in the accumulation phase;
41
<PAGE>
(b) Elect to apply some or all of the account value, plus or minus any
market value adjustment, to any of the income phase payment options;
or
(c) Receive at any time a lump-sum payment equal to all or a portion of
the account value, plus or minus any market value adjustment.
If you die and are not the annuitant, an early withdrawal charge will apply
if a lump sum is elected.
(2) If you die and the beneficiary is not your surviving spouse, he or she may
elect option 1(b) or option 1(c) above (subject to the Tax Code
distribution rules). See "Taxation--Minimum Distribution Requirements."
In this circumstance the Tax Code requires any portion of the account
value, plus or minus any market value adjustment, not distributed in
installments over the beneficiary's life or life expectancy, beginning
within one year of your death, must be paid within five years of your
death. See "Taxation."
(3) If you are a natural person but not the annuitant and the annuitant dies,
the beneficiary may elect option 1(b) or 1(c) above. If the beneficiary
does not elect option 1(b) within 60 days from the date of death, the gain,
if any, will be included in the beneficiary's income in the year the
annuitant dies.
Payments from a Systematic Distribution Option. If the contract holder or
annuitant dies and payments were made under SWO, payments will stop. A
beneficiary, however, may elect to continue SWO.
Taxation. In general, payments received by your beneficiary after your death are
taxed to the beneficiary in the same manner as if you had received those
payments. Additionally, your beneficiary may be subject to tax penalties if he
or she does not begin receiving death benefit payments within the time-frame
required by the Tax Code. See "Taxation."
42
<PAGE>
[Begin sidebar]
We may have used the following terms in prior prospectuses:
Annuity Phase--Income Phase
Annuity Option--Income Phase Payment Option
Annuity Payment--Income Phase Payment
[End sidebar]
The Income Phase
- --------------------------------------------------------------------------------
During the income phase you stop contributing dollars to your account and start
receiving payments from your accumulated account value.
Initiating Payments. At least 30 days prior to the date you want to start
receiving payments you must notify us in writing of all of the following:
> Payment start date;
> Income phase payment option (see the income phase payment options table in
this section);
> Payment frequency (i.e., monthly, quarterly, semi-annually or annually);
> Choice of fixed, variable or a combination of both fixed and variable
payments; and
> Selection of an assumed net investment rate (only if variable payments are
elected).
Your account will continue in the accumulation phase until you properly initiate
income phase payments. Once an income phase payment option is selected it may
not be changed.
What Affects Payment Amounts? Some of the factors that may affect the amount of
your income phase payments include your age, gender, account value, the income
phase payment option selected, the number of guaranteed payments (if any)
selected and whether you select fixed, variable or a combination of both fixed
and variable payments and, for variable payments, the assumed net investment
rate selected.
Fixed Payments. Amounts funding fixed income phase payments will be held in the
Company's general account. The amount of fixed payments does not vary with
investment performance over time.
Variable Payments. Amounts funding your variable income phase payments will be
held in the subaccount(s) you select. Not all subaccounts available during the
accumulation phase may be available during the income phase. Payment amounts
will vary depending upon the performance of the subaccounts you select. For
variable income phase payments, you must select an assumed net investment rate.
Assumed Net Investment Rate. If you select variable income phase payments, you
must also select an assumed net investment rate of either 5% or 3-1/2%. If you
select a 5% rate, your first income phase 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 income phase 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 "Contract Overview--Questions: Contacting the Company."
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Minimum Payment Amounts. The income phase payment option you select must result
in:
> A first income phase payment of at least $50; or
> Total yearly income phase payments of at least $250.
If your account value is too low to meet these minimum payment amounts, you will
receive one lump-sum payment. Unless prohibited by law, we reserve the right to
increase the minimum payment amount based on increases reflected in the Consumer
Price Index-Urban (CPI-U) since July 1, 1993.
Restrictions on Start Dates and the Duration of Payments. Income phase payments
may not begin during the first account year, or, unless we consent, later than
the later of:
(a) The first day of the month following the annuitant's 85th birthday; or
(b) The tenth anniversary of the last purchase payment made to your account.
Income phase payments will not begin until you have selected an income phase
payment option. Failure to select an income phase payment option by the later of
the annuitant's 85th birthday or the tenth anniversary of your last purchase
payment may have adverse tax consequences. You should consult with a qualified
tax adviser if you are considering delaying the selection of an income phase
payment option before the later of these dates.
For qualified contracts only, income phase payments may not extend beyond:
(a) The life of the annuitant;
(b) The joint lives of the annuitant and beneficiary;
(c) A guaranteed period greater than the annuitant's life expectancy; or
(d) A guaranteed period greater than the joint life expectancies of the
annuitant and beneficiary.
When income phase payments start the age of the annuitant plus the number of
years for which payments are guaranteed may not exceed 95.
See "Taxation" for further discussion of rules relating to income phase
payments.
Charges Deducted. We make a daily deduction for mortality and expense risks from
amounts held in the subaccounts. Therefore, if you choose variable income phase
payments and a nonlifetime income phase 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 "Income Phase Payment Options" 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 the payment in good order at our Home Office. If continuing income
phase payments are elected, the beneficiary may not elect to receive a lump sum
at a future date unless the income phase payment option specifically allows a
withdrawal 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 made after the date of death.
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<PAGE>
Beneficiary Rights. A beneficiary's right to elect an income phase payment
option or receive a lump-sum payment may have been restricted by the contract
holder. If so, such rights or options will not be available to the beneficiary.
Partial Entry into the Income Phase. You may elect an income phase 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; therefore, you should consult with a qualified tax adviser before
electing this option. The same or different income phase 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 an
income phase payment option, the Tax Code requires that your expected payments
will not exceed certain durations. See "Taxation" for additional information.
Payment Options.
The following table lists the income phase payment options and accompanying
death benefits available during the income phase. We may offer additional income
phase payment options under the contract from time to time.
Once income phase payments begin the income phase payment option selected may
not be changed.
Terms to understand:
Annuitant(s): The person(s) on whose life expectancy(ies) the income phase
payments are based.
Beneficiary(ies): The person(s) or entity(ies) entitled to receive a death
benefit under the contract.
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<PAGE>
<TABLE>
<CAPTION>
Lifetime Payment Options
- -------------------------------------------------------------------------------------------------------------------------------
<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 to 30 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 continue to pay the beneficiary the remaining payments, unless the
Payments beneficiary elects to receive a lump-sum payment equal 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: When you select this option you choose for:
Life Income-- (a) 100%, 66-2/3% or 50% of the payment to continue to the surviving annuitant after the first
Two Lives death; or
(b) 100% of the payment to continue to the annuitant on the second annuitant's death, and 50%
of the payment to 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 from 5 to 30
years or as otherwise specified in the contract.
Life Income -- Continuing Payments: 100% of the payment to continue to the surviving annuitant after the first death.
Two Lives -- Death Benefit--Payment to the Beneficiary: If both annuitants die before we have made all the
Guaranteed guaranteed payments, we will continue to pay the beneficiary the remaining payments, unless the
Payments beneficiary elects to receive a lump-sum payment equal to the present value of the remaining
guaranteed payments.
- -------------------------------------------------------------------------------------------------------------------------------
Life Income--
Cash Refund Length of Payments: For as long as the annuitant lives.
Option (limited Death Benefit--Payment to the Beneficiary: Following the annuitant's death, we will pay a lump
availability -- sum payment equal to the amount originally applied to the income phase payment option (less
fixed payments any applicable premium tax) and less the total amount of income payments paid.
only)
- -------------------------------------------------------------------------------------------------------------------------------
Life Income-- Length of Payments: For as long as either annuitant lives.
Two Lives--Cash Continuing Payments: 100% of the payment to continue after the first death.
Refund Option Death Benefit--Payment to the Beneficiary: When both annuitants die we will pay a lump-sum
(limited payment equal to the amount applied to the income phase payment option (less any applicable
availability--fixed premium tax) and less the total amount of income payments paid.
payments only)
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Nonlifetime Payment Option
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Length of Payments: You may select payments for 5 to 30 years. In certain cases a lump-sum pay-
ment may be requested at any time (see below).
Nonlifetime-- Death Benefit--Payment to the Beneficiary: If the annuitant dies before we make all the guaran-
Guaranteed teed payments, we will continue to pay the beneficiary the remaining payments, unless the benefi-
Payments ciary elects to receive a lump-sum payment equal to the present value of the remaining guaran-
teed payments. We will not impose any early withdrawal charge.
- -------------------------------------------------------------------------------------------------------------------------------
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. Any such lump-sum
payments will be treated as a withdrawal during the accumulation phase and we will charge any applicable early withdrawal
charge. See "Fees--Early Withdrawal Charge." Lump-sum payments will be sent within seven calendar days after we receive the
request for payment in good order at the Home Office.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Calculation of Lump-Sum Payments: If a lump-sum payment is available under the
income phase payment options above, the rate used to calculate the present value
of the remaining guaranteed payments is the same rate we used to calculate the
income phase payments (i.e., the actual fixed rate used for fixed payments or
the 3-1/2% or 5% assumed net investment rate used for variable payments).
46
<PAGE>
[Begin sidebar]
In this Section
INTRODUCTION
CONTRACT TYPE
WITHDRAWALS AND OTHER DISTRIBUTIONS
o Taxation of Distributions
o 10% Penalty Tax
o Withholding for Federal Income Tax Liability
MINIMUM DISTRIBUTION REQUIREMENTS
o 50% Excise Tax
o Minimum Distribution of Death Benefit Proceeds (403(b) Plans and
408(b) and 408A IRAs)
o Minimum Distribution of Death Benefit Proceeds (Nonqualified
Contracts)
RULES SPECIFIC TO CERTAIN PLANS
o 403(b) Plans
o 408(b) and 408A IRAs
TAXATION OF NONQUALIFIED CONTRACTS
TAXATION OF THE COMPANY
When consulting a tax adviser, be certain that he or she has expertise in the
Tax Code sections applicable to your tax concerns.
[End sidebar]
Taxation
- --------------------------------------------------------------------------------
INTRODUCTION
This section discusses our understanding of current federal income tax laws
affecting the contract. You should keep the following in mind when reading it:
> 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;
> We do not make any guarantee about the tax treatment of the contract or any
transaction involving the contract; and
> Contract holder means the contract holder of an individually owned contract
or the certificate holder of a group contract.
- --------------------------------------------------------------------------------
We do not intend this information to be tax advice. For advice about the effect
of federal income taxes or any other taxes on amounts held or paid out under the
contract, consult a tax adviser.
- --------------------------------------------------------------------------------
Taxation of Gains Prior to Distribution. You generally will not pay taxes on any
earnings from the annuity contract described in this prospectus until they are
withdrawn. Tax-qualified retirement arrangements under Tax Code sections 403(b),
408(b) and 408A also generally defer payment of taxes on earnings until they are
withdrawn. (See "Taxation of Distributions" later in this "Taxation" section for
a discussion of how distributions under the various types of arrangements are
taxed.) If you are considering funding one of these tax-qualified retirement
arrangements with an annuity contract, you should know that the annuity contract
does not provide any additional tax deferral of earnings beyond the tax deferral
provided by the tax-qualified retirement arrangement. However, annuities do
provide other features and benefits which may be valuable to you. You should
discuss your decision with your financial representative.
Additionally, although earnings under the contract are generally not taxed until
withdrawn, the Internal Revenue Service (IRS) has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of investment control over the
assets. In these circumstances income and gains from the separate account
assets would be currently 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 therefore reserves the right to
modify the contract as necessary to attempt to prevent the 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
47
<PAGE>
with Treasury Regulations in order for the contract to qualify as an annuity
contract 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.
CONTRACT TYPE
The contract is designed for use on a non-tax qualified basis as a nonqualified
contract or with certain retirement arrangements that qualify under Tax Code
sections 403(b), 408(b) or 408A.
Tax Rules. The tax rules vary according to whether the contract is a
nonqualified contract or used with a qualified retirement arrangement. If used
with a qualified retirement arrangement, you need to know the Tax Code section
under which your arrangement qualifies. Contact your plan sponsor, sales
representative or the Company to learn which Tax Code section applies to your
arrangement.
The Contract. Contract holders are responsible for determining that
contributions, distributions and other transactions satisfy applicable laws.
Legal counsel and a tax adviser should be consulted regarding the suitability of
the contract. If the contract is purchased in conjunction with a retirement
plan, the plan is not a part of the contract and we are not bound by the plan's
terms or conditions.
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 phase payments,
rollovers, exchanges and death benefit proceeds.
We report the taxable portion of all distributions to the IRS.
Taxation of Distributions
Nonqualified Contracts. 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 account 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 income phase 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(c). The entire annuity payment will be taxable once the recipient has
recovered the investment in the contract.
For variable income phase 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 payment will be taxable once the recipient has
recovered the investment in the contract.
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<PAGE>
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.
403(b) Plans. All distributions from these plans are taxed as received unless
either of the following is true:
> The distribution is rolled over to another plan of the same type or to a
traditional IRA in accordance with the Tax Code; or
> You made after-tax contributions to the plan. In this case, depending upon
the type of distribution, the amount will be taxed according to the rules
detailed in the Tax Code.
408(b) IRAs. All distributions from a traditional IRA are taxed as received
unless either one of the following is true:
> The distribution is rolled over to another traditional IRA or, if the IRA
contains only amounts previously rolled over from a 401(a), 401(k) or
403(b) plan, the distribution is transferred to another plan of the same
type; or
> You made after-tax contributions to the plan. In this case the distribution
will be taxed according to rules detailed in the Tax Code.
408A Roth IRAs. A qualified distribution from a Roth IRA is not taxed when it is
received. A qualified distribution is a distribution:
> Made after the five-taxable year period beginning with the first taxable
year for which a contribution was made; and
> Made after you attain age 59-1/2, die, become disabled as defined in the
Tax Code or for a qualified first-time home purchase.
If a distribution is not qualified, it will be taxable to the extent of the
accumulated earnings. A partial distribution will first be treated as a return
of contributions which is not taxable and then as taxable accumulated earnings.
Taxation of 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
Under certain circumstances the Tax Code may impose a 10% penalty tax on the
taxable portion of any distribution from a nonqualified contract or from a
contract used with a 403(b), 408(b) or 408A arrangement.
Nonqualified Contracts. The 10% penalty tax applies to the taxable portion of a
distribution from a nonqualified annuity unless certain exceptions apply,
including one or more of the following:
(a) You have attained age 59-1/2;
(b) You have become disabled as defined in the Tax Code;
(c) You have died;
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<PAGE>
(d) The distribution is made in substantially equal periodic payments (at least
annually) over your life or life expectancy or the joint lives or joint
life expectancies of you and your beneficiary; or
(e) The distribution is allocable to investment in the contract before August
14, 1982.
403(b) Plans. The 10% penalty tax applies to the taxable portion of a
distribution from a 403(b) plan, unless certain exceptions apply, including one
or more of the following:
(a) You have attained age 59-1/2;
(b) You have become disabled as defined in the Tax Code;
(c) You have died;
(d) You have separated from service with the plan sponsor at or after age 55;
(e) The distribution is rolled over into another plan of the same type or to an
IRA in accordance with the Tax Code;
(f) You have separated from service with the plan sponsor and the distribution
is made in substantially equal periodic payments (at least annually) over
your life or life expectancy or the joint lives or joint life expectancies
of you and your beneficiary; or
(g) The distribution is equal to unreimbursed medical expenses that qualify for
deduction as specified in the Tax Code.
408(b) and 408A IRAs. In general, except for (d), the exceptions for 403(b)
plans also apply to distributions from an IRA, including a distribution from a
Roth IRA that is not a qualified distribution or a rollover to a Roth IRA that
is not a qualified rollover contribution. The penalty tax is also waived on a
distribution made from an IRA to pay for health insurance premiums for certain
unemployed individuals or used for a qualified first-time home purchase or for
higher education expenses.
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.
Nonqualified Contracts. Generally, you or a beneficiary may elect not to have
tax withheld from distributions.
403(b) Plans. Generally, distributions from these plans are subject to a
mandatory 20% federal income tax withholding. However, withholding will not be
required if you elect a direct rollover of the distributions or in the case of
certain distributions described in the Tax Code.
408(b) and 408A IRAs. Generally, you or a beneficiary may elect not to have tax
withheld from distributions.
Non-resident Aliens. 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 REQUIREMENTS
To avoid certain tax penalties, you and any beneficiary must meet the minimum
distribution requirements imposed by the Tax Code. The requirements do not apply
to either nonqualified contracts or Roth IRA
50
<PAGE>
contracts, except with regard to death benefits. These rules may dictate one or
more of the following:
> Start date for distributions;
> The time period in which all amounts in your account(s) must be
distributed; or
> Distribution amounts.
Start Date. Generally, you must begin receiving distributions by April 1 of the
calendar year following the calendar year in which you attain age 70-1/2 or
retire, whichever occurs later, unless:
> You are a 5% owner or the contract is an IRA, in which case such
distributions must begin by April 1 of the calendar year following the
calendar year in which you attain age 70-1/2; or
> Under 403(b) plans, if the Company maintains separate records of amounts
held as of December 31, 1986. In this case distribution of these amounts
generally must begin by the end of the calendar year in which you attain
age 75 or retire, if later. However, if you take any distributions in
excess of the minimum required amount, then special rules require that some
or all of the December 31, 1986 balance be distributed earlier.
Time Period. We must pay out distributions from the contract over one of the
following time periods:
> Over your life or the joint lives of you and your beneficiary; or
> Over a period not greater than your life expectancy or the joint life
expectancies of you and your beneficiary.
50% Excise Tax
If you fail to receive the minimum required distribution for any tax year, a 50%
excise tax is imposed on the required amount that was not distributed.
Minimum Distribution of Death Benefit Proceeds
(403(b) Plans and 408(b) and 408A IRAs)
The following applies to 403(b), 408(b) and 408A arrangements. Different
distribution requirements apply if your death occurs:
> After you begin receiving minimum distributions under the contract; or
> Before you begin receiving such distributions.
If your death occurs after you begin receiving minimum distributions under the
contract, distributions must be made at least as rapidly as under the method in
effect at the time of your death. Tax Code section 401(a)(9) provides specific
rules for calculating the minimum required distributions at your death. The
rules differ, depending upon:
> Whether your minimum required distribution was calculated each year based
on your single life expectancy or the joint life expectancies of you and
your beneficiary; or
> Whether life expectancy was recalculated.
The rules are complex and any beneficiary should consult with a tax adviser
before electing the method of calculation to satisfy the minimum distribution
requirements.
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<PAGE>
If your death occurs before you begin receiving minimum distributions under the
contract, your entire balance must be distributed by December 31 of the calendar
year containing the fifth anniversary of the date of your death. For example, if
you die on September 1, 2000, your entire balance must be distributed to the
beneficiary by December 31, 2005. However, if distributions begin by December 31
of the calendar year following the calendar year of your death, then payments
may be made over either of the following time-frames:
> Over the life of the beneficiary; or
> Over a period not extending beyond the life expectancy of the beneficiary.
Start Dates for Spousal Beneficiaries. If the beneficiary is your spouse,
distributions must begin on or before the later of the following:
> December 31 of the calendar year following the calendar year of your death;
or
> December 31 of the calendar year in which you would have attained age
70-1/2.
Special Rule for IRA Spousal Beneficiaries. In lieu of taking a distribution
under these rules, a spousal beneficiary may elect to treat the account as his
or her own IRA and defer taking a distribution until his or her age 70-1/2. The
surviving spouse is deemed to have made such an election if the surviving spouse
makes a rollover to or from the account or fails to take a distribution within
the required time period.
Minimum Distribution of Death Benefit Proceeds
(Nonqualified Contracts)
Death of the Contract Holder. The following requirements apply to nonqualified
contracts at your death. Different distribution requirements apply if your death
occurs:
> After you begin receiving income phase payments under the contract; or
> Before you begin receiving such distributions.
If your death occurs after you begin receiving income phase payments,
distributions 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 income phase payments, your
entire balance must be distributed within five years after the date of your
death. For example, if you die on September 1, 2000, your entire balance must be
distributed by August 31, 2005. However, if distributions begin within one year
of your death, then payments may be made over 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 account may be
continued with the surviving spouse as the new contract holder.
Death of Annuitant. If the contract holder is a non-natural person and the
annuitant dies, the same rules apply as outlined above for death of a contract
holder. If the contract holder is a natural person but not the annuitant and the
annuitant dies, the beneficiary must elect an income phase payment option within
60 days of the date of death, or any gain under the contract will be includible
in the beneficiary's income in the year the annuitant dies.
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<PAGE>
RULES SPECIFIC TO CERTAIN PLANS
403(b) Plans
Under Tax Code section 403(b), contributions made by public school systems or
nonprofit healthcare organizations and other Tax Code section 501(c)(3) tax
exempt organizations to purchase annuity contracts for their employees are
generally excludable from the gross income of the employee.
Assignment or Transfer of Contracts. Adverse tax consequences to the plan and/or
to you may result if your beneficial interest in the contract is assigned or
transferred to any person except to an alternate payee under a qualified
domestic relations order in accordance with Tax Code section 414(p) or to the
Company as collateral for a loan.
Exclusions from Gross Income. In order to be excludable from gross income, total
annual contributions made by you and your employer to a 403(b) plan cannot
exceed the lesser of the following limits set by the Tax Code:
> The first limit, under Tax Code section 415, is generally the lesser of 25%
of your compensation or $30,000. Compensation means your compensation from
the employer sponsoring the plan and, for years beginning after December
31, 1997, includes any elective deferrals under Tax Code section 402(g) and
any amounts not includible in gross income under Tax Code sections 125 or
457;
> The second limit, which is the exclusion allowance under Tax Code section
403(b), is usually calculated according to a formula that takes into
account your length of employment, any pretax contributions you and your
employer have already made under the plan and any pretax contributions to
certain other retirement plans; or
> An additional limit specifically limits your salary reduction contributions
to generally no more than $10,000 annually (subject to indexing). Your own
limit may be higher or lower, depending upon certain conditions.
The first two limits apply to your contributions as well as to any contributions
made by your employer on your behalf.
Purchase payments to your account(s) will be excluded from your gross income
only if the plan meets certain nondiscrimination requirements.
Restrictions on Distributions. Tax Code section 403(b)(11) restricts the
distribution under Tax Code section 403(b) contracts of:
(1) Salary reduction contributions made after December 31, 1988;
(2) Earnings on those contributions; and
(3) Earnings during such period on amounts held as of December 31, 1988.
Distribution of those amounts may only occur upon your death, attainment of age
59-1/2, separation from service, disability or financial hardship. Income
attributable to salary reduction contributions and credited on or after January
1, 1989, may not be distributed in the case of hardship.
408(b) and 408A IRAs
Tax Code section 408(b) permits eligible individuals to contribute to a
traditional IRA on a pre-tax (deductible) basis. Employers may establish
Simplified Employee Pension (SEP) plans and contribute to a traditional IRA
owned by the employee. Tax Code section 408A permits eligible individuals to
contribute to a Roth IRA on an after-tax (nondeductible) basis.
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<PAGE>
Assignment or Transfer of Contracts. Adverse tax consequences may result if you
assign or transfer your interest in the contract to persons other than your
spouse incident to a divorce.
Eligibility. Eligibility to contribute to a traditional IRA on a pre-tax basis
or to establish a Roth IRA or to roll over or transfer from a traditional IRA to
a Roth IRA depends upon your adjusted gross income.
Rollovers and Transfers. Rollovers and direct transfers are permitted from a
401, 403(a) or a 403(b) arrangement to a traditional IRA. Distributions from
these arrangements are not permitted to be transferred or rolled over to a Roth
IRA. A Roth IRA can accept transfers/rollovers only from a traditional IRA,
subject to ordinary income tax, or from another Roth IRA.
TAXATION OF NONQUALIFIED CONTRACTS
In General. Tax Code section 72 governs taxation of annuities in general. Under
a nonqualified contract if you are a natural person you generally are not taxed
on increases in the account value until distribution occurs by withdrawing all
or part of such account value. The taxable portion of a distribution is taxable
as ordinary income.
Non-Natural Holders of a Nonqualified Contract. If you are 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 this rule and a non-natural person should consult with
its tax adviser prior to purchasing the contract. A non-natural person exempt
from federal income taxes should consult with its 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.
Transfers, Assignments or Exchanges of a Nonqualified Contract. A transfer of
ownership of a nonqualified contract, the designation of an annuitant, payee 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 account 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
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
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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
account value invested in the subaccounts.
Other Topics
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The Company
We issue the contract described in this prospectus and are 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
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 contract are
obligations of the Company.
Contract Distribution
We 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. (NASD).
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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 contract 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 contract directly. All individuals
offering and selling the contract must be registered representatives of a
broker-dealer, or employees of a bank exempt from registration under the
Securities Exchange Act of 1934, and must be licensed as insurance agents to
sell variable annuity contracts.
Occasionally we may enter into arrangements with independent entities to help
find broker-dealers or banks interested in distributing the contract or to
provide training, marketing and other sales-related functions or administrative
services. We will reimburse such entities for expenses related to and may pay
fees to such entities in return for these services.
We may offer customers of certain broker-dealers special guaranteed rates in
connection with the Guaranteed Account offered through the contract and may
negotiate different commissions for these broker-dealers.
We may also contract with independent third party broker-dealers who will act as
wholesalers by assisting us in selecting broker-dealers or banks interested in
acting as distributors. These wholesalers may also provide training, marketing
and other sales related functions for the Company and the distributors and may
provide certain administrative services in connection with the contract. We may
pay such wholesalers compensation based on payments to contracts purchased
through distributors that they select.
We may also designate third parties to provide services in connection with the
contracts such as reviewing applications for completeness and compliance with
insurance requirements and providing the distributors with approved marketing
material, prospectuses or other supplies. These parties will also receive
payments for their services based on purchase payments, to the extent such
payments are allowed by applicable securities laws. We will pay all costs and
expenses related to these services.
Payment of Commissions
We pay distributors and their registered representatives who sell the contract
commissions and service fees. Distributors will be paid commissions up to an
amount currently equal to 7% of purchase payments or as a combination of a
certain percentage of purchase payments at time of sale and a trail commission
as a percentage of assets. Under the latter arrangement commission payments may
exceed 7% of purchase payments over the life of the 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 pay these commissions, fees and related distribution expenses out of any
early withdrawal charges assessed or out of our general assets, including
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investment income and any profit from investment advisory fees and mortality and
expense risk charges. No additional deductions or charges are imposed for
commissions and related expenses.
Payment Delay or Suspension
We reserve the right to suspend or postpone the date of any payment of benefits
or values under any one of the following circumstances:
> On any valuation date when the New York Stock Exchange is closed (except
customary weekend and holiday 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; or
> During any other periods the SEC may by order permit for the protection of
investors.
The conditions under which restricted trading or an emergency exists shall be
determined by the rules and regulations of the SEC.
Performance Reporting
We may advertise different types of historical performance for the subaccounts
including:
> Standardized average annual total returns; and
> Non-standardized average annual total returns.
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 the subaccounts over the
most recent one, five and ten-year periods. If the investment option was not
available for the full period, we give a history from the date money was first
received in that option under the separate account. Standardized average annual
total returns reflect deduction of all recurring charges during each period
(i.e., 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 a maintenance fee. If we
reflected these charges in the calculation, they would decrease the level of
performance reflected by the calculation. Non-standardized returns may also
include performance from the fund's inception date, if that date is earlier than
the one we use for standardized returns.
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We may also advertise 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
(SAI) by calling us at the number listed in "Contract Overview--Questions:
Contacting the Company."
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 subaccount. If you are a contract holder under a group
contract, you have a fully vested interest in the contract and may instruct the
group contract holder how to direct the Company to cast a certain number of
votes. We will vote shares for which instructions have not been received in the
same proportion as those for which we received instructions. Each person who has
a voting interest in the separate account will receive periodic reports relating
to the funds in which he or she has an interest, as well as any proxy materials
and a form on which to give voting instructions. Voting instructions will be
solicited by a written communication at least 14 days before the 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 Modifications
We may change the contract as required by federal or state law or as otherwise
permitted in the contract. In addition, we may, upon 30 days' written notice to
the group contract holder, make other changes to a group contract that would
apply only to individuals who become participants under that contract after the
effective date of such changes. If a group contract holder does not agree to a
change, we reserve the right to refuse to establish new accounts under the
contract. 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 of a nonqualified contract
or a qualified contract where such assignments or transfers are not prohibited,
with proper notification. The date of any 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 and you should 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 the Company at our Home Office. We will use reasonable
procedures to confirm that the assignment is authentic, including
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verification of signature. If we fail to follow our own procedures, we will be
liable for any losses to you directly resulting from such failure. Otherwise, we
are not responsible for the validity of any assignment. The rights of the
contract holder and the interest of the annuitant and any beneficiary will be
subject to the rights of any assignee we have on our records.
Involuntary Terminations
We reserve the right to terminate any account with a value of $2,500 or less
immediately following a partial withdrawal. However, an IRA may only be closed
out when payments to the contract have not been received for a 24-month period
and the paid-up annuity benefit at maturity would be less than $20 per month. If
such right is exercised, you will be given 90 days' advance written notice. No
early withdrawal charge will be deducted for involuntary terminations. We do not
intend to exercise this right in cases where the account value is reduced to
$2,500 or less solely due to investment performance.
Legal Matters and Proceedings
We are aware of no material legal proceedings pending which involve the separate
account 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
In recent years, several life insurance and annuity companies have been named as
defendants in lawsuits, including class action lawsuits, relating to life
insurance and annuity pricing and sales practices. A purported class action
complaint was filed in the Circuit Court of Lauderdale County, Alabama on March
28, 2000, by Loretta Shaner against the Company (the "Shaner Complaint"). The
Shaner Complaint seeks unspecified compensatory damages from the Company and
unnamed affiliates of the Company. The Shaner Complaint claims that the
Company's sale of deferred annuity products for use as investments in
tax-deferred contibutory retirement plans (e.g., IRAs) is improper. This
litigation is in the preliminary stages. The Company intends to defend the
action vigorously.
The Company also is a party to other litigation and arbitration proceedings in
the ordinary course of its business, none of which is expected to have a
material adverse effect on the Company.
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Contents of the Statement of Additional Information
- --------------------------------------------------------------------------------
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.
<TABLE>
<S> <C>
General Information and History .................................... 2
Variable Annuity Account B ......................................... 2
Offering and Purchase of Contracts .................................. 3
Performance Data ................................................... 3
General .......................................................... 3
Average Annual Total Return Quotations ........................... 4
Income Phase Payments .............................................. 7
Sales Material and Advertising ..................................... 8
Independent Auditors ............................................... 9
Financial Statements of the Separate Account ....................... S-1
Financial Statements of Aetna Life Insurance and Annuity Company and
Subsidiaries ....................................................... F-1
</TABLE>
You may request an SAI by calling the Company at the number listed in "Contract
Overview--Questions: Contacting the Company."
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Appendix I
ALIAC Guaranteed Account
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The ALIAC Guaranteed Account (the Guaranteed Account) is a fixed interest option
available during the accumulation phase under the contract. This appendix is
only a summary of certain facts about the Guaranteed Account. Please read the
Guaranteed Account prospectus carefully before investing in this option.
In General. Amounts invested in the Guaranteed Account earn specified interest
rates if left in the Guaranteed Account for specified periods of time. If you
withdraw or transfer those amounts before the specified periods elapse, we may
apply a market value adjustment (described below) which may be positive or
negative.
When deciding to invest in the Guaranteed Account, contact your sales
representative or the Company to learn:
> The interest rate(s) we will apply to amounts invested in the Guaranteed
Account.
We change the rate(s) periodically. Be certain you know the rate we
guarantee on the day your account dollars are invested in the Guaranteed
Account. Guaranteed interest rates will never be less than an annual
effective rate of 3%.
> The period of time your account dollars need to remain in the Guaranteed
Account in order to earn the rate(s).
You are required to leave your account dollars in the Guaranteed Account
for a specified period of time in order to earn the guaranteed interest
rate(s).
Deposit Period. During a deposit period, we offer a specific interest rate for
dollars invested for a certain guaranteed term. For a specific interest rate and
guaranteed term to apply, account dollars must be invested in the Guaranteed
Account during the deposit period for which that rate and term are offered.
Interest Rates. We guarantee different interest rates, depending upon when
account dollars are invested in the Guaranteed Account. For guaranteed terms one
year or longer, we may apply more than one specified interest rate. The interest
rate we guarantee is an annual effective yield. That means the rate reflects a
full year's interest. We credit interest daily at a rate that will provide the
guaranteed annual effective yield over one year. Guaranteed interest rates will
never be less than an annual effective rate of 3%. The interest rate guarantees
are based on the Company's claims-paying ability.
Guaranteed Terms. The guaranteed term is the period of time account dollars must
be left in the Guaranteed Account in order to earn the guaranteed interest rate.
For guaranteed terms one year or longer, we may offer different rates for
specified time periods within a guaranteed term. We offer different guaranteed
terms at different times. We also may offer more than one guaranteed term of the
same duration with different interest rates. Check with your sales
representative or the Company to learn what terms are being offered. The Company
also reserves the right to limit the number of guaranteed terms or the
availability of certain guaranteed terms.
Fees and Other Deductions. If all or a portion of your account value in the
Guaranteed Account is withdrawn or transferred, you may incur one or more of the
following:
> Market Value Adjustment (MVA)--as described in this appendix and in the
Guaranteed Account prospectus;
> Tax penalties and/or tax withholding--see "Taxation;"
> Early withdrawal charge--see "Fees;" or
> Maintenance fee--see "Fees."
We do not make deductions from amounts in the Guaranteed Account to cover
mortality and expense risks. Rather, we consider these risks when determining
the interest rate to be credited.
Market Value Adjustment (MVA). If your account value is withdrawn or transferred
from the Guaranteed Account before the guaranteed term is completed, an MVA may
apply. The MVA reflects investment value changes caused by changes in interest
rates occurring since the date of deposit. The MVA may be positive or negative.
If interest rates at the time of withdrawal or transfer have increased since the
date of deposit, the value of the investment decreases and the MVA will be
negative. This could result in your receiving less than the amount you
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paid into the Guaranteed Account. If interest rates at the time of withdrawal or
transfer have decreased since the date of deposit, the value of the investment
increases and the MVA will be positive.
MVA Waiver. For withdrawals or transfers from a guaranteed term before the
guaranteed term matures, the MVA may be waived for:
> Transfers due to participation in the dollar cost averaging program;
> Withdrawals taken due to your election of SWO or ECO (described in
"Systematic Distribution Options"), if available;
> Withdrawals for minimum distributions required by the Tax Code and for
which the early withdrawal charge is waived; and
> Withdrawals due to your exercise of the right to cancel your contract
(described in "Right to Cancel").
Death Benefit. When a death benefit is paid under the contract within six months
of the date of death, only a positive aggregate MVA amount, if any, is applied
to the account value attributable to amounts withdrawn from the Guaranteed
Account. This provision does not apply upon the death of a spousal beneficiary
or joint contract holder who continued the account after the first death. If a
death benefit is paid more than six months from the date of death, a positive or
negative aggregate MVA amount, as applicable, will be applied.
Partial Withdrawals. For partial withdrawals during the accumulation phase,
amounts to be withdrawn from the Guaranteed Account will be withdrawn
proportionally from each group of deposits having the same length of time until
the maturity date ("Guaranteed Term Group"). Within a Guaranteed Term Group, the
amount will be withdrawn first from the oldest deposit period, then from the
next oldest and so on until the amount requested is satisfied.
Guaranteed Terms Maturity. As a guaranteed term matures, assets accumulating
under the Guaranteed Account may be (a) transferred to a new guaranteed term,
(b) transferred to other available investment options, or (c) withdrawn. Amounts
withdrawn may be subject to an early withdrawal charge, taxation and, if you are
under age 59-1/2, tax penalties may apply.
If no direction is received from you at our Home Office by the maturity date of
a guaranteed term, the amount from the maturing guaranteed term will be
transferred to a new guaranteed term of a similar length. If the same guaranteed
term is no longer available, the next shortest guaranteed term available in the
current deposit period will be used. If no shorter guaranteed term is available,
the next longer guaranteed term will be used.
If you do not provide instructions concerning the maturity value of a maturing
guaranteed term, the maturity value transfer provision applies. This provision
allows transfers or withdrawals without an MVA if the transfer or withdrawal
occurs during the calendar month immediately following a guaranteed term
maturity date. This waiver of the MVA only applies to the first transaction
regardless of the amount involved in the transaction.
Under the Guaranteed Account each guaranteed term is counted as one funding
option. If a guaranteed term matures and is renewed for the same term, it will
not count as an additional investment option for purposes of any limitation on
the number of investment options.
Subsequent Purchase Payments. Purchase payments received after your initial
purchase payment to the Guaranteed Account will be allocated in the same
proportions as the last allocation, unless you properly instruct us to do
otherwise. If the same guaranteed term(s) are not available, the next shortest
term will be used. If no shorter guaranteed term is available, the next longer
guaranteed term will be used.
Dollar Cost Averaging. The Company may offer more than one guaranteed term of
the same duration and credit one with a higher rate contingent upon use only
with the dollar cost averaging program. If amounts are applied to a guaranteed
term which is credited with a higher rate using dollar cost averaging and the
dollar cost averaging is discontinued, the amounts will be transferred to
another guaranteed term of the same duration and an MVA will apply.
Transfer of Account Dollars. Generally, account dollars invested in the
Guaranteed Account may be transferred among guaranteed terms offered through the
Guaranteed Account and/or to other investment options offered through the
contract. However, transfers may not be made during the deposit period in which
your account
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dollars are invested in the Guaranteed Account or for 90 days after the close of
that deposit period. We will apply an MVA to transfers made before the end of a
guaranteed term. The 90-day wait does not apply to (1) amounts transferred on
the maturity date or under the maturity value transfer provision; (2) amounts
transferred from the Guaranteed Account before the maturity date due to the
election of an income phase payment option; (3) amounts distributed under the
ECO or SWO (see "Systematic Distribution Options"); and (4) amounts transferred
from an available guaranteed term in connection with the dollar cost averaging
program.
Transfers after the 90-day period are permitted from guaranteed term(s) to other
guaranteed term(s) available during a deposit period or to other available
investment options. Transfers of the Guaranteed Account values on or within one
calendar month of a term's maturity date are not counted as one of the 12 free
transfers of accumulated values in the account.
Reinvesting Amounts Withdrawn from the Guaranteed Account. If amounts are
withdrawn and then reinvested in the Guaranteed Account, we apply the reinvested
amount to the current deposit period. This means the guaranteed annual interest
rate and guaranteed terms available on the date of reinvestment will apply. We
reinvest amounts proportionately in the same way as they were allocated before
withdrawal. Your account value will not be credited for any negative MVA that
was deducted at the time of withdrawal.
The Income Phase. The Guaranteed Account cannot be used as an investment option
during the income phase. However, you may notify us at least 30 days in advance
to elect a fixed or variable payment option and to transfer your Guaranteed
Account dollars to the general account or any of the subaccounts available
during the income phase. Transfers made due to the election of a lifetime income
phase payment option will be subject to only a positive aggregate MVA.
Distribution. The Company is the principal underwriter of the contract. The
Company is registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc. From time to time the Company
may offer customers of certain broker-dealers special guaranteed rates in
connection with the Guaranteed Account offered through the contract and may
negotiate different commissions for these broker-dealers.
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Appendix II
Fixed Account
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General Disclosure.
> The Fixed Account is an investment option available during the accumulation
phase under the contract.
> Amounts allocated to the Fixed Account are held in the Company's general
account which supports insurance and annuity obligations.
> Interests in the Fixed Account have not been registered with the SEC in
reliance on exemptions under the Securities Act of 1933, as amended.
> Disclosure in this prospectus regarding the Fixed Account may be subject to
certain generally applicable provisions of the federal securities laws
relating to the accuracy and completeness of the statements.
> Disclosure in this appendix regarding the Fixed Account has not been
reviewed by the SEC.
> Additional information about this option may be found in the contract.
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 reflect a compound
interest rate as credited by us. The rate we quote is an annual effective
yield. Interest rate guarantees are based on the Company's claims-paying
ability.
> Our determination of credited interest rates reflects a number of factors,
including mortality and expense risks, interest rate guarantees, 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.
Dollar Cost Averaging. Amounts you invest in the Fixed Account must be
transferred into the other investment options available under the contract over
a period not to exceed 12 months. If you discontinue dollar cost averaging, the
remaining balance amounts in the Fixed Account will be transferred into the
money market subaccount available under the contract, unless you direct us to
transfer the balance into other available options.
Withdrawals. Under certain emergency conditions we may defer payment of any
withdrawal for a 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. 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 phase payments
begin, you may elect to have amounts transferred to one or more of the
subaccounts available during the income phase to provide variable payments.
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Appendix III
Description of Underlying Funds
- --------------------------------------------------------------------------------
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. Investments in the
funds are not bank deposits and are not insured or guaranteed by 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: equities such as common and preferred stocks; and debt, such as bonds,
mortgage-related and other asset-backed securities, U.S. Government securities,
and money market instruments. 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 or
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.
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
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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 in certain foreign
countries. 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 appreciation 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). May invest principally in common stocks having
significant potential for capital appreciation, or may purchase common stocks
principally for their income potential through dividends and option writing, or
may acquire securities having a mix of these characteristics.
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. Although the investment adviser
emphasizes large cap stocks, to the extent the Fund is diversified across asset
classes, it may not perform as well as less diversified funds when large cap
stocks are in favor. Additionally, stocks of medium-sized and smaller companies
tend to be more volatile and less liquid than stocks of larger companies.
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, 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.
Risks
It is possible to lose money by investing in the fund. There is no guaranty the
fund will achieve its investment objective. An investment in the fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
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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 Variable Portfolios, Inc.--Aetna Growth VP
Investment Objective
Seeks growth of capital through investment in a diversified portfolio consisting
primarily of common stocks and securities convertible into common stocks
believed to offer growth potential.
Policies
Under normal market conditions, invests at least 65% of total assets in common
stocks and securities convertible into common stock. Tends to emphasize stocks
of larger companies, although may invest in companies of any size. Uses
internally developed quantitative computer models to evaluate the financial
characteristics of approximately 1,000 companies. The investment adviser
analyzes these characteristics in an attempt to identify companies it believes
have strong growth characteristics or demonstrate a positive trend in earnings
estimates, but whose full value is not reflected in the stock price. Focuses on
companies that the investment adviser believes have strong, sustainable and
improving earnings growth, and established market positions in a particular
industry.
Risks
Principal risks are those generally attributable to stock investing. They
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. Growth-oriented stocks typically
sell at relatively high valuations as compared to other types of stocks. If a
growth stock does not exhibit the consistent level of growth expected, its price
may drop sharply. Historically, growth-oriented stocks have been more volatile
than value-oriented stocks.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP
Investment Objective
Seeks to outperform the total return performance of the Standard & Poor's 500
Composite Index (S&P 500), while maintaining a market level of risk.
Policies
Invests at least 80% of net assets in stocks included in the S&P 500 (other than
Aetna Inc. common stock). The investment adviser attempts to achieve the
objective by overweighting those stocks in the S&P 500 that the investment
adviser believes will outperform the index, and underweighting (or avoiding
altogether) those stocks that the investment adviser believes will underperform
the index. In determining stock weightings, uses internally developed
quantitative computer models to evaluate various criteria, such as the financial
strength of each company and its potential for strong, sustained earnings
growth. At any one time, the fund's portfolio generally includes approximately
400 of the stocks included in the S&P 500. Although the fund will not hold all
the stocks in the S&P 500, the investment adviser expects that there will be a
close correlation between the performance of the fund and that of the S&P 500 in
both rising and falling markets.
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 depends significantly on the investment adviser's skill in determining
which securities to overweight, underweight or avoid altogether.
Investment Adviser: Aeltus Investment Management, Inc.
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Aetna Variable Portfolios, Inc.--Aetna International VP
Investment Objective
Seeks long-term capital growth primarily though investment in a diversified
portfolio of common stocks principally traded in countries outside of the United
States. The fund will not target any given level of current income.
Policies
Under normal market conditions, invests at least 65% of total assets in
securities principally traded in three or more countries outside of the United
States. These securities may include common stocks as well as securities
convertible into common stock. Diversifies the fund by investing in a mix of
stocks that the investment adviser believes have the potential for long-term
growth, as well as stocks that appear to be trading below their perceived value.
Allocates assets among several geographic regions and individual countries,
investing primarily in those areas that the investment adviser believes have the
greatest potential for growth as well as stable exchange rates. Invests
primarily in established foreign securities markets, although may invest in
emerging markets as well. Uses internally developed quantitative computer models
to evaluate the financial characteristics of over 2,000 companies in an attempt
to select companies with long-term sustainable growth characteristics. Employs
currency hedging strategies to protect from adverse effects on the U.S. dollar.
Risks
Principal risks are those generally attributable to stock investing which
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. Stocks of foreign companies tend
to be less liquid and more volatile than their U.S. counterparts. Accounting
standards and market regulations tend to be less standardized in certain foreign
countries, and economic and political climates tend to be less stable. Stocks of
foreign companies may be denominated in foreign currency. Exchange rate
fluctuations may reduce or eliminate gains or create losses. Hedging strategies
intended to reduce this risk may not perform as expected. Investments in
emerging markets are subject to the same risks applicable to foreign investments
generally, although those risks may be increased due to conditions in such
countries.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Real Estate Securities VP
Investment Objective
Seeks maximum total return primarily through investment in a diversified
portfolio of equity securities of real estate companies, the majority of which
are real estate investment trusts (REITs).
Policies
Under normal market conditions, invests at least 65% of total assets in stocks,
convertible securities and preferred stocks of companies principally engaged in
the real estate industry. These companies may invest in, among other things,
shopping malls, healthcare facilities, office parks and apartment communities,
or may provide real estate management and development services. In selecting
investments, uses internally developed quantitative models to forecast the
returns of each security. Evaluates real estate companies based on their
earnings history and long-term growth prospects, analyst estimates of future
earnings, safety and growth in dividends, balance sheet strength and quality of
management. The investment adviser also considers whether the securities appear
to be trading below their real value. Allocates assets among property types and
economic and geographic regions. Attempts to construct the fund's portfolio so
that the overall level of risk is not in excess of its benchmark index, the
National Association of Real Estate Investment Trusts Equity (NAREIT) Index.
Risks
Concentrating in stocks of real estate-related companies presents certain risks
that are more closely associated with investing in real estate directly than
with investing in the stock market generally. Those risks include: periodic
declines in the value of real estate, generally, or in the rents and other
income generated by real estate; periodic over-building, which creates gluts in
the market, as well as changes in laws (such as zoning laws) that impair the
property rights of real estate owners; adverse developments in the real estate
industry, which may have a greater
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impact on this fund than on a fund that is more broadly diversified. Performance
also may be adversely affected by sudden and unpredictable drops in the value of
the market as a whole and periods of lackluster or negative performance.
Although the fund is subject to the risks generally attributable to stock
investing, because the fund has concentrated its assets in one industry it may
be subject to more abrupt swings in value than would a fund that does not
concentrate its assets in one industry.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Small Company VP
Investment Objective
Seeks growth of capital primarily through investment in a diversified portfolio
of common stocks and securities convertible into common stocks of companies with
smaller market capitalizations.
Policies
Under normal market conditions, invests at least 65% of total assets in common
stocks and securities convertible into common stock of small-capitalization
companies, defined as: the 2,000 smallest of the 3,000 largest U.S. companies
(as measured by market capitalization); all companies not included above that
are included in the Standard & Poor's SmallCap 600 Index or the Russell 2000
Index; and companies with market capitalizations lower than any companies
included in the first two categories. For purposes of the 65% policy, the
largest company in this group in which the fund intends to invest currently has
a market capitalization of approximately $1.5 billion. Invests in stocks that
the investment adviser believes have the potential for long-term growth, as well
as those that appear to be trading below their perceived value. Uses internally
developed quantitative computer models to evaluate financial characteristics of
over 2,000 companies in an attempt to identify companies whose perceived value
is not reflected in the stock price. Considers the potential of each company to
create or take advantage of unique product opportunities, its potential to
achieve long-term sustainable growth and the quality of its management.
Risks
Principal risks are those generally attributable to stock investing which
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 carry
higher risks than stocks of larger companies. This is because smaller companies
may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In many
instances, the frequency and volume of trading in small cap stocks are
substantially less than of stocks of larger companies. As a result, the stocks
of smaller companies may be subject to wider price fluctuations and/or may be
less liquid. When selling a large quantity of a particular stock, the fund may
have to sell at a discount from quoted prices or may have to make a series of
small sales over an extended period of time due to the more limited trading
volume of smaller company stocks. Stocks of smaller companies can be
particularly sensitive to expected changes in interest rates, borrowing costs
and earnings.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Technology VP
Investment Objective
Seeks long-term capital appreciation.
Policies
Primarily invests in common stocks and securities convertible into common stock
of companies in the information technology industry sector. These companies
include companies that the subadviser considers to be principally engaged in the
development, production, or distribution of products or services related to the
processing, storage, transmission, or presentation of information or data. A
particular company will be considered to be principally engaged in the
information technology industries if, at the time of investment, the investment
adviser determines that at least 50% of the company's assets, gross income, or
net profits are committed to, or derived from, those industries. A company will
also be considered to be principally engaged if the subadviser considers that
the
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company has the potential for capital appreciation primarily as a result of
particular products, technology, patents, or other market advantages in those
industries. In selecting stocks, the subadviser looks at a company's valuation
relative to its potential long-term growth rate. May look to see whether a
company offers a new or improved product, service or business operation; whether
it has experienced a positive change in its financial or business condition;
whether the market for its goods or services has expanded or experienced a
positive change; and whether there is a potential catalyst for positive change
in the company's business or stock price. May sell a security if the subadviser
determines that the company has become overvalued due to price appreciation or
has experienced a change in its business fundamentals, if the company's growth
rate slows substantially, or if the subadviser believes that another investment
offers a better opportunity.
Risks
Principal risks are those generally attributable to stock investing which
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. Further,
stocks of smaller companies also can be particularly sensitive to expected
changes in interest rates, borrowing costs and earnings. Because the fund's
investments are concentrated in the information technology industries, the Fund
may be subject to more abrupt swings in value than a fund which invests in a
broader range of industries. Investments in information technology companies may
be highly volatile. The fund may experience difficulty in establishing or
closing out positions in these securities at prevailing market prices. Also,
there may be less publicly available information about small companies or less
market interest in their securities as compared to larger companies, and it may
take longer for the prices of the securities to reflect the full value of their
issuers' earnings potential or assets.
Investment Adviser: Aeltus Investment Management, Inc.; Subadviser: Elijah
Asset Management, LLC
AIM V.I. Capital Appreciation Fund
Investment Objective
Seeks growth of capital through investment in common stocks, with emphasis on
medium- and small-sized growth companies.
Policies
The portfolio managers focus on companies they believe are likely to benefit
from new or innovative products, services or processes as well as those that
have experienced above-average, long-term growth in earnings and have excellent
prospects for future growth. The portfolio managers consider whether to sell a
particular security when any of those factors materially changes. The fund may
also invest up to 20% of its total assets in foreign securities.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. This is especially true with respect to common stocks of smaller
companies, whose prices may go up and down more than common stocks of larger,
more-established companies. Also, since common stocks of smaller companies may
not be traded as often as common stocks of larger, more-established companies,
it may be difficult or impossible for the fund to sell securities at a desirable
price.
Investment Adviser: A I M Advisors, Inc.
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AIM V.I. Growth Fund
Investment Objective
Seeks growth of capital primarily by investing in seasoned and better
capitalized companies considered to have strong earnings momentum.
Policies
The portfolio managers focus on companies that have experienced above-average
growth in earnings and have excellent prospects for future growth. The portfolio
managers consider whether to sell a particular security when any of those
factors materially changes. The fund may also invest up to 20% of its total
assets in foreign securities.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. The fund may participate in the initial public offering (IPO) market.
Because of the fund's small asset base any investment the fund may make in IPOs
may significantly increase the fund's total returns. As the fund's assets grow,
the impact of IPO investments will decline, which may reduce the fund's total
returns.
Investment Adviser: A I M Advisors, Inc.
AIM V.I. Growth and Income Fund
Investment Objective
Seeks growth of capital with a secondary objective of current income.
Policies
The fund seeks to meet these objectives by investing at least 65% of its net
assets in income-producing securities, including dividend-paying common stocks
and convertible securities. The portfolio managers purchase securities of
established companies that have long-term above-average growth in earnings and
dividends, and growth companies that they believe have the potential for
above-average growth in earnings and dividends. The portfolio managers consider
whether to sell a particular security when they believe the security no longer
has that potential or the capacity to generate income. The fund may also invest
up to 20% of its total assets in foreign securities.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objectives. If the fund does trade in this way, it may
incur increased transaction costs and brokerage commissions, both of which can
lower the actual return on your investment.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. The values of the convertible securities in which the fund may invest
also will be affected by market interest rates, the risk that the issuer may
default on interest or principal payments and the value of the underlying common
stock into which these securities may be converted. Specifically, since these
types of convertible securities pay fixed interest and dividends, their values
may fall if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to the fund.
Investment Adviser: A I M Advisors, Inc.
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AIM V.I. Value Fund
Investment Objective
Seeks to achieve long-term growth of capital by investing primarily in equity
securities judged by the fund's investment adviser to be undervalued relative to
the investment adviser's appraisal of the current or projected earnings of the
companies issuing the securities, or relative to current market values of assets
owned by the companies issuing the securities or relative to the equity market
generally. Income is a secondary objective.
Policies
The fund also may invest in preferred stocks and debt instruments that have
prospects for growth of capital. The fund may also invest up to 25% of its total
assets in foreign securities.
The portfolio managers focus on undervalued equity securities of (1)
out-of-favor cyclical growth companies; (2) established growth companies that
are undervalued compared to historical relative valuation parameters; (3)
companies where there is early but tangible evidence of improving prospects that
are not yet reflected in the price of the company's equity securities; and (4)
companies whose equity securities are selling at prices that do not reflect the
current market value of their assets and where there is reason to expect
realization of this potential in the form of increased equity values. The
portfolio managers consider whether to sell a particular security when they
believe the company no longer fits into any of the above categories.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. If the seller of a repurchase agreement in which the fund invests
defaults on its obligation or declares bankruptcy, the fund may experience
delays in selling the securities underlying the repurchase agreement. As a
result, the fund may incur losses arising from decline in the value of those
securities, reduced levels of income and expenses of enforcing its rights.
Investment Adviser: A I M Advisors, Inc.
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
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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
Fidelity Variable Insurance Products Fund--High Income Portfolio
Investment Objective
Seeks a high level of current income while also considering growth of capital.
Policies
Normally invests at least 65% of total assets in income-producing debt
securities, preferred stocks and convertible securities, with an emphasis on
lower-quality debt securities. May also invest in non-income producing
securities, including defaulted securities and common stocks. Currently intends
to limit common stocks to 10% of total assets. 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, interest rates or other factors that affect security values.
Risks
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. 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
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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.
Investment Adviser: Fidelity Management & Research Company; Subadvisers:
Fidelity Management & Research (U.K.) Inc.; Fidelity Management & Research Far
East Inc.; Fidelity Investments Japan Limited
Fidelity Variable Insurance Products Fund II--Contrafund[RegTM] 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; Subadvisers:
Fidelity Management & Research (U.K.) Inc.; Fidelity Management & Research Far
East Inc.; Fidelity Investments Japan Limited
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% 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, 1999, they ranged from
approximately $170 million to $37 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
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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% of its assets in securities selected primarily for their
growth potential and 40-60% of its assets in securities selected primarily for
their income potential. Will normally invest at least 25% 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 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--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
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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--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
MFS Total Return Series
Investment Objective
Seeks primarily to provide above-average income (compared to a portfolio
invested entirely in equity securities) consistent with the prudent employment
of capital. Its secondary objective is to provide a reasonable opportunity for
growth of capital and income.
Policies
Under normal market conditions, invests at least 40%, but no more than 75%, of
net assets in common stocks and related securities (referred to as equity
securities); bonds, warrants or rights convertible into stock; and depositary
receipts for those securities. Invests at least 25% of net assets in
non-convertible fixed income securities. May vary the percentage of assets
invested in any one type of security (within the limits described above). May
invest in foreign securities and may have exposure to foreign currencies through
its investment in these securities. Generally, seeks to purchase equity
securities that the investment adviser believes are undervalued in the market
relative to their long-term potential focusing on companies with relatively
large market capitalization (i.e., market capitalizations of $5 billion or
more). Fixed income securities include U.S. government securities,
mortgage-backed and asset-backed securities, and corporate bonds. The series has
engaged and may engage in active and frequent trading to achieve its principal
investment strategies.
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Risks
In allocating investments, the series could miss attractive investment
opportunities by underweighting markets where there are significant returns, and
could lose value by overweighting markets where there are significant declines.
The value of securities held by the series may decline due to changing economic,
political or market conditions, or disappointing earnings results. If
anticipated events do not occur or are delayed, or if investor perceptions about
undervalued securities do not improve, the market price of these securities may
not rise or may fall. Fixed income securities are subject to interest rate risk
(the risk that when interest rates rise, the prices of fixed income securities
will generally fall) and credit risk (the risk that the issuer of a fixed income
security will not be able to pay principal and interest when due). Securities
with longer maturities are affected more by interest rate risk. Investing in
foreign securities involves risks relating to political social and economic
developments abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers are subject. Fixed income
securities traded in the over-the-counter market may be harder to purchase or
sell at a fair price. The inability to purchase or sell these fixed income
securities at a fair price could have a negative impact on the series'
performance. Frequent trading may result in the realization and distribution to
shareholders of higher capital gains as compared to a series with less active
trading policies. Frequent trading also increases transaction costs, which could
detract from the series' performance.
Investment Adviser: Massachusetts Financial Services Company
Mitchell Hutchins Series Trust Growth and Income Portfolio (Class I shares)
Investment Objective
Has an investment objective of current income and capital growth.
Policies
Invests primarily in dividend-paying stocks of companies that its investment
adviser believes have potential for rapid earnings growth. Also invests, to a
lesser extent, in bonds when the investment adviser believes those investments
offer opportunities for capital appreciation because interest rates may fall or
credit factors or ratings affecting particular issuers may improve. May invest
in securities of foreign issuers that are denominated in U.S. dollars and traded
in U.S. markets. In selecting stocks for the fund, the adviser uses its own
Factor Valuation Model to identify companies that appear undervalued. The model
ranks companies based on "value" factors such as dividends, cash flows, earnings
and book values, as well as on "growth" factors, such as earnings momentum and
industry performance forecasts. The adviser then applies fundamental analysis to
select specific stocks from among those in the top 20% identified by the model.
Risks
The prices of common stocks and other equity securities generally fluctuate more
than those of other investments. They reflect changes in the issuing company's
financial condition and changes in the overall market. The fund could lose all
of its investment in a company's stock. The Fund is subject, to a lesser extent,
to interest rate risk, which means that the value of the fund's bond investments
generally will fall when interest rates rise. Because interest rate risk is the
primary risk presented by U.S. government and other very high quality bonds,
changes in interest rates may actually have a greater effect on the value of
those bonds than on lower quality bonds. An investment in the fund also presents
credit risk. Credit risk is the risk that the issuer of a bond will not make
principal or interest payments when they are due. Even if an issuer does not
default on a payment, a bond's value may decline if the market believes that the
issuer has become less able, or less willing, to make payments on time. Foreign
securities involve risks that normally are not associated with securities of
U.S. issuers. These include risks relating to political, social and economic
developments abroad and differences between U.S. and foreign regulatory
requirements and market practices. When securities are denominated in foreign
currencies, they also are subject to currency risk. (i.e., the risk that the
value of a foreign currency in which one or more of a fund's investments are
denominated will fall in relation to the U.S. dollar).
Investment Adviser: Mitchell Hutchins Asset Management Inc.
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Mitchell Hutchins Series Trust Small Cap Portfolio (Class I shares)
Investment Objective
Has an investment objective of long-term capital appreciation.
Policies
Invests primarily in stocks of small capitalization ("small cap") companies,
which are defined as companies that have market capitalizations of up to $1
billion at the time of purchase. May invest, to a lesser extent, in stocks of
larger companies, preferred stocks, and bonds, including convertible securities.
Invests in bonds when its investment adviser believes those investments offer
opportunities for capital appreciation because interest rates may fall or credit
factors or ratings affecting particular issuers may improve. May invest in
securities of foreign issuers that are denominated in U.S. dollars and traded in
U.S. markets. In selecting stocks for the fund, the adviser uses its own Factor
Valuation Model to identify companies that appear undervalued. The model ranks
companies based on "value" factors such as dividends, cash flows, earnings and
book values, as well as on "growth" factors, such as earnings momentum and
industry performance forecasts. The adviser then applies fundamental analysis to
select specific stocks from among those of small cap companies identified by the
model.
Risks
The prices of common stocks and other equity securities generally fluctuate more
than those of other investments. They reflect changes in the issuing company's
financial condition and changes in the overall market. The fund may lose a
substantial part, or even all, of its investment in a company's stock.
Securities of small cap companies generally involve greater risk than securities
of larger companies because small cap companies may be more vulnerable to
adverse business or economic developments. Small cap companies also may have
limited product lines, markets or financial resources, and may be dependent on a
relatively small management group. Securities of small cap companies may be less
liquid and more volatile than securities of larger companies or the market
averages in general. In addition, small cap companies may not be well-known to
the investing public, may not have institutional ownership and may have only
cyclical, static or moderate growth prospects. The value of bonds can be
expected to fall when interest rates rise and to rise when interest rates fall.
Interest rate risk is the risk that interest rates will rise, so that the value
of the fund's investments in bonds will fall. Because interest rate risk is the
primary risk presented by U.S. government and other very high quality bonds,
changes in interest rates may actually have a greater effect on the value of
those bonds than on lower quality bonds. An investment in the fund also presents
credit risk. Credit risk is the risk that the issuer of a bond will not make
principal or interest payments when they are due. Even if an issuer does not
default on a payment, a bond's value may decline if the market believes that the
issuer has become less able, or less willing, to make payments on time. Foreign
securities involve risks that normally are not associated with securities of
U.S. issuers. These include risks relating to political, social and economic
developments abroad and differences between U.S. and foreign regulatory
requirements and market practices. When securities are denominated in foreign
currencies, they also are subject to currency risk. (i.e., the risk that the
value of a foreign currency in which one or more of a fund's investments are
denominated will fall in relation to the U.S. dollar).
Investment Adviser: Mitchell Hutchins Asset Management Inc.
Mitchell Hutchins Series Trust Tactical Allocation Portfolio (Class I shares)
Investment Objective
Has an investment objective of total return, consisting of long-term capital
appreciation and current income.
Policies
Allocates its assets between a stock portion that is designed to track the
performance of the S&P 500 Composite Stock Price Index and a fixed income
portion that consists of either five-year U.S. Treasury notes or U.S. Treasury
bills with remaining maturities of 30 days. The investment adviser reallocates
assets in accordance with the recommendations of its own Tactical Allocation
Model on the first business day of each month. The Model attempts to track the
performance of the S&P 500 Index in periods of strong market performance. The
Model attempts to take a more defensive posture by reallocating assets to bonds
or cash when the Model signals a
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potential bear market, prolonged downturn in stock prices or significant loss in
value. The Model can recommend stock allocations of 100%, 75%, 50%, 25% or 0%.
If the Model recommends a stock allocation of less than 100%, it also recommends
a fixed income allocation for the remainder of the fund's assets. The Model uses
a bond risk premium determination to decide whether to recommend five-year U.S.
Treasury notes or 30-day U.S. Treasury bills. When the Model recommends a more
than 50% fixed income allocation, the fund must invest in other high quality
bonds or money market instruments to the extent needed to limit the fund's
investments in U.S. Treasury obligations to no more than 55% of its assets. This
limit is imposed by Internal Revenue Code diversification requirements for
segregated asset accounts used to fund variable annuity or variable life
contracts.
Risks
The prices of common stocks and other equity securities generally fluctuate more
than those of other investments. They reflect changes in the issuing company's
financial condition and changes in the overall market. The fund may lose a
substantial part, or even all, of its investment in a company's stock. The value
of bonds can be expected to fall when interest rates rise and to rise when
interest rates fall. Interest rate risk is the risk that interest rates will
rise, so that the value of the fund's investments in bonds will fall. Because
interest rate risk is the primary risk presented by U.S. government and other
very high quality bonds, changes in interest rates may actually have a greater
effect on the value of those bonds than on lower quality bonds. In addition, the
adviser may not be successful in choosing the best allocation among market
sectors. A fund that allocates its assets among market sectors is more dependent
on the adviser's ability to successfully assess the relative values in each
sector than are funds that do not do so. The adviser's Tactical Allocation Model
may not correctly predict the times to shift the fund's assets from one type of
investment to another.
Investment Adviser: Mitchell Hutchins Asset Management Inc.
Oppenheimer Aggressive Growth Fund/VA
Investment Objective
Seeks to achieve long-term capital appreciation by investing in "growth-type"
companies.
Policies
The Fund invests mainly in equity securities, such as common stocks, and can
invest in other securities, such as preferred stocks and convertible securities.
The Fund emphasizes investments in companies that the Manager believes have
significant growth potential. Growth companies can include established companies
entering a growth cycle in their business, as well as newer companies. The Fund
can invest in securities of issuers of all market capitalizations, but currently
focuses on companies with market capitalizations of "mid-cap" issuers (currently
those issuers between $2.5 and $11.5 billion). The Fund can invest in domestic
and foreign companies, although most of its investments are in stocks of U.S.
companies.
Risks
The fund's investments in stocks are subject to changes in their value from a
number of factors. They include stock market movements and events affecting
particular industries. Stocks of growth companies may provide greater
opportunities for capital appreciation, but may be more volatile than other
stocks. The Fund invests mainly in small and medium-size companies, which tend
to have more volatile stock prices than large companies.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Global Securities Fund/VA
Investment Objective
Seeks long-term capital appreciation by investing a substantial portion of its
assets in securities of foreign issuers, "growth-type" companies, cyclical
industries, and special situations which are considered to have appreciation
possibilities.
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Policies
Invests mainly in common stocks and can also buy other equity securities,
including preferred stocks and convertible securities. The fund buys securities
of issuers in the U.S. and foreign countries. The fund can invest without limit
in any country, including countries with developed or emerging markets, but
currently emphasizes investments in developed markets. The fund will normally
invest in at least three countries (one of which may be the United States). In
selecting securities for the fund, the fund's portfolio manager looks primarily
for foreign and U.S. companies with high growth potential, using fundamental
analysis of a company's financial statements and management structure, and
analysis of the company's operations and product development, as well as the
industry of which the issuer is part.
Risks
Stocks fluctuate in price, and their short-term volatility at times may be
great. The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, changes in governmental economic or monetary policy in the U.S. or abroad
or other political and economic factors. The fund can use derivatives to seek
increased returns or to try to hedge investment risks. If the issuer of the
derivative does not pay the amount due, the fund can lose money on the
investment.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Main Street Growth & Income Fund/VA
Investment Objective
Seeks a high total return (which includes growth in the value of its shares as
well as current income) from equity and debt securities.
Policies
Invests mainly in common stocks of U.S. companies, and can also invest in other
equity securities such as preferred stocks and convertible securities. Although
the fund can invest in securities of issuers of all market capitalization
ranges, it currently focuses on companies with large capitalizations. While the
fund can buy foreign securities and debt securities such as bonds and notes,
currently it does not emphasize those investments. The fund can also use hedging
instruments and certain derivative investments to try to manage investment
risks.
Risks
The fund's investments in stocks and bonds are subject to changes in their value
from a number of factors. They include changes in general stock and bond market
movements, or the change in value of particular stocks or bonds because of an
event affecting the issuer. Changes in interest rates can also affect stock and
bond prices. Because the Fund currently focuses its investments in stocks of
U.S. issuers, it will be affected primarily by changes in the U.S. Stock Market.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Strategic Bond Fund/VA
Investment Objective
Seeks a high level of current income principally derived from interest on debt
securities and seeks to enhance such income by writing covered call options on
debt securities.
Policies
Invests mainly in debt securities of issuers in three market sectors: foreign
governments and companies, U.S. government securities, and lower-rated
high-yield securities of U.S. and foreign companies. Under normal market
conditions, the fund invests in each of those three market sectors. However, the
fund is not obligated to do so, and the amount of its assets in each of the
three sectors will vary over time. The fund can invest up to 100% of its assets
in any one sector at any time, if the manager believes that in doing so the fund
can achieve its objective without undue risk. The fund can invest in securities
having short, medium or long-term maturities and may invest without limit in
lower-grade high-yield debt obligations also called "junk bonds." The fund's
foreign
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investments can include debt securities of issuers in developed markets as well
as emerging markets, which have special risks. The fund can also use hedging
instruments and certain derivative investments to try to enhance income or try
to manage investment risks.
Risks
The fund's investments in debt securities are subject to changes in their value
from a number of factors. They include changes in general bond market movements
in the U.S. and abroad, or the change in value of particular bonds because of an
event affecting the issuer. The fund can focus significant amounts of its
investments in foreign debt securities. Therefore, it will be subject to the
risks that economic, political or other events can have on the values of
securities of issuers in particular foreign countries. These risks are
heightened in the case of emerging market debt securities. Changes in interest
rates can also affect securities prices.
Investment Adviser: OppenheimerFunds, Inc.
Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (formerly
known as PPI MFS Value Equity Portfolio)
Investment Objective
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 listed on a securities exchange or 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 foreign currency
exchange contracts for the purchase or sale of a fixed quantity of a foreign
currency at a future date.
May engage in active and frequent trading to achieve its principal investment
strategies.
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: 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: 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 Active or Frequent Trading Risk: The Portfolio may engage in active and
frequent trading. This may result in higher capital gains as compared to
portfolios with less active trading policies. Frequent trading also
increases transaction costs, which can detract from fund performance.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Massachusetts Financial Services Company
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Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
Invests primarily (at least 65% 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 early in their life cycle and that have the potential to become
major enterprises, or major enterprises whose rates of earnings growth are
expected to accelerate. Investments may include securities listed on a
securities exchange or traded in the over-the-counter markets.
May also 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
foreign currency exchange contracts for the purchase or sale of a fixed quantity
of foreign currency at a future date.
May engage in active and frequent trading to achieve its principal investment
strategies.
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.
o Currency Risk: 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.
o Emerging Markets Risk: Investments in emerging market securities involve
all the risks of investment in foreign markets. Additionally, markets of
emerging market countries have been more volatile, and involve greater
risks, than the markets of developed countries with more mature economies.
o Active or Frequent Trading Risk: The Portfolio may engage in active and
frequent trading. This may result in higher capital gains as compared to
portfolios with less active trading policies. Frequent trading also
increases transaction costs, which can detract from fund performance.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Massachusetts Financial Services Company
Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio
Investment Objective
Seeks long-term growth of capital and future income.
Policies
Invests primarily (at least 80% 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 (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 foreign currency
exchange contracts for the purchase or sale of a fixed quantity of foreign
currency at a future date.
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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: 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: 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, Inc. (PPI) 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. 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:
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 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: 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: 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: 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.
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Appendix IV
Condensed Financial Information
- --------------------------------------------------------------------------------
(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, 1999 (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, 1999 are included in
the Statement of Additional Information.
<TABLE>
<CAPTION>
0.95% Total Charges
-------------------
1999 1998
---- ----
<S> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $10.337 $9.555(1)
Value at end of period $11.632 $10.337
Number of accumulation units outstanding at end of period 417,961 5,235
AETNA BOND VP
Value at beginning of period $10.319 $10.157(3)
Value at end of period $10.145 $10.319
Number of accumulation units outstanding at end of period 708,744 16,582
AETNA GROWTH VP
Value at beginning of period $10.489 $8.387(3)
Value at end of period $14.022 $10.489
Number of accumulation units outstanding at end of period 453,570 8,460
AETNA GROWTH AND INCOME VP
Value at beginning of period $9.886 $7.862(3)
Value at end of period $11.498 $9.886
Number of accumulation units outstanding at end of period 1,093,630 125,488
AETNA INDEX PLUS LARGE CAP VP
Value at beginning of period $10.716 $8.469(3)
Value at end of period $13.193 $10.716
Number of accumulation units outstanding at end of period 2,135,759 31,054
AETNA INTERNATIONAL VP
Value at beginning of period $9.149 $8.583(1)
Value at end of period $13.715 $9.149
Number of accumulation units outstanding at end of period 75,017 587
AETNA MONEY MARKET VP
Value at beginning of period $10.199 $10.122(3)
Value at end of period $10.615 $10.199
Number of accumulation units outstanding at end of period 2,174,383 103,626
AETNA REAL ESTATE SECURITIES VP
Value at beginning of period $8.903 $8.690(1)
Value at end of period $8.446 $8.903
Number of accumulation units outstanding at end of period 36,876 10,325
AETNA SMALL COMPANY VP
Value at beginning of period $9.357 $8.799(1)
Value at end of period $12.128 $9.357
Number of accumulation units outstanding at end of period 163,679 13,538
AIM V.I. CAPITAL APPRECIATION FUND
Value at beginning of period $10.245 $7.522(3)
Value at end of period $14.675 $10.245
Number of accumulation units outstanding at end of period 190,831 10,913
AIM V.I. GROWTH FUND
Value at beginning of period $10.779 $7.856(3)
Value at end of period $14.438 $10.779
Number of accumulation units outstanding at end of period 300,327 11,163
AIM V.I. GROWTH AND INCOME FUND
Value at beginning of period $10.663 $7.948(3)
Value at end of period $14.179 $10.663
Number of accumulation units outstanding at end of period 370,289 3,666
<CAPTION>
1.25% Total Charges 1.40% Total Charges
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $10.323 $9.276(2) $10.316 $9.581(1)
Value at end of period $11.581 $10.323 $11.555 $10.316
Number of accumulation units outstanding at end of period 403,187 17,681 237,246 9,447
AETNA BOND VP
Value at beginning of period $10.305 $10.119(3) $10.298 $10.188(1)
Value at end of period $10.101 $10.305 $10.078 $10.298
Number of accumulation units outstanding at end of period 806,343 30,949 300,240 3,930
AETNA GROWTH VP
Value at beginning of period $10.475 $8.359(3) $10.468 $8.899(1)
Value at end of period $13.961 $10.475 $13.930 $10.468
Number of accumulation units outstanding at end of period 536,727 8,297 114,036 2,298
AETNA GROWTH AND INCOME VP
Value at beginning of period $9.872 $7.672(3) $9.866 $8.961(1)
Value at end of period $11.447 $9.872 $11.422 $9.866
Number of accumulation units outstanding at end of period 1,317,642 55,707 407,605 47,020
AETNA INDEX PLUS LARGE CAP VP
Value at beginning of period $10.702 $8.964(2) $10.694 $9.134(3)
Value at end of period $13.136 $10.702 $13.107 $10.694
Number of accumulation units outstanding at end of period 2,394,661 94,255 926,393 4,957
AETNA INTERNATIONAL VP
Value at beginning of period $9.137 $8.497(1) $9.131 $8.663(4)
Value at end of period $13.655 $9.137 $13.625 $9.131
Number of accumulation units outstanding at end of period 79,291 4,529 28,091 718
AETNA MONEY MARKET VP
Value at beginning of period $10.186 $10.086(2) $10.179 $10.120(1)
Value at end of period $10.569 $10.186 $10.546 $10.179
Number of accumulation units outstanding at end of period 1,313,322 44,014 707,569 47,079
AETNA REAL ESTATE SECURITIES VP
Value at beginning of period $8.891 $8.833(1) $8.885 $8.648(1)
Value at end of period $8.409 $8.891 $8.391 $8.885
Number of accumulation units outstanding at end of period 34,137 2,082 6,188 19
AETNA SMALL COMPANY VP
Value at beginning of period $9.345 $7.219(3) $9.338 $8.739(4)
Value at end of period $12.074 $9.345 $12.048 $9.338
Number of accumulation units outstanding at end of period 114,138 7,787 39,754 396
AIM V.I. CAPITAL APPRECIATION FUND
Value at beginning of period $10.231 $7.914(3) $10.224 $9.078(1)
Value at end of period $14.611 $10.231 $14.579 $10.224
Number of accumulation units outstanding at end of period 317,266 17,420 156,884 857
AIM V.I. GROWTH FUND
Value at beginning of period $10.764 $8.120(3) $10.757 $9.702(4)
Value at end of period $14.375 $10.764 $14.343 $10.757
Number of accumulation units outstanding at end of period 722,832 14,904 228,578 1,498
AIM V.I. GROWTH AND INCOME FUND
Value at beginning of period $10.649 $8.179(3) $10.641 $8.830(3)
Value at end of period $14.117 $10.649 $14.086 $10.641
Number of accumulation units outstanding at end of period 938,411 9,968 259,387 7,172
</TABLE>
84
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
0.95% Total Charges
-------------------
1999 1998
---- ----
<S> <C> <C>
AIM V.I. VALUE FUND
Value at beginning of period $10.616 $7.820(3)
Value at end of period $13.659 $10.616
Number of accumulation units outstanding at end of period 895,401 27,668
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $9.911 $8.459(3)
Value at end of period $10.438 $9.911
Number of accumulation units outstanding at end of period 735,175 48,260
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.265(5)
Value at end of period $12.649
Number of accumulation units outstanding at end of period 84,394
FIDELITY VIP HIGH INCOME PORTFOLIO
Value at beginning of period $8.949 $8.626(1)
Value at end of period $9.586 $8.949
Number of accumulation units outstanding at end of period 590,621 40,909
FIDELITY VIP II CONTRAFUND[RegTM] PORTFOLIO
Value at beginning of period $10.535 $8.083(3)
Value at end of period $12.966 $10.535
Number of accumulation units outstanding at end of period 1,126,347 42,196
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $11.042 $7.183(3)
Value at end of period $24.654 $11.042
Number of accumulation units outstanding at end of period 1,018,787 18,318
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $10.945 $9.175(3)
Value at end of period $13.742 $10.945
Number of accumulation units outstanding at end of period 1,721,022 114,603
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $10.938 $7.907(3)
Value at end of period $15.599 $10.938
Number of accumulation units outstanding at end of period 1,611,327 138,459
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $9.576 $7.245(3)
Value at end of period $15.599 $9.576
Number of accumulation units outstanding at end of period 1,828,183 63,712
MFS TOTAL RETURN SERIES
Value at beginning of period $10.171 $9.712(1)
Value at end of period $10.385 $10.171
Number of accumulation units outstanding at end of period 321,447 11,625
MITCHELL HUTCHINS SERIES TRUST GROWTH AND
INCOME PORTFOLIO
Value at beginning of period $9.816(7)
Value at end of period $10.960
Number of accumulation units outstanding at end of period 10,141
MITCHELL HUTCHINS SERIES TRUST SMALL CAP
PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units outstanding at end of period
MITCHELL HUTCHINS SERIES TRUST TACTICAL
ALLOCATION PORTFOLIO
Value at beginning of period $9.451(7)
Value at end of period $10.651
Number of accumulation units outstanding at end of period 101,508
OPPENHEIMER AGGRESSIVE GROWTH FUND/VA
Value at beginning of period $9.362 $7.289(3)
Value at end of period $17.027 $9.362
Number of accumulation units outstanding at end of period 102,852 730
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Value at beginning of period $9.080 $6.913(3)
Value at end of period $10.946 $9.080
Number of accumulation units outstanding at end of period 341,458 27,241
OPPENHEIMER STRATEGIC BOND FUND/VA
Value at beginning of period $9.823 $9.550(1)
Value at end of period $10.005 $9.823
Number of accumulation units outstanding at end of period 247,095 21,480
PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO
Value at beginning of period $10.193 $9.507(1)
Value at end of period $15.023 $10.193
Number of accumulation units outstanding at end of period 207,410 10,086
PPI MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period $10.371 $7.999(3)
Value at end of period $15.499 $10.371
Number of accumulation units outstanding at end of period 360,244 11,391
<CAPTION>
1.25% Total Charges 1.40% Total Charges
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
AIM V.I. VALUE FUND
Value at beginning of period $10.601 $8.093(3) $10.594 $9.664(4)
Value at end of period $13.599 $10.601 $13.569 $10.594
Number of accumulation units outstanding at end of period 1,538,846 29,486 492,467 9,219
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $9.897 $8.314(3) $9.891 $9.412(4)
Value at end of period $10.392 $9.897 $10.369 $9.891
Number of accumulation units outstanding at end of period 1,507,320 59,609 471,012 9,907
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.231(5) $10.793(6)
Value at end of period $12.628 $12.618
Number of accumulation units outstanding at end of period 124,948 35,352
FIDELITY VIP HIGH INCOME PORTFOLIO
Value at beginning of period $8.936 $8.411(1) $8.930 $8.987(4)
Value at end of period $9.544 $8.936 $9.523 $8.930
Number of accumulation units outstanding at end of period 712,099 19,661 244,927 48,476
FIDELITY VIP II CONTRAFUND[RegTM] PORTFOLIO
Value at beginning of period $10.521 $8.746(2) $10.514 $8.946(1)
Value at end of period $12.909 $10.521 $12.881 $10.514
Number of accumulation units outstanding at end of period 1,682,680 29,543 604,942 3,861
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $11.027 $6.858(3) $11.020 $9.497(4)
Value at end of period $24.546 $11.027 $24.492 $11.020
Number of accumulation units outstanding at end of period 994,780 21,356 368,330 944
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $10.930 $8.301(3) $10.923 $9.275(2)
Value at end of period $13.681 $10.930 $13.651 $10.923
Number of accumulation units outstanding at end of period 2,130,090 27,397 778,170 9,108
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $10.923 $7.596(3) $10.915 $9.157(1)
Value at end of period $15.531 $10.923 $15.497 $10.915
Number of accumulation units outstanding at end of period 2,407,010 35,759 647,596 6,648
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $9.563 $8.027(2) $9.557 $8.519(1)
Value at end of period $15.531 $9.563 $15.497 $9.557
Number of accumulation units outstanding at end of period 2,118,680 39,602 583,969 7,974
MFS TOTAL RETURN SERIES
Value at beginning of period $10.157 $9.772(1) $10.150 $9.737(1)
Value at end of period $10.339 $10.157 $10.317 $10.150
Number of accumulation units outstanding at end of period 675,246 12,838 307,463 27,534
MITCHELL HUTCHINS SERIES TRUST GROWTH AND
INCOME PORTFOLIO
Value at beginning of period $10.189(7) $10.056(7)
Value at end of period $10.937 $10.925
Number of accumulation units outstanding at end of period 60,271 3,629
MITCHELL HUTCHINS SERIES TRUST SMALL CAP
PORTFOLIO
Value at beginning of period $11.067(8) $9.764(6)
Value at end of period $11.828 $11.816
Number of accumulation units outstanding at end of period 14,182 404
MITCHELL HUTCHINS SERIES TRUST TACTICAL
ALLOCATION PORTFOLIO
Value at beginning of period $9.852(7) $9.567(9)
Value at end of period $10.629 $10.618
Number of accumulation units outstanding at end of period 541,487 49,695
OPPENHEIMER AGGRESSIVE GROWTH FUND/VA
Value at beginning of period $9.350 $6.300(3) $9.343 $8.309(4)
Value at end of period $16.952 $9.350 $16.915 $9.343
Number of accumulation units outstanding at end of period 139,615 12,609 58,765 407
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Value at beginning of period $9.067 $6.647(3) $9.061 $8.449(1)
Value at end of period $10.898 $9.067 $10.874 $9.061
Number of accumulation units outstanding at end of period 737,210 41,656 255,253 1,468
OPPENHEIMER STRATEGIC BOND FUND/VA
Value at beginning of period $9.810 $9.566(3) $9.803 $9.768(4)
Value at end of period $9.961 $9.810 $9.939 $9.803
Number of accumulation units outstanding at end of period 321,797 13,169 118,824 10
PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO
Value at beginning of period $10.180 $9.302(1) $10.173 $9.421(4)
Value at end of period $14.957 $10.180 $14.924 $10.173
Number of accumulation units outstanding at end of period 361,089 9,561 99,417 161
PPI MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period $10.357 $6.702(3) $10.350 $8.599(1)
Value at end of period $15.431 $10.357 $15.397 $10.350
Number of accumulation units outstanding at end of period 421,059 13,509 173,671 12,479
</TABLE>
85
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
0.95% Total Charges 1.25% Total Charges
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
PPI MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period $10.113 $8.805(1) $10.099 $9.089(1)
Value at end of period $12.424 $10.113 $12.370 $10.099
Number of accumulation units outstanding at end of period 208,889 4,604 434,221 36,363
PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period $9.248 $8.553(1) $9.236 $8.395(3)
Value at end of period $14.511 $9.248 $14.448 $9.236
Number of accumulation units outstanding at end of period 292,270 46,182 180,822 25,860
<CAPTION>
1.40% Total Charges
-------------------
1999 1998
---- ----
<S> <C> <C>
PPI MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period $10.092 $8.886(1)
Value at end of period $12.343 $10.092
Number of accumulation units outstanding at end of period 145,910 6,259
PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period $9.229 $8.841(1)
Value at end of period $14.416 $9.229
Number of accumulation units outstanding at end of period 122,089 2,368
</TABLE>
- -----------------
(1) Funds were first received in this option during November 1998.
(2) Funds were first received in this option during September 1998.
(3) Funds were first received in this option during October 1998.
(4) Funds were first received in this option during December 1998.
(5) Funds were first received in this option during September 1999.
(6) Funds were first received in this option during October 1999.
(7) Funds were first received in this option during May 1999.
(8) Funds were first received in this option during July 1999.
(9) Funds were first received in this option during June 1999.
86
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
Statement of Additional Information dated May 1, 2000
AETNA VARIABLE ANNUITY
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Variable Annuity Account B (the
"separate account") dated May 1, 2000.
A free prospectus is available upon request from the local Aetna Life Insurance
and Annuity Company office or by writing to or calling:
Aetna Financial Services
Annuity Services
151 Farmington Avenue
Hartford, Connecticut 06156-1258
1-800-238-6219
Read the prospectus before you invest. Unless otherwise indicated, terms used in
this Statement of Additional Information shall have the same meaning as in the
prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
General Information and History....................................................... 2
Variable Annuity Account B............................................................ 2
Offering and Purchase of Contracts.................................................... 3
Performance Data...................................................................... 3
General........................................................................... 3
Average Annual Total Return Quotations............................................ 4
Income Phase Payments................................................................. 7
Sales Material and Advertising........................................................ 8
Independent Auditors.................................................................. 9
Financial Statements of the Separate Account.......................................... S-1
Financial Statements of Aetna Life Insurance and Annuity Company and Subsidiaries..... F-1
</TABLE>
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Life Insurance and Annuity Company (the Company, we, us, our) issues the
contract described in the 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 assets
include the business of Aetna Variable Annuity Life Insurance Company (formerly
Participating Annuity Life Insurance Company organized in 1954). Our Home Office
is located at 151 Farmington Avenue, Hartford, Connecticut 06156.
As of December 31, 1999, the Company and its subsidiary life company had $53
billion invested through their products, including $39 billion in their separate
accounts (of which the Company, or its subsidiary Aeltus Investment Management,
Inc., oversees the management of $24 billion). The Company is ranked among the
top 2% of all U.S. life insurance companies rated by A.M. Best Company based on
assets as of December 31, 1998.
In addition to serving as the principal underwriter and the depositor for the
separate account, the Company is a registered investment adviser under the
Investment Advisers Act of 1940 and a registered broker-dealer under the
Securities Exchange Act of 1934. We provide investment advice to several of the
registered management investment companies offered as variable investment
options under the contracts funded by the separate account (see "Variable
Annuity Account B" below).
Other than the mortality and expense risk charge and administrative expense
charge described in the prospectus, all expenses incurred in the operations of
the separate account are borne by the Company. See "Fees" in the prospectus. We
receive reimbursement for certain administrative costs from some advisers of the
funds used as funding options under the contract. These fees generally range up
to 0.425%.
The assets of the separate account are held by the Company. The separate account
has no custodian. However, the funds in whose shares the assets of the separate
account are invested each have custodians, as discussed in their respective
prospectuses.
From this point forward, the term "contract(s)" refers only to those offered
through the prospectus.
VARIABLE ANNUITY ACCOUNT B
Variable Annuity Account B is a separate account established by the Company for
the purpose of funding variable annuity contracts issued by the Company. The
separate account is registered with the Securities and Exchange Commission as a
unit investment trust under the Investment Company Act of 1940, as amended.
Purchase payments to accounts under the contract may be allocated to one or more
of the subaccounts. Each subaccount invests in the shares of only one of the
funds listed below. We may make additions to, deletions from or substitutions of
available investment options as permitted by law and subject to the conditions
of the contract. The availability of the funds is subject to applicable
regulatory authorization. Not all funds are available in all jurisdictions or
under all contracts.
2
<PAGE>
The funds currently available under the contract are as follows:
<TABLE>
<S> <C>
Aetna Balanced VP, Inc. Fidelity Variable Insurance Products Fund II (VIP II)
Aetna Income Shares d/b/a Aetna Bond VP Contrafund[RegTM] Portfolio
Aetna Growth VP Janus Aspen Aggressive Growth Portfolio
Aetna Variable Fund d/b/a Aetna Growth and Income VP Janus Aspen Balanced Portfolio
Aetna Index Plus Large Cap VP Janus Aspen Growth Portfolio
Aetna International VP Janus Aspen Worldwide Growth Portfolio
Aetna Variable Encore Fund d/b/a Aetna Money Market VP MFS Total Return Series
Aetna Real Estate Securities VP* Mitchell Hutchins Series Trust Growth & Income Portfolio
Aetna Small Company VP Mitchell Hutchins Series Trust Small Cap Portfolio
Aetna Technology VP Mitchell Hutchins Series Trust Tactical Allocation Portfolio
AIM V.I. Capital Appreciation Fund Oppenheimer Aggressive Growth Fund/VA
AIM V.I. Growth Fund Oppenheimer Main Street Growth & Income Fund/VA
AIM V.I. Growth and Income Fund Oppenheimer Strategic Bond Fund/VA
AIM V.I. Value Fund Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio
Fidelity Variable Insurance Products Fund (VIP) Equity-Income (formerly PPI MFS Value Equity Portfolio)
Portfolio Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio
Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio
Portfolio Portfolio Partners, Inc. (PPI) Scudder International Growth
Fidelity Variable Insurance Products Fund (VIP ) High Income Portfolio
Portfolio
</TABLE>
*Effective May 15, 2000, transfers or deposits are not allowed into the
subaccount investing in this fund except those made pursuant to standing
instructions (e.g., dollar cost averaging, account rebalancing) in effect prior
to this date.
Complete descriptions of each of the funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectuses and statements of additional information for each of the funds.
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold under the prospectus. We offer the contracts through life
insurance agents licensed to sell variable annuities who are registered
representatives of the Company or of other registered broker-dealers who have
sales agreements with the Company. The offering of the contracts is continuous.
A description of the manner in which the contracts are purchased can be found in
the prospectus under the sections entitled "Purchase and Rights" and "Your
Account Value."
PERFORMANCE DATA
GENERAL
From time to time we may advertise different types of historical performance for
the subaccounts of the separate account available under the contract. We may
advertise the "standardized average annual total returns," calculated in a
manner prescribed by the Securities and Exchange Commission (the "standardized
return"), as well as "non-standardized returns," both of which are described
below.
The standardized and non-standardized total return figures are computed
according to a formula in which a hypothetical initial purchase payment of
$1,000 is applied to the various subaccounts under the contract, and then
related to the ending redeemable values over one, five and ten year periods (or
fractional periods thereof). The redeemable value is then divided by the initial
investment and this quotient is taken to the Nth root (N represents the number
of years in the period) and 1 is subtracted from the result which is then
expressed as a percentage, carried to at least the nearest hundredth of a
percent. The standardized figures use the actual returns of the fund since the
date contributions were first received in the fund under the separate account,
adjusted to reflect the deduction of the maximum recurring charges under the
contract during each period (i.e., Option Package III: 1.25% mortality and
expense risk charge, $30 annual maintenance fee,
3
<PAGE>
0.15% administrative charge, and early withdrawal charge of 7% of purchase
payments grading down to 0% after 7 years). These charges will be deducted on a
pro rata basis in the case of fractional periods. The maintenance fee is
converted to a percentage of assets based on the average account size under the
contract described in the prospectus. The total return figures shown below will
be lower than the standardized figures for Option Packages I and II because of
the lower mortality and expense risk charge under those Option Packages (0.80%
and 1.10% respectively). We may also advertise standardized returns and
non-standardized returns using the fees and charges applicable to Option
Packages I and II.
The non-standardized figures will be calculated in a similar manner, except that
they will not reflect the deduction of any applicable early withdrawal charge,
and in some advertisements will also exclude the effect of the annual
maintenance fee. The deduction of the early withdrawal charge and the annual
maintenance fee would decrease the level of performance shown if reflected in
these calculations. The non-standardized figures may also include monthly,
quarterly, year-to-date and three-year periods, and may include returns
calculated from the fund's inception date and/or the date contributions were
first received in the fund under the separate account. The non-standardized
returns shown in the tables below reflect the deduction of the maximum recurring
charges under the contract except the early withdrawal charge (i.e., Option
Package III: 1.25% mortality and expense risk charge, $30 annual maintenance
fee, and 0.15% administrative charge). We may also advertise returns based on
lower charges that may apply to contracts under Option Packages I and II.
Investment results of the funds will fluctuate over time, and any presentation
of the subaccounts' total return quotations for any prior period should not be
considered as a representation of how the subaccounts will perform in any future
period. Additionally, the account value upon redemption may be more or less than
your original cost.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
The tables below reflect the average annual standardized and non-standardized
total return quotation figures for the periods ended December 31, 1999 for the
subaccounts under the contract. The standardized returns assume the maximum
charges under the contract (i.e., Option Package III) as described under
"General" above. The non-standardized returns assume the same charges but do not
include the early withdrawal charges. We may also advertise returns based on
lower charges that may apply to particular contracts under option packages I and
II.
For the subaccounts funded by the Portfolio Partners portfolios, two sets of
performance returns are shown for each subaccount: one showing performance based
solely on the performance of the Portfolio Partners portfolio from November 28,
1997 the date the portfolio commenced operations, and one quotation based on (a)
performance through November 26, 1997 of the fund it replaced under many
contracts and (b) after November 26, 1997 based on the performance of the
Portfolio Partners portfolio.
For those subaccounts where results are not available for the full calendar
period indicated, performance for such partial periods is shown in the column
labeled "Since Inception." For standardized performance, the "Since Inception"
column shows the average annual return since the date contributions were first
received in the fund under the separate account. For non-standardized
performance, the "Since Inception" column shows the average annual total return
since the fund's inception date.
4
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Date
Contributions
STANDARDIZED First Received
Under the
Separate Account
- ------------------------------------------------------------------------------------------------------------------------------------
Since
SUBACCOUNT 1 Year 5 Year 10 Year Inception*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc.(1) 4.15% 16.96% 11.66%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) (9.00%) 5.24% 6.19%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 23.74% 33.18% 05/30/1997
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 7.65% 21.49% 13.89%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 13.96% 27.30% 10/31/1996
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna International VP 38.75% 21.12% 05/05/1998
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) (3.67%) 3.38% 3.83%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP (12.19%) (14.97%) 05/06/1998
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 19.96% 16.92% 05/30/1997
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 32.59% 59.19% 10/02/1998
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund 23.99% 53.72% 10/02/1998
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund 23.08% 50.49% 10/02/1998
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund 19.09% 47.15% 10/02/1998
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio (2.52%) 16.59% 16.58% 12/30/1994
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 26.01% 27.70% 27.68% 12/30/1994
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio (0.85%) 7.05% 06/30/1995
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund[RegTM] Portfolio 13.92% 22.69% 06/30/1995
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 106.68% 34.16% 32.50% 10/31/1994
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 16.21% 22.61% 01/31/1995
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 32.01% 27.85% 25.59% 07/29/1994
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 50.78% 33.52% 04/28/1995
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series (5.50%) 10.07% 05/31/1996
- ------------------------------------------------------------------------------------------------------------------------------------
Mitchell Hutchins Growth & Income Portfolio 1.02% 05/05/1999
- ------------------------------------------------------------------------------------------------------------------------------------
Mitchell Hutchins Small Cap Portfolio (0.70%) 07/02/1999
- ------------------------------------------------------------------------------------------------------------------------------------
Mitchell Hutchins Tactical Allocation Portfolio 0.22% 05/17/1999
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund/VA 68.35% 34.48% 05/30/1997
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Fund/VA 11.58% 14.41% 05/30/1997
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA (5.73%) 1.12% 05/30/1997
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PPI MFS Capital Opportunities Portfolio 36.42% 32.83% 11/28/1997
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Growth/PPI MFS Capital Opportunities(3) 36.42% 25.89% 17.84% 11/30/1992
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PPI MFS Emerging Equities Portfolio 38.33% 33.48% 11/28/1997
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI MFS Emerging Equities(3) 38.33% 24.27% 18.27% 09/30/1993
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 13.72% 17.57% 11/28/1997
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI MFS Research Growth(3) 13.72% 11.14% 10.00% 08/31/1992
- ------------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio 45.24% 32.73% 11/28/1997
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI Scudder International
Growth(3) 45.24% 19.25% 16.54% 08/31/1992
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the tables for an explanation of the
charges included and methodology used in calculating the standardized and
non-standardized figures. These figures represent historical performance and
should not be considered a projection of future performance.
* Reflects performance from the date contributions were first received in the
fund under the separate account.
(1) These funds have been available through the separate account for more than
ten years.
(2) The current yield for the subaccount for the seven-day period ended December
31, 1999 (on an annualized basis) was 4.38%. Current yield more closely
reflects current earnings than does total return. The current yield reflects
the deduction of all charges under the contract that are deducted from the
total return quotations shown above except the maximum 7% early withdrawal
charge.
(3) The fund first listed was replaced with the applicable Portfolio Partners
Portfolio after the close of business on November 26, 1997. The performance
shown is based on the performance of the replaced fund until November 26,
1997 and the performance of the applicable Portfolio Partners Portfolio
after that date. The replaced fund may not have been available under all
contracts. The "Date Contributions First Received Under the Separate
Account" refers to the applicable date for the replaced fund. If no date is
shown, contributions were first received in the replaced fund under the
separate account more than ten years ago.
5
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Fund
NON-STANDARDIZED Inception
Date
- ------------------------------------------------------------------------------------------------------------------------------------
Since
SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception**
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc.(1) 11.99% 15.95% 17.29% 11.66%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) (2.15%) 3.65% 5.80% 6.19%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 15.76% 18.71% 21.76% 13.89%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 33.06% 33.29% 33.32% 12/13/1996
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 22.54% 28.02% 28.66% 09/16/1996
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna International VP 49.20% 33.53% 12/22/1997
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 3.59% 3.84% 3.99% 3.83%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP (5.58%) (8.17%) 12/15/1997
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 28.99% 19.45% 19.85% 12/27/1996
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 42.57% 23.35% 23.83% 20.61% 05/05/1993
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund 32.35% 27.35% 26.38% 22.75% 05/02/1994
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund 33.32% 30.17% 27.83% 21.20% 05/05/1993
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund 28.06% 26.81% 25.45% 21.34% 05/05/1993
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio(1) 4.82% 13.36% 16.93% 12.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio(1) 35.49% 31.39% 27.90% 18.24%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio(1) 6.62% 5.26% 9.31% 10.84%
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund[RegTM] Portfolio 22.49% 24.31% 25.95% 01/03/1995
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 122.24% 48.38% 34.30% 32.52% 09/13/1993
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 24.96% 25.81% 22.92% 18.91% 09/13/1993
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 41.95% 31.95% 28.05% 22.52% 09/13/1993
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 62.13% 35.38% 31.71% 27.88% 09/13/1993
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 1.62% 10.40% 13.78% 01/03/1995
- ------------------------------------------------------------------------------------------------------------------------------------
Mitchell Hutchins Growth & Income Portfolio 9.66% 01/04/1999
- ------------------------------------------------------------------------------------------------------------------------------------
Mitchell Hutchins Small Cap Portfolio 15.48% 05/03/1999
- ------------------------------------------------------------------------------------------------------------------------------------
Mitchell Hutchins Tactical Allocation Portfolio 16.87% 01/04/1999
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund/VA(1) 81.02% 30.20% 27.87% 18.59%
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Fund/VA 19.98% 17.38% 24.01% 07/05/1995
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA 1.37% 3.28% 6.71% 4.67% 05/03/1993
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PPI MFS Capital Opportunities Portfolio 46.69% 34.44% 11/28/1997
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Growth/PPI MFS Capital Opportunities(3) 46.69% 31.67% 26.11% 14.67%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PPI MFS Emerging Equities Portfolio 48.75% 35.16% 11/28/1997
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI MFS Emerging Equities(3) 48.75% 26.98% 24.50% 18.27%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 22.28% 19.60% 11/28/1997
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI MFS Research
Growth(3) 22.28% 12.36% 11.57% 9.27%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio 56.17% 34.57% 11/28/1997
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI Scudder
International Growth(3) 56.17% 25.36% 19.55% 11.98%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the tables for an explanation of the
charges included and methodology used in calculating the standardized and
non-standardized figures. These figures represent historical performance and
should not be considered a projection of future performance.
** Reflects performance from the fund's inception date.
(1) These funds have been in operation for more than ten years.
(2) The current yield for the subaccount for the seven-day period ended December
31, 1999 (on an annualized basis) was 4.38%. Current yield more closely
reflects current earnings than does total return. The current yield reflects
the deduction of all charges under the contract that are deducted from the
total return quotations shown above. As in the table above, the maximum 7%
early withdrawal charge is not reflected.
(3) The fund first listed was replaced with the applicable Portfolio Partners
Portfolio after the close of business on November 26, 1997. The performance
shown is based on the performance of the replaced fund until November 26,
1997, and the performance of the applicable Portfolio Partners Portfolio
after that date. The replaced fund may not have been available under all
contracts. The "Fund Inception Date" refers to the applicable date for the
replaced fund. If no date is shown, the replaced fund has been in operation
for more than ten years.
6
<PAGE>
INCOME PHASE PAYMENTS
When you begin receiving payments under the contract during the income phase
(see "The Income Phase" in the prospectus), the value of your account is
determined using accumulation unit values as of the tenth valuation before the
first income phase payment is due. Such value (less any applicable premium tax)
is applied to provide income phase payments to you in accordance with the income
phase payment option and investment options elected.
The annuity option tables found in the contract show, for each option, the
amount of the first income phase payment for each $1,000 of value applied.
Thereafter, variable income phase payments fluctuate as the annuity unit
value(s) fluctuates with the investment experience of the selected investment
option(s). The first income phase payment and subsequent income phase payments
also vary depending upon the assumed net investment rate selected (3.5% or 5%
per annum). Selection of a 5% rate causes a higher first income phase payment,
but income phase payments will increase thereafter only to the extent that the
investment performance of the subaccounts you selected is greater than 5%
annually, after deduction of fees. Income phase payments would decline if the
performance was less than 5%. Use of the 3.5% assumed rate causes a lower first
income phase payment, but subsequent income phase payments would increase more
rapidly or decline more slowly as changes occur in the performance of the
subaccounts selected.
When the income phase begins, the annuitant is credited with a fixed number of
annuity units (which does not change thereafter) in each of the designated
investment options. This number is calculated by dividing (a) by (b), where (a)
is the amount of the first income phase payment based on a particular investment
option, and (b) is the then current annuity unit value for that investment
option. As noted, annuity unit values fluctuate from one valuation to the next
(see "Your Account Value" in the prospectus); such fluctuations reflect changes
in the net investment factor for the appropriate subaccount(s) (with a ten
valuation lag which gives the Company time to process income phase payments) and
a mathematical adjustment which offsets the assumed net investment rate of 3.5%
or 5% per annum.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the income phase.
EXAMPLE:
Assume that, at the date income phase payments are to begin, there are 3,000
accumulation units credited under a particular contract and that the value of an
accumulation unit for the tenth valuation prior to retirement was $13.650000.
This produces a total value of $40,950.
Assume also that no premium tax is payable and that the annuity table in the
contract provides, for the income phase payment option elected, a first monthly
variable income phase payment of $6.68 per $1000 of value applied; the
annuitant's first monthly income phase payment would thus be $40.950 multiplied
by $6.68, or $273.55.
7
<PAGE>
Assume then that the value of an annuity unit upon the valuation on which the
first income phase payment was due was $13.400000. When this value is divided
into the first monthly income phase payment, the number of annuity units is
determined to be 20.414. The value of this number of annuity units will be paid
in each subsequent month.
If the net investment factor with respect to the appropriate subaccount is
1.0015000 as of the tenth valuation preceding the due date of the second monthly
income phase payment, multiplying this factor by .9999058* (to take into account
the assumed net investment rate of 3.5% per annum built into the number of
annuity units determined above) produces a result of 1.0014057. This is then
multiplied by the annuity unit value for the prior valuation (assume such value
to be $13.504376) to produce an annuity unit value of $13.523359 for the
valuation occurring when the second income phase payment is due. The second
monthly income phase payment is then determined by multiplying the number of
annuity units by the current annuity unit value, or 20.414 times $13.523359,
which produces an income phase payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
take into account such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
We may include hypothetical illustrations in our sales literature that explain
the mathematical principles of dollar cost averaging, compounded interest, tax
deferred accumulation, and the mechanics of variable annuity contracts. We may
also discuss the difference between variable annuity contracts and other types
of savings or investment products such as personal savings accounts and
certificates of deposit.
We may distribute sales literature that compares the percentage change in
accumulation unit values for any of the subaccounts to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the subaccount
being compared.
We may publish in advertisements and reports, the ratings and other information
assigned to us by one or more independent rating organizations such as A.M. Best
Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors
Service, Inc. The purpose of the ratings is to reflect our financial strength
and/or claims-paying ability. We may also quote ranking services such as
Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable
Insurance Products Performance Analysis Service (VIPPAS), which rank variable
annuity or life subaccounts or their underlying funds by performance and/or
investment objective. We may categorize the underlying funds in terms of the
asset classes they represent and use such categories in marketing materials for
the contracts. We may illustrate in advertisements the performance of the
underlying funds, if accompanied by performance which also shows the performance
of such funds reduced by applicable charges under the separate account. We may
also show in advertisements the portfolio holdings of the underlying funds,
updated at various intervals. From time to time, we will quote articles from
newspapers and magazines or other publications or reports such as The Wall
Street Journal, Money magazine, USA Today and The VARDS Report.
8
<PAGE>
We may provide in advertising, sales literature, periodic publications or other
materials information on various topics of interest to current and prospective
contract holders. These topics may include the relationship between sectors of
the economy and the economy as a whole and its effect on various securities
markets, investment strategies and techniques (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer and
account rebalancing), the advantages and disadvantages of investing in
tax-deferred and taxable investments, customer profiles and hypothetical
purchase and investment scenarios, financial management and tax and retirement
planning, and investment alternatives to certificates of deposit and other
financial instruments, including comparison between the contract and the
characteristics of and market for such financial instruments.
INDEPENDENT AUDITORS
KPMG LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the independent
auditors for the separate account and for the Company. The services provided to
the separate account include primarily the examination of the separate account's
financial statements and the review of filings made with the SEC.
9
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT B
Index
<TABLE>
<CAPTION>
Page
<S> <C>
Statement of Assets and Liabilities........................................S-2
Statement of Operations....................................................S-8
Statements of Changes in Net Assets........................................S-8
Condensed Financial Information............................................S-9
Notes to Financial Statements..............................................S-19
Independent Auditors' Report...............................................S-33
</TABLE>
S-1
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1999
ASSETS:
Investments, at net asset value: (Note 1)
<TABLE>
<CAPTION>
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
Aetna Ascent VP: 1,339,218 $ 19,497,391 $ 19,981,127
Aetna Balanced VP, Inc.: 13,294,723 200,294,733 206,998,843
Aetna Bond VP: 8,139,100 105,951,065 99,052,842
Aetna Crossroads VP: 1,811,648 24,397,709 24,946,398
Aetna Get Fund, Series C: 557,907 6,337,611 7,124,468
Aetna Get Fund, Series D: 16,585,252 167,045,093 176,632,929
Aetna Get Fund, Series E: 35,440,889 358,288,306 381,698,376
Aetna Get Fund, Series G: 20,429,610 205,920,149 211,855,059
Aetna Get Fund, Series H: 172,261 1,724,516 1,726,955
Aetna Growth and Income VP: 38,230,584 1,242,232,773 1,173,296,609
Aetna Growth VP: 4,099,459 62,421,793 71,002,637
Aetna High Yield VP: 27,918 261,762 245,682
Aetna Index Plus Large Cap VP: 11,455,392 215,316,778 239,074,027
Aetna Index Plus Mid Cap VP: 69,900 908,995 866,762
Aetna Index Plus Small Cap VP: 83,607 815,021 911,313
Aetna International VP: 285,162 4,209,331 4,539,776
Aetna Legacy VP: 2,367,470 29,607,908 29,569,704
Aetna Money Market VP: 16,084,329 214,007,331 215,772,879
Aetna Real Estate Securities VP: 250,934 2,121,243 1,939,720
Aetna Small Company VP: 1,549,015 19,347,626 25,589,722
Aetna Value Opportunity VP: 1,030,379 14,096,136 16,918,826
AIM V.I. Funds:
Capital Appreciation Fund: 280,246 7,859,362 9,971,139
Growth and Income Fund: 743,596 19,743,238 23,490,185
Growth Fund: 587,010 16,219,102 18,931,063
Value Fund: 1,248,557 37,154,670 41,826,668
Alger American Funds:
Balanced Portfolio: 399,088 4,045,034 6,213,801
Income & Growth Portfolio: 1,085,760 10,917,112 19,087,670
Leveraged AllCap Portfolio: 433,195 10,067,916 25,112,341
American Century VP Funds:
Balanced Fund: 443,179 3,338,472 3,452,367
International Fund: 599,923 4,078,203 7,499,031
Calvert Social Balanced Portfolio: 1,193,697 2,580,920 2,589,130
Federated Insurance Series:
American Leaders Fund II: 6,011,859 101,875,749 125,166,912
Equity Income Fund II: 1,866,873 23,409,796 30,392,700
Growth Strategies Fund II: 1,511,581 23,895,134 46,677,628
High Income Bond Fund II: 4,082,647 42,574,388 41,806,306
International Equity Fund II: 1,046,515 13,236,657 28,925,669
Prime Money Fund II: 8,657,471 8,657,471 8,657,471
U.S. Government Securities Fund II: 1,213,486 12,886,100 12,814,411
Utility Fund II: 1,850,767 22,657,976 26,558,505
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio: 7,458,378 173,930,775 191,754,908
Growth Portfolio: 3,804,524 141,323,786 208,982,521
High Income Portfolio: 5,543,291 65,301,314 62,694,624
Overseas Portfolio: 732,104 15,274,074 20,088,940
</TABLE>
S-2
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1999 (continued):
<TABLE>
<CAPTION>
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio: 1,152,622 $ 19,622,237 $ 21,519,462
Contrafund Portfolio: 8,061,682 178,179,619 234,998,024
Index 500 Portfolio: 1,018,264 137,567,179 170,467,635
Investment Grade Bond Portfolio: 338,820 4,044,947 4,120,050
Janus Aspen Series:
Aggressive Growth Portfolio: 4,601,525 174,527,385 274,665,000
Balanced Portfolio: 6,637,676 145,141,742 185,323,915
Flexible Income Portfolio: 1,714,747 20,581,641 19,582,411
Growth Portfolio: 6,624,687 166,042,220 222,920,706
Worldwide Growth Portfolio: 10,088,356 298,223,051 481,718,979
Lexington Emerging Markets Fund, Inc.: 200,939 1,994,956 2,574,027
Lexington Natural Resources Trust Fund: 253,314 3,663,108 3,168,963
MFS Funds:
Global Government Series: 163,850 1,695,439 1,643,414
Total Return Series: 2,861,377 48,938,636 50,789,444
Mitchell Hutchins Series Trust:
Growth & Income Portfolio: 49,539 735,854 809,956
Small Cap Portfolio: 11,313 163,053 172,522
Tactical Allocation Portfolio: 446,856 7,328,726 7,364,195
Oppenheimer Funds:
Aggressive Growth Fund/VA: 375,791 22,642,573 30,931,348
Global Securities Fund/VA: 284,758 7,200,987 9,513,748
Main Street Growth & Income Fund/VA: 2,288,522 48,877,782 56,366,293
Strategic Bond Fund/VA: 3,983,514 19,810,756 19,798,066
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 2,212,287 118,884,638 183,243,707
PPI MFS Research Growth Portfolio: 6,937,544 76,162,887 102,536,898
PPI MFS Value Equity Portfolio: 1,003,064 37,923,777 54,937,791
PPI Scudder International Growth Portfolio: 1,390,831 31,810,842 35,452,273
PPI T. Rowe Price Growth Equity Portfolio: 1,921,115 85,993,480 126,793,561
-------------- ----------------
NET ASSETS $5,313,588,034 $ 6,173,851,032
============== ================
</TABLE>
S-3
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1999 (continued):
Net assets represented by:
Reserves for annuity contracts in accumulation and payment period:
(Notes 1 and 6)
<TABLE>
<S> <C>
Aetna Ascent VP:
Annuity contracts in accumulation .............................................. $ 19,981,127
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation .............................................. 180,920,898
Annuity contracts in payment period ............................................ 26,077,945
Aetna Bond VP:
Annuity contracts in accumulation .............................................. 93,390,139
Annuity contracts in payment period ............................................ 5,662,703
Aetna Crossroads VP:
Annuity contracts in accumulation .............................................. 23,405,948
Annuity contracts in payment period ............................................ 1,540,450
Aetna Get Fund, Series C:
Annuity contracts in accumulation .............................................. 7,124,468
Aetna Get Fund, Series D:
Annuity contracts in accumulation .............................................. 176,632,929
Aetna Get Fund, Series E:
Annuity contracts in accumulation .............................................. 381,698,376
Aetna Get Fund, Series G:
Annuity contracts in accumulation .............................................. 211,855,059
Aetna Get Fund, Series H:
Annuity contracts in accumulation .............................................. 1,726,955
Aetna Growth and Income VP:
Annuity contracts in accumulation .............................................. 980,638,280
Annuity contracts in payment period ............................................ 192,658,329
Aetna Growth VP:
Annuity contracts in accumulation .............................................. 66,260,594
Annuity contracts in payment period ............................................ 4,742,043
Aetna High Yield VP:
Annuity contracts in accumulation .............................................. 245,682
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation .............................................. 198,210,089
Annuity contracts in payment period ............................................ 40,863,938
Aetna Index Plus Mid Cap VP:
Annuity contracts in accumulation .............................................. 866,762
Aetna Index Plus Small Cap VP:
Annuity contracts in accumulation .............................................. 911,313
Aetna International VP:
Annuity contracts in accumulation .............................................. 4,434,269
Annuity contracts in payment period ............................................ 105,507
Aetna Legacy VP:
Annuity contracts in accumulation .............................................. 26,597,646
Annuity contracts in payment period ............................................ 2,972,058
Aetna Money Market VP:
Annuity contracts in accumulation .............................................. 214,710,443
Annuity contracts in payment period ............................................ 1,062,436
Aetna Real Estate Securities VP:
Annuity contracts in accumulation .............................................. 1,925,817
Annuity contracts in payment period ............................................ 13,903
</TABLE>
S-4
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1999 (continued):
<TABLE>
<S> <C>
Aetna Small Company VP:
Annuity contracts in accumulation ........... $ 25,125,952
Annuity contracts in payment period ......... 463,770
Aetna Value Opportunity VP:
Annuity contracts in accumulation ........... 16,918,826
AIM V.I. Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation ........... 9,923,942
Annuity contracts in payment period ......... 47,197
Growth and Income Fund:
Annuity contracts in accumulation ........... 789,296
Annuity contracts in payment period ......... 22,700,889
Growth Fund:
Annuity contracts in accumulation ........... 18,608,980
Annuity contracts in payment period ......... 322,083
Value Fund:
Annuity contracts in accumulation ........... 40,884,392
Annuity contracts in payment period ......... 942,276
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation ........... 6,213,801
Income & Growth Portfolio:
Annuity contracts in accumulation ........... 19,087,670
Leveraged AllCap Portfolio:
Annuity contracts in accumulation ........... 25,112,341
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation ........... 3,452,367
International Fund:
Annuity contracts in accumulation ........... 7,499,031
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation ........... 2,589,130
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation ........... 61,038
Annuity contracts in payment period ......... 125,105,874
Equity Income Fund II:
Annuity contracts in accumulation ........... 30,384,515
Annuity contracts in payment period ......... 8,185
Growth Strategies Fund II:
Annuity contracts in accumulation ........... 46,677,628
High Income Bond Fund II:
Annuity contracts in accumulation ........... 41,788,490
Annuity contracts in payment period ......... 17,816
International Equity Fund II:
Annuity contracts in accumulation ........... 28,925,669
Prime Money Fund II:
Annuity contracts in accumulation ........... 8,657,471
U.S. Government Securities Fund II:
Annuity contracts in accumulation ........... 12,814,411
</TABLE>
S-5
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1999 (continued):
<TABLE>
<S> <C>
Utility Fund II:
Annuity contracts in accumulation ........... $ 26,498,835
Annuity contracts in payment period ......... 59,670
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation ........... 191,754,908
Growth Portfolio:
Annuity contracts in accumulation ........... 208,982,521
High Income Portfolio:
Annuity contracts in accumulation ........... 61,938,947
Annuity contracts in payment period ......... 755,677
Overseas Portfolio:
Annuity contracts in accumulation ........... 20,088,940
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation ........... 21,519,462
Contrafund Portfolio:
Annuity contracts in accumulation ........... 234,998,024
Index 500 Portfolio:
Annuity contracts in accumulation ........... 170,467,635
Investment Grade Bond Portfolio:
Annuity contracts in accumulation ........... 4,120,050
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation ........... 274,665,000
Balanced Portfolio:
Annuity contracts in accumulation ........... 185,323,915
Flexible Income Portfolio:
Annuity contracts in accumulation ........... 19,582,411
Growth Portfolio:
Annuity contracts in accumulation ........... 9,348,397
Annuity contracts in payment period ......... 213,572,309
Worldwide Growth Portfolio:
Annuity contracts in accumulation ........... 11,305,698
Annuity contracts in payment period ......... 470,413,281
Lexington Emerging Markets Fund, Inc.:
Annuity contracts in accumulation ........... 2,574,027
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation ........... 3,168,963
MFS Funds:
Global Government Series:
Annuity contracts in accumulation ........... 1,643,414
Total Return Series:
Annuity contracts in accumulation ........... 50,789,444
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Annuity contracts in accumulation ........... 809,956
Small Cap Portfolio:
Annuity contracts in accumulation ........... 172,522
Tactical Allocation Portfolio:
Annuity contracts in accumulation ........... 7,364,195
</TABLE>
S-6
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1999 (continued):
<TABLE>
<S> <C>
Oppenheimer Funds:
Aggressive Growth Fund/VA:
Annuity contracts in accumulation ........... $ 29,291,524
Annuity contracts in payment period ......... 1,639,824
Global Securities Fund/VA:
Annuity contracts in accumulation ........... 9,513,748
Main Street Growth & Income Fund/VA:
Annuity contracts in accumulation ........... 56,214,303
Annuity contracts in payment period ......... 151,990
Strategic Bond Fund/VA:
Annuity contracts in accumulation ........... 19,569,256
Annuity contracts in payment period ......... 228,810
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation ........... 181,712,440
Annuity contracts in payment period ......... 1,531,267
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation ........... 102,536,898
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation ........... 53,173,898
Annuity contracts in payment period ......... 1,763,893
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation ........... 35,328,550
Annuity contracts in payment period ......... 123,723
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation ........... 723,814
Annuity contracts in payment period ......... 126,069,747
--------------
$6,173,851,032
==============
</TABLE>
See Notes to Financial Statements
S-7
<PAGE>
Variable Annuity Account B
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ................................................... $ 372,453,223
Expenses: (Notes 2 and 5)
Valuation period deductions ................................. (59,498,930)
--------------
Net investment income ........................................ $ 312,954,293
--------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ......................................... $1,971,718,606
Cost of investments sold .................................... 1,728,629,845
--------------
Net realized gain on investments ........................... 243,088,761
--------------
Net unrealized gain on investments: (Note 5)
Beginning of year ........................................... 349,806,583
End of year ................................................. 860,262,998
--------------
Net change in unrealized gain on investments ............... 510,456,415
--------------
Net realized and unrealized gain on investments .............. 753,545,176
--------------
Net increase in net assets resulting from operations ......... $1,066,499,469
==============
</TABLE>
See Notes to Financial Statements
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
---- ----
<S> <C> <C>
FROM OPERATIONS:
Net investment income .................................................. $ 312,954,293 $ 283,508,891
Net realized gain on investments ....................................... 243,088,761 143,410,533
Net change in unrealized gain on investments ........................... 510,456,415 94,282,077
-------------- --------------
Net increase in net assets resulting from operations ................... 1,066,499,469 521,201,501
-------------- --------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ............................ 659,312,376 489,286,251
Transfers from the Company for mortality guarantee adjustments ......... 2,250,831 (906,373)
Transfers from the Company's fixed account options ..................... 818,802,585 212,914,994
Transfer to the Company's other variable annuity accounts .............. 644,115 0
Redemptions by contract holders ........................................ (300,870,502) (167,845,102)
Annuity payments ....................................................... (30,374,265) (22,421,712)
Other .................................................................. 1,018,001 1,896,006
-------------- --------------
Net increase in net assets from unit transactions (Note 6) ............ 1,150,783,141 512,924,064
-------------- --------------
Change in net assets ................................................... 2,217,282,610 1,034,125,565
NET ASSETS:
Beginning of year ...................................................... 3,956,568,422 2,922,442,857
-------------- --------------
End of year ............................................................ $6,173,851,032 $3,956,568,422
============== ==============
</TABLE>
See Notes to Financial Statements
S-8
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP:
Non-Qualified V $15.855 $17.905 12.93% 96,550.7 $ 1,728,713
Non-Qualified V (0.75) 16.082 18.253 13.50% 129,604.8 2,365,645
Non-Qualified VII 15.769 17.779 12.75% 742,494.1 13,200,807
Non-Qualified VIII 14.012 15.822 12.92% 143,277.9 2,266,982
Non-Qualified IX 15.786 17.783 12.65% 1,438.0 25,572
Non-Qualified X 15.942 18.066 13.32% 21,775.7 393,408
- --------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Non-Qualified V 21.929 24.603 12.19% 2,278,135.6 56,049,439
Non-Qualified V (0.75) 22.244 25.081 12.75% 1,579,287.7 39,610,851
Non-Qualified VI 18.445 20.706 12.26% 37,676.9 780,148
Non-Qualified VII 21.507 24.091 12.01% 2,243,589.9 54,049,730
Non-Qualified VIII 15.212 17.066 12.19% 456,096.7 7,783,834
Non-Qualified IX 21.834 24.436 11.92% 28,079.2 686,140
Non-Qualified X 22.015 24.762 12.48% 383,141.3 9,487,227
Non-Qualified XI 18.517 20.840 12.55% 5,143.3 107,184
Non-Qualified XII 10.548 11.902 12.84% (2) 7,910.4 94,148
Non-Qualified XIII 10.337 11.632 12.53% 417,961.2 4,861,556
Non-Qualified XIV 10.323 11.581 12.19% 403,186.5 4,669,198
Non-Qualified XV 10.316 11.555 12.01% 237,245.60 2,741,443
Annuity contracts in payment period 26,077,945
- --------------------------------------------------------------------------------------------------------------------
Aetna Bond VP:
Non-Qualified V 14.270 13.988 (1.98%) 887,370.7 12,412,832
Non-Qualified V (0.75) 14.475 14.260 (1.49%) 1,654,932.3 23,599,990
Non-Qualified VI 13.041 12.792 (1.91%) 43,965.0 562,381
Non-Qualified VII 13.998 13.700 (2.13%) 1,967,951.2 26,960,637
Non-Qualified VIII 11.910 11.674 (1.98%) 487,813.6 5,694,656
Non-Qualified IX 14.208 13.893 (2.22%) 22,155.4 307,807
Non-Qualified X 14.304 14.042 (1.83%) 387,135.1 5,436,287
Non-Qualified XI 13.072 12.841 (1.77%) 4,285.2 55,026
Non-Qualified XIII 10.319 10.145 (1.69%) 708,744.3 7,190,136
Non-Qualified XIV 10.305 10.101 (1.98%) 806,342.7 8,144,472
Non-Qualified XV 10.298 10.078 (2.14%) 300,240.3 3,025,915
Annuity contracts in payment period 5,662,703
- --------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Non-Qualified V 15.095 16.431 8.85% 115,323.8 1,894,869
Non-Qualified V (0.75) 15.312 16.750 9.39% 124,068.8 2,078,187
Non-Qualified VII 15.013 16.316 8.68% 947,775.8 15,463,446
Non-Qualified VIII 13.588 14.789 8.84% 254,767.3 3,767,710
Non-Qualified IX 15.030 16.319 8.58% 469.8 7,667
Non-Qualified X 15.179 16.579 9.22% 9,938.7 164,777
Non-Qualified XVII 15.521 16.474 6.14% (8) 1,778.00 29,292
Annuity contracts in payment period 1,540,450
- --------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Non-Qualified V 15.904 19.358 21.72% 51,240.5 991,932
Non-Qualified V (0.75) 16.087 19.679 22.33% 302,695.5 5,956,780
Non-Qualified IX 15.835 19.227 21.42% 9,141.2 175,756
- --------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Non-Qualified V 10.062 10.726 6.60% 2,241,700.8 24,043,761
Non-Qualified V (0.75) 10.073 10.792 7.14% 1,808,945.0 19,521,878
Non-Qualified VII 10.058 10.704 6.42% 5,471,517.0 58,567,813
Non-Qualified VIII 10.136 10.739 5.95% (3) 2,431,960.4 26,117,416
Non-Qualified IX 10.063 10.693 6.26% (1) 309.5 3,309
Non-Qualified X 10.062 10.726 6.60% 183,152.7 1,964,436
Non-Qualified XII 9.997 10.785 7.88% (2) 3,713.7 40,053
Non-Qualified XIII 10.072 10.769 6.92% 1,700,909.8 18,316,499
</TABLE>
S-9
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Get Fund, Series D (continued):
Non-Qualified XIV $ 10.066 $ 10.730 6.60% 1,875,931.5 $ 20,127,863
Non-Qualified XV 10.063 10.710 6.43% 740,420.7 7,929,901
- -----------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series E:
Non-Qualified V 10.001 10.760 7.59% (5) 1,905,050.2 20,498,554
Non-Qualified V (0.75) 10.015 10.789 7.73% (5) 220,007.1 2,373,760
Non-Qualified VII 10.012 10.743 7.30% (5) 4,068,992.1 43,712,319
Non-Qualified VIII 10.012 10.752 7.39% (5) 534,700.9 5,748,947
Non-Qualified X 10.013 10.766 7.52% (5) 146,177.0 1,573,775
Non-Qualified XIII 10.012 10.770 7.57% (5) 10,224,328.7 110,111,245
Non-Qualified XIV 10.012 10.752 7.39% (5) 9,636,860.3 103,612,689
Non-Qualified XV 10.012 10.743 7.30% (5) 8,756,301.1 94,067,087
- -----------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series G:
Non-Qualified V 9.999 10.370 3.71% (8) 278,908.9 2,892,221
Non-Qualified V (0.75) 10.006 10.386 3.80% (8) 176,701.3 1,835,189
Non-Qualified VII 9.998 10.363 3.65% (8) 2,759,663.2 28,599,474
Non-Qualified VIII 10.003 10.368 3.65% (8) 456,778.0 4,735,998
Non-Qualified X 10.071 10.377 3.04% 10) 12,410.4 128,778
Non-Qualified XIII 9.998 10.378 3.80% (8) 5,406,495.6 56,108,725
Non-Qualified XIV 9.998 10.368 3.70% (8) 7,314,314.2 75,836,777
Non-Qualified XV 9.998 10.363 3.65% (8) 4,025,505.7 41,717,897
- -----------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series H:
Non-Qualified V 10.005 10.020 0.15% (11) 2,530.3 25,352
Non-Qualified VII 10.001 10.019 0.18% (11) 25,606.9 256,555
Non-Qualified VIII 10.005 10.020 0.15% (11) 15,022.0 150,515
Non-Qualified XIII 10.001 10.021 0.20% (11) 30,915.2 309,801
Non-Qualified XIV 10.000 10.020 0.20% (11) 60,328.2 604,471
Non-Qualified XV 10.001 10.019 0.18% (11) 37,954.0 380,261
- -----------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Non-Qualified 1964 267.347 310.020 15.96% 958.7 297,208
Non-Qualified V 24.907 28.883 15.96% 7,212,849.3 208,327,406
Non-Qualified V (0.75) 25.265 29.444 16.54% 11,813,415.6 347,835,862
Non-Qualified VI 23.322 27.061 16.03% 1,662,948.1 45,001,830
Non-Qualified VII 24.839 28.758 15.78% 7,621,660.3 219,185,741
Non-Qualified VIII 16.604 19.253 15.95% 1,372,571.6 26,426,472
Non-Qualified IX 24.800 28.686 15.67% 134,360.2 3,854,314
Non-Qualified X 25.005 29.069 16.25% 3,297,663.1 95,859,271
Non-Qualified XI 23.414 27.236 16.32% 41,567.6 1,132,126
Non-Qualified XII 10.246 11.882 15.97% (2) 25,734.1 305,763
Non-Qualified XIII 9.886 11.498 16.31% 1,093,629.5 12,574,135
Non-Qualified XIV 9.872 11.447 15.95% 1,317,641.6 15,083,505
Non-Qualified XV 9.866 11.422 15.77% 407,605.2 4,655,755
Non-Qualified XVII 263.583 285.280 8.23% (8) 346.6 98,892
Annuity contracts in payment period 192,658,329
- -----------------------------------------------------------------------------------------------------------------------
Aetna Growth VP:
Non-Qualified V 17.912 23.875 33.29% 172,425.2 4,116,687
Non-Qualified V (0.75) 18.067 24.203 33.96% 626,397.2 15,160,779
Non-Qualified VII 17.862 23.771 33.08% 947,365.7 22,520,149
Non-Qualified VIII 17.909 23.870 33.28% 367,226.0 8,765,776
Non-Qualified IX 17.834 23.713 32.97% 5,532.0 131,179
Non-Qualified XII 11.536 15.094 30.84% (2) 4,940.4 74,572
Non-Qualified XIII 10.489 14.022 33.68% 453,569.6 6,360,064
Non-Qualified XIV 10.475 13.961 33.28% 536,726.5 7,493,206
Non-Qualified XV 10.468 13.930 33.07% 114,035.50 1,588,550
Non-Qualified XVII 15.198 18.142 19.37% (8) 2,735.70 49,632
Annuity contracts in payment period 4,742,043
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
S-10
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna High Yield VP:
Non-Qualified V $ 9.212 $ 9.739 5.72% 2,827.4 $ 27,537
Non-Qualified V (0.75) 9.244 9.822 6.25% 21,597.9 212,138
Non-Qualified IX 9.677 9.698 0.22% (3) 619.4 6,007
- -----------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Non-Qualified V 18.772 23.044 22.76% 347,853.6 8,015,945
Non-Qualified V (0.75) 18.989 23.427 23.37% 1,552,901.9 36,379,360
Non-Qualified VII 18.704 22.923 22.56% 2,708,364.6 62,083,723
Non-Qualified VIII 18.449 22.646 22.75% 838,357.2 18,985,392
Non-Qualified IX 18.691 22.887 22.45% 31,248.1 715,186
Non-Qualified XII 11.411 13.677 19.86% (2) 18,623.1 254,700
Non-Qualified XIII 10.716 13.193 23.11% 2,135,758.9 28,177,968
Non-Qualified XIV 10.702 13.136 22.74% 2,394,660.9 31,455,670
Non-Qualified XV 10.694 13.107 22.56% 926,392.60 12,142,145
Annuity contracts in payment period 40,863,938
- -----------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Non-Qualified V 10.891 12.455 14.36% 6,906.5 86,024
Non-Qualified V (0.75) 10.928 12.561 14.94% 60,811.0 763,858
Non-Qualified IX 10.872 12.403 14.08% 1,361.0 16,880
- -----------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Non-Qualified V 8.815 9.645 9.42% 15,815.5 152,537
Non-Qualified V (0.75) 8.846 9.727 9.96% 76,971.1 748,670
Non-Qualified IX 8.800 9.604 9.14% 1,041.3 10,001
Non-Qualified XII 8.325 10.485 25.95% (2) 10.0 105
- -----------------------------------------------------------------------------------------------------------------------
Aetna International VP:
Non-Qualified V 9.765 14.594 49.45% 10,655.3 155,502
Non-Qualified V (0.75) 9.798 14.718 50.21% 44,537.5 655,483
Non-Qualified VII 9.754 14.554 49.21% 44,241.2 643,908
Non-Qualified VIII 9.764 14.592 49.45% 33,244.7 485,106
Non-Qualified XIII 9.149 13.715 49.91% 75,017.3 1,028,838
Non-Qualified XIV 9.137 13.655 49.45% 79,291.0 1,082,697
Non-Qualified XV 9.131 13.625 49.22% 28,091.1 382,735
Annuity contracts in payment period 105,507
- -----------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP:
Non-Qualified V 14.064 14.875 5.77% 111,343.3 1,656,206
Non-Qualified V (0.75) 14.266 15.164 6.29% 77,496.0 1,175,149
Non-Qualified VII 13.989 14.772 5.60% 1,203,703.1 17,781,290
Non-Qualified VIII 13.037 13.787 5.75% 430,581.6 5,936,585
Non-Qualified IX 14.003 14.774 5.51% 502.1 7,418
Non-Qualified XII 9.846 10.713 8.81% (2) 3,826.9 40,998
Annuity contracts in payment period 2,972,058
- -----------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP:
Non-Qualified V 12.425 12.894 3.77% 1,034,153.6 13,334,505
Non-Qualified V (0.75) 12.604 13.145 4.29% 2,521,960.2 33,150,869
Non-Qualified VI 12.132 12.597 3.83% 57,059.8 718,807
Non-Qualified VII 12.322 12.766 3.60% 7,902,383.9 100,885,317
Non-Qualified VIII 11.141 11.561 3.77% 1,373,014.2 15,872,994
Non-Qualified IX 12.372 12.806 3.51% 28,273.9 362,086
Non-Qualified X 12.425 12.894 3.77% 457,618.5 5,900,590
Non-Qualified XI 12.132 12.597 3.83% 4,835.1 60,910
Non-Qualified XIII 10.199 10.615 4.08% 2,174,382.7 23,082,032
Non-Qualified XIV 10.186 10.569 3.76% 1,313,322.2 13,880,480
Non-Qualified XV 10.179 10.546 3.61% 707,569.2 7,461,853
Annuity contracts in payment period 1,062,436
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
S-11
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Real Estate Securities VP:
Non-Qualified V $ 8.873 $ 8.393 (5.41%) 6,001.7 $ 50,372
Non-Qualified V (0.75) 8.903 8.464 (4.93%) 60,992.9 516,260
Non-Qualified VII 8.863 8.370 (5.56%) 59,453.8 497,647
Non-Qualified VIII 8.872 8.392 (5.41%) 25,152 211,073
Non-Qualified XIII 8.903 8.446 (5.13%) 36,876 311,466
Non-Qualified XIV 8.891 8.409 (5.42%) 34,137 287,073
Non-Qualified XV 8.885 8.391 (5.56%) 6,188 51,926
Annuity contracts in payment period 13,903
- ------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Non-Qualified V 13.633 17.617 29.22% 19,165.4 337,633
Non-Qualified V (0.75) 13.751 17.859 29.87% 177,816.5 3,175,601
Non-Qualified VII 13.595 17.540 29.02% 715,581.7 12,551,330
Non-Qualified VIII 13.631 17.613 29.21% 276,385.7 4,868,001
Non-Qualified IX 13.574 17.497 28.90% 1,732.5 30,314
Non-Qualified XII 8.741 12.352 41.31% (2) 25,983.5 320,941
Non-Qualified XIII 9.357 12.128 29.61% 163,679.4 1,985,026
Non-Qualified XIV 9.345 12.074 29.20% 114,137.8 1,378,154
Non-Qualified XV 9.338 12.048 29.02% 39,753.80 478,952
Annuity contracts in payment period 463,770
- ------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Non-Qualified V 16.030 18.930 18.09% 23,354.3 442,092
Non-Qualified V (0.75) 16.169 19.190 18.68% 93,802.4 1,800,053
Non-Qualified VII 15.985 18.847 17.90% 609,861.9 11,494,317
Non-Qualified VIII 16.028 18.926 18.08% 160,009.9 3,028,321
Non-Qualified IX 15.960 18.801 17.80% 298.5 5,613
Non-Qualified XII 10.626 13.007 22.41% (2) 11,411.6 148,430
- ------------------------------------------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Non-Qualified V 10.008 13.753 37.42% (5) 2,630.0 36,171
Non-Qualified V (0.75) 9.979 13.801 38.30% (7) 11,914.5 164,426
Non-Qualified XIII 10.245 14.675 43.24% 190,830.9 2,800,502
Non-Qualified XIV 10.231 14.611 42.81% 317,266.2 4,635,623
Non-Qualified XV 10.224 14.579 42.60% 156,883.8 2,287,220
Annuity contracts in payment period 47,197
- ------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund:
Non-Qualified V 9.568 11.716 22.45% (5) 10,586.7 124,029
Non-Qualified V (0.75) 10.215 11.756 15.09% (6) 36,163.4 425,147
Non-Qualified XIII 10.663 14.179 32.97% 370,289.3 5,250,354
Non-Qualified XIV 10.649 14.117 32.57% 938,411.4 13,247,617
Non-Qualified XV 10.641 14.086 32.37% 259,386.9 3,653,742
Annuity contracts in payment period 789,296
- ------------------------------------------------------------------------------------------------------------------------
Growth Fund:
Non-Qualified V 9.663 12.069 24.90% (5) 1,842.7 22,238
Non-Qualified V (0.75) 9.722 12.111 24.57% (7) 47,998.6 581,287
Non-Qualified XIII 10.779 14.438 33.95% 300,326.8 4,336,151
Non-Qualified XIV 10.764 14.375 33.55% 722,832.0 10,390,712
Non-Qualified XV 10.757 14.343 33.34% 228,577.5 3,278,592
Annuity contracts in payment period 322,083
- ------------------------------------------------------------------------------------------------------------------------
Value Fund:
Non-Qualified V 9.891 11.506 16.33% (4) 6,923.5 79,660
Non-Qualified V (0.75) 9.764 11.546 18.25% (4) 83,636.8 965,645
Non-Qualified XIII 10.616 13.659 28.66% 895,401.3 12,230,007
Non-Qualified XIV 10.601 13.599 28.28% 1,538,846.0 20,926,738
Non-Qualified XV 10.594 13.569 28.08% 492,467.0 6,682,342
Annuity contracts in payment period 942,276
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-12
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit
--------
Beginning End of
of Year Year
- --------------------------------------------------------------
<S> <C> <C>
Alger American Funds:
Balanced Portfolio:
Non-Qualified VII $20.946 $26.687
- --------------------------------------------------------------
Income & Growth Portfolio:
Non-Qualified VII 22.064 30.991
- --------------------------------------------------------------
Leveraged AllCap Portfolio:
Non-Qualified VII 24.881 43.684
Non-Qualified VIII 18.206 32.013
- --------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Non-Qualified VII 17.479 18.968
- --------------------------------------------------------------
International Fund:
Non-Qualified VII 16.139 26.105
Non-Qualified VIII 14.599 23.649
- --------------------------------------------------------------
Calvert Social Balanced Portfolio:
Non-Qualified V 20.415 22.626
Non-Qualified V (0.75) 20.708 23.066
Non-Qualified VII 11.437 12.656
Non-Qualified VIII 11.456 12.696
- --------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
Non-Qualified VII 23.528 24.746
Non-Qualified VIII 16.869 17.769
Annuity contracts in payment period
- --------------------------------------------------------------
Equity Income Fund II:
Non-Qualified VII 14.022 16.369
Annuity contracts in payment period
- --------------------------------------------------------------
Growth Strategies Fund II:
Non-Qualified VII 18.269 31.060
- --------------------------------------------------------------
High Income Bond Fund II:
Non-Qualified VII 14.910 15.040
Non-Qualified VIII 12.629 12.759
Annuity contracts in payment period
- --------------------------------------------------------------
International Equity Fund II:
Non-Qualified VII 14.719 26.832
Non-Qualified VIII 13.523 24.690
- --------------------------------------------------------------
Prime Money Fund II:
Non-Qualified VII 11.503 11.868
- ------------------------------------------- ------- -------
U.S. Government Securities Fund II:
Non-Qualified VII 12.614 12.363
- --------------------------------------------------------------
Utility Fund II:
Non-Qualified VII 18.663 18.714
Non-Qualified VIII 15.472 15.537
Annuity contracts in payment period
- --------------------------------------------------------------
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Non-Qualified V 17.400 18.272
Non-Qualified V (0.75) 17.650 18.627
Non-Qualified VII 20.872 21.883
Non-Qualified VIII 14.942 15.689
Non-Qualified IX 17.325 18.147
Non-Qualified X 17.400 18.272
Non-Qualified XII 10.184 10.651
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Year of Year
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alger American Funds:
Balanced Portfolio:
Non-Qualified VII 27.41% 232,842.7 $ 6,213,801
- ---------------------------------------------------------------------------------------------------------
Income & Growth Portfolio:
Non-Qualified VII 40.46% 615,919.4 19,087,670
- ---------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Non-Qualified VII 75.57% 574,744.6 25,106,952
Non-Qualified VIII 75.84% 168.3 5,389
- ---------------------------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Non-Qualified VII 8.52% 182,012.0 3,452,367
- ---------------------------------------------------------------------------------------------------------
International Fund:
Non-Qualified VII 61.75% 287,102.7 7,494,706
Non-Qualified VIII 61.99% 182.9 4,325
- ---------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Non-Qualified V 10.83% 8,235.7 186,344
Non-Qualified V (0.75) 11.39% 37,045.8 854,507
Non-Qualified VII 10.66% 63,517.0 803,879
Non-Qualified VIII 10.82% 58,632.1 744,400
- ---------------------------------------------------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
Non-Qualified VII 5.18% 5,048,733.2 124,936,306
Non-Qualified VIII 5.34% 9,542.9 169,568
Annuity contracts in payment period 61,038
- ---------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Non-Qualified VII 16.74% 1,856,257.2 30,384,515
Annuity contracts in payment period 8,185
- ---------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Non-Qualified VII 70.01% 1,502,834.6 46,677,628
- ---------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Non-Qualified VII 0.87% 2,778,202.2 41,784,652
Non-Qualified VIII 1.03% 300.8 3,838
Annuity contracts in payment period 17,816
- ---------------------------------------------------------------------------------------------------------
International Equity Fund II:
Non-Qualified VII 82.29% 1,077,889.2 28,922,440
Non-Qualified VIII 82.58% 130.8 3,229
- ---------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Non-Qualified VII 3.17% 729,506.2 8,657,471
- ---------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Non-Qualified VII (1.99%) 1,036,547.5 12,814,411
- ---------------------------------------------------------------------------------------------------------
Utility Fund II:
Non-Qualified VII 0.27% 1,415,963.0 26,497,792
Non-Qualified VIII 0.42% 67.1 1,043
Annuity contracts in payment period 59,670
- ---------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Non-Qualified V 5.01% 236,374.1 4,318,918
Non-Qualified V (0.75) 5.54% 519,884.7 9,683,767
Non-Qualified VII 4.84% 6,104,314.1 133,577,684
Non-Qualified VIII 5.00% 992,829.0 15,576,658
Non-Qualified IX 4.74% 8,863.0 160,839
Non-Qualified X 5.01% 11,369.5 207,738
Non-Qualified XII 4.59% (2) 653.9 6,965
</TABLE>
S-13
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit
--------
Beginning End of
of Year Year
- ------------------------------------------------------------------
<S> <C> <C>
Equity-Income Portfolio (continued):
Non-Qualified XIII $ 9.911 $10.438
Non-Qualified XIV 9.897 10.392
Non-Qualified XV 9.891 10.369
- ------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V 19.155 25.999
Non-Qualified V (0.75) 19.430 26.504
Non-Qualified VII 26.348 35.706
Non-Qualified VIII 17.420 23.643
Non-Qualified IX 19.072 25.822
Non-Qualified X 19.155 25.999
Non-Qualified XII 12.390 16.024
Non-Qualified XIII 10.265 12.649
Non-Qualified XIV 10.231 12.628
Non-Qualified XV 10.793 12.618
Non-Qualified XVII 22.058 26.366
- ------------------------------------------------------------------
High Income Portfolio:
Non-Qualified VII 13.168 14.042
Non-Qualified VIII 11.798 12.601
Non-Qualified XIII 8.949 9.586
Non-Qualified XIV 8.936 9.544
Non-Qualified XV 8.930 9.523
Annuity contracts in payment period
- ------------------------------------------------------------------
Overseas Portfolio:
Non-Qualified V 13.786 19.419
Non-Qualified V (0.75) 13.984 19.796
Non-Qualified VII 15.210 21.391
Non-Qualified VIII 12.879 18.139
Non-Qualified IX 13.727 19.287
- ------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Non-Qualified VII 17.786 19.482
Non-Qualified VIII 14.783 16.218
- ------------------------------------------------------------------
Contrafund Portfolio:
Non-Qualified V 19.735 24.217
Non-Qualified V (0.75) 20.018 24.687
Non-Qualified VII 21.872 26.797
Non-Qualified VIII 17.492 21.463
Non-Qualified IX 19.649 24.052
Non-Qualified X 19.735 24.217
Non-Qualified XII 11.460 13.787
Non-Qualified XIII 10.535 12.966
Non-Qualified XIV 10.521 12.909
Non-Qualified XV 10.514 12.881
Non-Qualified XVII 23.549 27.241
- ------------------------------------------------------------------
Index 500 Portfolio:
Non-Qualified VII 22.727 27.005
Non-Qualified VIII 18.925 22.522
- ------------------------------------------------------------------
Investment Grade Bond Portfolio:
Non-Qualified VII 12.446 12.143
Non-Qualified VIII 11.918 11.834
- ------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Non-Qualified V 20.433 45.486
Non-Qualified V (0.75) 20.726 46.370
Non-Qualified VII 20.410 45.363
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Year of Year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity-Income Portfolio (continued):
Non-Qualified XIII 5.32% 735,175.3 $ 7,673,717
Non-Qualified XIV 5.00% 1,507,319.6 15,664,494
Non-Qualified XV 4.83% 471,011.6 4,884,128
- -----------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V 35.73% 474,648.7 12,340,278
Non-Qualified V (0.75) 36.41% 874,557.2 23,179,283
Non-Qualified VII 35.52% 4,177,865.8 149,173,411
Non-Qualified VIII 35.72% 831,556.3 19,660,094
Non-Qualified IX 35.39% 23,653 610,766
Non-Qualified X 35.73% 32,858 854,269
Non-Qualified XII 29.33% (2) 4,299 68,894
Non-Qualified XIII 23.22% (8) 84,394.1 1,067,531
Non-Qualified XIV 23.43% (8) 124,948 1,577,908
Non-Qualified XV 16.91% (9) 35,352 446,070
Non-Qualified XVII 19.53% (8) 152 4,017
- -----------------------------------------------------------------------------------------------------------
High Income Portfolio:
Non-Qualified VII 6.64% 2,739,738.4 38,471,925
Non-Qualified VIII 6.81% 688,515.9 8,675,998
Non-Qualified XIII 7.12% 590,620.8 5,661,907
Non-Qualified XIV 6.80% 712,099.4 6,796,569
Non-Qualified XV 6.64% 244,926.9 2,332,548
Annuity contracts in payment period 755,677
- -----------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Non-Qualified V 40.86% 37,274.5 723,834
Non-Qualified V (0.75) 41.56% 182,516.9 3,613,179
Non-Qualified VII 40.64% 685,323.4 14,659,617
Non-Qualified VIII 40.84% 58,815.1 1,066,865
Non-Qualified IX 40.50% 1,319.3 25,445
- -----------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Non-Qualified VII 9.54% 951,972.5 18,546,594
Non-Qualified VIII 9.71% 183,310.4 2,972,868
- -----------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Non-Qualified V 22.71% 449,134.2 10,876,529
Non-Qualified V (0.75) 23.32% 732,242.8 18,077,121
Non-Qualified VII 22.52% 5,373,380.6 143,990,372
Non-Qualified VIII 22.70% 787,797.1 16,908,448
Non-Qualified IX 22.41% 20,988.0 504,802
Non-Qualified X 22.71% 13,750.2 332,984
Non-Qualified XII 20.31% (2) 5,460.5 75,287
Non-Qualified XIII 23.08% 1,126,346.9 14,604,330
Non-Qualified XIV 22.70% 1,682,679.9 21,722,393
Non-Qualified XV 22.51% 604,941.5 7,792,281
Non-Qualified XVII 15.68% (8) 4,165.7 113,477
- -----------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Non-Qualified VII 18.82% 5,394,050.7 145,664,290
Non-Qualified VIII 19.01% 1,101,288.9 24,803,345
- -----------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Non-Qualified VII (2.43%) 339,030.3 4,116,714
Non-Qualified VIII (0.70%) (2) 282 3,336
- -----------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Non-Qualified V 122.61% 828,592.3 37,689,170
Non-Qualified V (0.75) 123.73% 1,056,343.2 48,982,313
Non-Qualified VII 122.26% 2,409,624.0 109,306,960
</TABLE>
S-14
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Portfolio (continued):
Non-Qualified VIII $14.162 $31.525 122.60% 532,220.6 $ 16,778,169
Non-Qualified IX 20.345 45.177 122.05% 29,489.6 1,332,245
Non-Qualified X 20.433 45.486 122.61% 34,550.4 1,571,554
Non-Qualified XII 12.588 26.089 107.25% (2) 11,071.3 288,842
Non-Qualified XIII 11.042 24.654 123.27% 1,018,786.6 25,116,929
Non-Qualified XIV 11.027 24.546 122.60% 994,779.9 24,418,006
Non-Qualified XV 11.020 24.492 122.25% 368,329.7 9,021,250
Non-Qualified XVII 32.641 53.698 64.51% (8) 2,971.5 159,562
- ----------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Non-Qualified V 19.880 24.886 25.18% 527,201.1 13,120,149
Non-Qualified V (0.75) 20.165 25.370 25.81% 545,606.2 13,842,073
Non-Qualified VII 22.101 27.623 24.99% 2,773,991.6 76,624,788
Non-Qualified VIII 17.569 21.992 25.18% 807,835.2 17,766,013
Non-Qualified IX 19.794 24.717 24.87% 6,162.6 152,321
Non-Qualified X 19.880 24.886 25.18% 12,100.9 301,148
Non-Qualified XII 12.137 14.479 19.30% (2) 435.6 6,307
Non-Qualified XIII 10.945 13.742 25.56% 1,721,021.8 23,649,433
Non-Qualified XIV 10.930 13.681 25.17% 2,130,089.6 29,142,690
Non-Qualified XV 10.923 13.651 24.97% 778,170.3 10,623,120
Non-Qualified XVII 21.430 24.954 16.44% (8) 3,842.0 95,873
- ----------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Non-Qualified V 15.509 15.562 0.34% 73,596.4 1,145,287
Non-Qualified V (0.75) 15.731 15.864 0.85% 190,660.1 3,024,702
Non-Qualified VII 15.405 15.433 0.18% 783,971.0 12,099,259
Non-Qualified VIII 12.873 12.916 0.33% 249,484.1 3,222,452
Non-Qualified IX 15.442 15.456 0.09% 2,079.7 32,143
Non-Qualified X 15.509 15.562 0.34% 3,109.8 48,393
Non-Qualified XII 10.355 10.404 0.47% (2) 977.9 10,175
- ----------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V 20.651 29.366 42.20% 432,037.4 12,687,006
Non-Qualified V (0.75) 20.948 29.936 42.91% 668,408.8 20,009,591
Non-Qualified VII 24.532 34.828 41.97% 2,701,099.3 94,073,291
Non-Qualified VIII 17.461 24.827 42.19% 521,852.0 12,956,249
Non-Qualified IX 20.562 29.166 41.84% 11,840.3 345,332
Non-Qualified X 20.651 29.366 42.20% 29,283.9 859,939
Non-Qualified XII 12.040 16.313 35.49% (2) 4,195.4 68,441
Non-Qualified XIII 10.938 15.599 42.61% 1,611,326.8 25,135,000
Non-Qualified XIV 10.923 15.531 42.19% 2,407,009.9 37,382,714
Non-Qualified XV 10.915 15.497 41.98% 647,595.6 10,035,592
Non-Qualified XVII 25.578 32.068 25.37% (8) 597.3 19,154
Annuity contracts in payment period 9,348,397
- ----------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Non-Qualified V 21.320 34.626 62.41% 902,510.1 31,250,007
Non-Qualified V (0.75) 21.626 35.298 63.22% 1,601,735.3 56,538,428
Non-Qualified VII 24.039 38.979 62.15% 7,044,821.4 274,600,411
Non-Qualified VIII 17.358 28.189 62.40% 1,226,255.8 34,566,580
Non-Qualified IX 21.228 34.390 62.00% 31,114.7 1,070,046
Non-Qualified X 21.320 34.626 62.41% 44,861.0 1,553,341
Non-Qualified XII 10.532 16.613 57.74% (2) 17,701.2 294,069
Non-Qualified XIII 9.576 15.599 62.90% 1,828,182.5 28,517,271
Non-Qualified XIV 9.563 15.531 62.41% 2,118,679.7 32,904,339
Non-Qualified XV 9.557 15.497 62.15% 583,969.4 9,049,494
Non-Qualified XVII 26.861 38.687 44.03% (8) 1,791 69,295
Annuity contracts in payment period 11,305,698
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-15
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lexington Emerging Markets Fund, Inc.:
Non-Qualified VII $ 6.090 $13.640 123.97% 188,713.2 $ 2,574,027
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Non-Qualified V 11.030 12.428 12.67% 57,915.6 719,794
Non-Qualified V (0.75) 11.189 12.670 13.24% 65,369.7 828,244
Non-Qualified VII 10.932 12.298 12.50% 129,841.3 1,596,776
Non-Qualified IX 10.982 12.344 12.40% 191.3 2,361
Non-Qualified X 11.030 12.428 12.67% 1,753.1 21,788
- ---------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series:
Non-Qualified VII 10.860 10.440 (3.87%) 138,331.0 1,444,158
Non-Qualified VIII 10.904 10.498 (3.72%) 18,979.9 199,256
- ---------------------------------------------------------------------------------------------------------------------------
Total Return Series:
Non-Qualified VII 14.432 14.669 1.64% 2,056,862.5 30,172,256
Non-Qualified VIII 14.491 14.751 1.79% 483,032.7 7,125,264
Non-Qualified XIII 10.171 10.385 2.10% 321,447.1 3,338,204
Non-Qualified XIV 10.157 10.339 1.79% 675,245.9 6,981,698
Non-Qualified XV 10.150 10.317 1.65% 307,462.6 3,172,022
- ---------------------------------------------------------------------------------------------------------------------------
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Non-Qualified XIII 9.816 10.960 11.65% (4) 10,140.8 111,141
Non-Qualified XIV 10.189 10.937 7.34% (4) 60,270.6 659,166
Non-Qualified XV 10.056 10.925 8.64% (4) 3,629.1 39,649
- ---------------------------------------------------------------------------------------------------------------------------
Small Cap Portfolio:
Non-Qualified XIV 11.067 11.828 6.88% (6) 14,182.0 167,748
Non-Qualified XV 9.764 11.816 21.02% (9) 404.1 4,774
- ---------------------------------------------------------------------------------------------------------------------------
Tactical Allocation Portfolio:
Non-Qualified XIII 9.451 10.651 12.70% (4) 101,507.5 1,081,178
Non-Qualified XIV 9.852 10.629 7.89% (4) 541,486.6 5,755,371
Non-Qualified XV 9.567 10.618 10.99% (5) 49,695.2 527,646
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA:
Non-Qualified VII 13.520 24.477 81.04% 734,833.6 17,986,178
Non-Qualified VIII 13.556 24.578 81.31% 251,982.6 6,193,324
Non-Qualified XIII 9.362 17.027 81.87% 102,851.7 1,751,223
Non-Qualified XIV 9.350 16.952 81.30% 139,614.8 2,366,791
Non-Qualified XV 9.343 16.915 81.04% 58,764.5 994,008
Annuity contracts in payment period 1,639,824
- ---------------------------------------------------------------------------------------------------------------------------
Global Securities Fund/VA:
Non-Qualified V 10.018 15.681 56.53% 12,402.0 194,472
Non-Qualified V (0.75) 10.053 15.814 57.31% 38,363.3 606,665
Non-Qualified VII 12.982 20.287 56.27% 346,236.2 7,024,157
Non-Qualified VIII 13.016 20.372 56.52% 82,152.5 1,673,576
Non-Qualified IX 10.001 15.615 56.13% 952.8 14,878
- ---------------------------------------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA:
Non-Qualified VII 13.199 15.839 20.00% 1,942,405.4 30,766,659
Non-Qualified VIII 13.234 15.905 20.18% 685,331.0 10,900,475
Non-Qualified XIII 9.080 10.946 20.55% 341,457.9 3,737,521
Non-Qualified XIV 9.067 10.898 20.19% 737,210.2 8,034,042
Non-Qualified XV 9.061 10.874 20.01% 255,252.7 2,775,606
Annuity contracts in payment period 151,990
- ---------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund/VA:
Non-Qualified V 9.895 10.048 1.55% 5,339.8 53,654
Non-Qualified V (0.75) 9.929 10.133 2.05% 3,553.3 36,007
</TABLE>
S-16
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit
--------
Beginning End of
of Year Year
- ----------------------------------------------------------------
<S> <C> <C>
Strategic Bond Fund/VA (continued):
Non-Qualified VII $ 10.921 $11.072
Non-Qualified VIII 10.950 11.118
Non-Qualified IX 9.878 10.006
Non-Qualified XIII 9.823 10.005
Non-Qualified XIV 9.810 9.961
Non-Qualified XV 9.803 9.939
Annuity contracts in payment period
- ----------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Non-Qualified V 19.489 29.040
Non-Qualified V (0.75) 19.769 29.605
Non-Qualified VII 18.803 27.973
Non-Qualified VIII 12.761 19.012
Non-Qualified IX 19.405 28.843
Non-Qualified X 19.489 29.040
Non-Qualified XII 10.087 16.210
Non-Qualified XIII 10.371 15.499
Non-Qualified XIV 10.357 15.431
Non-Qualified XV 10.350 15.397
Non-Qualified XVII 21.207 28.739
Annuity contracts in payment period
- ----------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Non-Qualified V 15.481 18.963
Non-Qualified V (0.75) 15.703 19.332
Non-Qualified VI 13.080 16.032
Non-Qualified VII 15.331 18.750
Non-Qualified VIII 10.532 12.901
Non-Qualified IX 15.414 18.834
Non-Qualified X 15.481 18.963
Non-Qualified XIII 10.113 12.424
Non-Qualified XIV 10.099 12.370
Non-Qualified XV 10.092 12.343
- ----------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Non-Qualified V 26.713 39.254
Non-Qualified V (0.75) 27.097 40.017
Non-Qualified VII 12.686 18.612
Non-Qualified VIII 12.708 18.672
Non-Qualified IX 26.598 38.987
Non-Qualified X 26.713 39.254
Non-Qualified XII 10.883 15.732
Non-Qualified XIII 10.193 15.023
Non-Qualified XIV 10.180 14.957
Non-Qualified XV 10.173 14.924
Non-Qualified XVII 33.592 43.155
Annuity contracts in payment period
- ----------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Non-Qualified V 21.057 32.942
Non-Qualified V (0.75) 21.359 33.582
Non-Qualified VII 11.640 18.181
Non-Qualified VIII 11.659 18.238
Non-Qualified IX 20.966 32.718
Non-Qualified X 21.057 32.942
Non-Qualified XII 10.107 15.541
Non-Qualified XIII 9.248 14.511
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Year of Year
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Strategic Bond Fund/VA (continued):
Non-Qualified VII 1.38% 831,202.9 $ 9,203,371
Non-Qualified VIII 1.53% 307,277.8 3,416,465
Non-Qualified IX 1.30% 114.2 1,143
Non-Qualified XIII 1.85% 247,094.9 2,472,154
Non-Qualified XIV 1.54% 321,796.7 3,205,447
Non-Qualified XV 1.39% 118,823.90 1,181,015
Annuity contracts in payment period 228,810
- ---------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Non-Qualified V 49.01% 485,026.4 14,085,159
Non-Qualified V (0.75) 49.75% 457,664.5 13,548,971
Non-Qualified VII 48.77% 4,571,239.7 127,872,111
Non-Qualified VIII 48.99% 554,655.3 10,545,302
Non-Qualified IX 48.64% 11,546.9 333,043
Non-Qualified X 49.01% 12,141.7 352,595
Non-Qualified XII 60.70% (2) 12,647.9 205,025
Non-Qualified XIII 49.45% 360,243.8 5,583,250
Non-Qualified XIV 48.99% 421,058.9 6,497,276
Non-Qualified XV 48.76% 173,670.9 2,673,998
Non-Qualified XVII 35.52% (8) 546.7 15,710
Annuity contracts in payment period 1,531,267
- ---------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Non-Qualified V 22.49% 408,869.5 7,753,575
Non-Qualified V (0.75) 23.11% 331,760.0 6,413,686
Non-Qualified VI 22.57% 9,318.3 149,388
Non-Qualified VII 22.30% 3,631,867.0 68,096,121
Non-Qualified VIII 22.49% 576,382.1 7,435,639
Non-Qualified IX 22.19% 18,743.4 353,021
Non-Qualified X 22.49% 135,419.7 2,568,024
Non-Qualified XIII 22.85% 208,889.0 2,595,276
Non-Qualified XIV 22.49% 434,220.7 5,371,244
Non-Qualified XV 22.30% 145,910.2 1,800,924
- ---------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Non-Qualified V 46.95% 278,561.6 10,934,611
Non-Qualified V (0.75) 47.68% 202,966.2 8,122,064
Non-Qualified VII 46.71% 975,016.1 18,147,137
Non-Qualified VIII 46.93% 289,619.5 5,407,687
Non-Qualified IX 46.58% 3,143.4 122,552
Non-Qualified X 46.95% 9,451.0 370,986
Non-Qualified XII 44.56% (2) 188.4 2,964
Non-Qualified XIII 47.39% 207,410.2 3,115,879
Non-Qualified XIV 46.93% 361,089.0 5,400,856
Non-Qualified XV 46.70% 99,417.2 1,483,731
Non-Qualified XVII 28.47% (8) 1,516.2 65,431
Annuity contracts in payment period 1,763,893
- ---------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Non-Qualified V 56.44% 316,726.40 10,433,693
Non-Qualified V (0.75) 57.23% 331,361.7 11,127,920
Non-Qualified VII 56.19% 183,802.0 3,341,658
Non-Qualified VIII 56.43% 80,485.4 1,467,904
Non-Qualified IX 56.05% 5,869.2 192,030
Non-Qualified X 56.44% 4,496.1 148,113
Non-Qualified XII 53.76% (2) 229.6 3,568
Non-Qualified XIII 56.91% 292,269.5 4,241,163
</TABLE>
S-17
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit
--------
Beginning End of
of Year Year
- ----------------------------------------------------------------------------
<S> <C> <C>
PPI Scudder International Growth Portfolio (continued):
Non-Qualified XIV $ 9.236 $14.448
Non-Qualified XV 9.229 14.416
Annuity contracts in payment period
- ----------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Non-Qualified V 18.146 21.922
Non-Qualified V (0.75) 18.407 22.348
Non-Qualified VII 23.078 27.835
Non-Qualified VIII 16.682 20.151
Non-Qualified IX 18.068 21.773
Non-Qualified X 18.146 21.922
Non-Qualified XII 10.925 13.248
Non-Qualified XVII 21.843 25.309
Annuity contracts in payment period
- ----------------------------------------------------------------------------
Total
============================================================================
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Year of Year
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PPI Scudder International Growth Portfolio (continued):
Non-Qualified XIV 56.43% 180,821.9 $ 2,612,466
Non-Qualified XV 56.20% 122,088.7 1,760,035
Annuity contracts in payment period 123,723
- ------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Non-Qualified V 20.81% 177,799 3,897,694
Non-Qualified V (0.75) 21.41% 314,992 7,039,487
Non-Qualified VII 20.61% 3,902,488.8 108,627,153
Non-Qualified VIII 20.79% 304,101.7 6,127,882
Non-Qualified IX 20.51% 10,243.8 223,037
Non-Qualified X 20.81% 4,490.9 98,450
Non-Qualified XII 21.26% (2) 1,255.7 16,635
Non-Qualified XVII 15.87% (8) 1,557.1 39,409
Annuity contracts in payment period 723,814
- ------------------------------------------------------------------------------------------------------------------------
Total $6,173,851,032
========================================================================================================================
</TABLE>
<TABLE>
<S> <C>
Non-Qualified 1964 Individual contracts issued from December 1, 1964 to March 14, 1967.
Non-Qualified V Certain AetnaPlus contracts issued in connection with Deferred Compensation Plans issued since August
28, 1992, and certain individual non-qualified contracts.
Non-Qualified VI Certain existing contracts that were converted to ACES, an administrative system (previously valued
under Non-Qualified I).
Non-Qualified VII Certain individual and group contracts issued as non-qualified deferred annuity contracts or Individual
Retirement Annuity contracts issued since May 4, 1994.
Non-Qualified VIII Certain individual Retirement Annuity contracts issued since May 1, 1998.
Non-Qualified IX Group AetnaPlus contracts assessing an administrative expense charge effective April 7, 1997 issued in
connection with Deferred Compensation Plans.
Non-Qualified X Group AetnaPlus contracts containing contractual limits on fees, issued in connection with Deferred
Compensation Plans and as individual non-qualified contracts, resulting in reduced daily charges for
certain funding options effective May 29, 1997.
Non-Qualified XI Certain contracts, previously valued under Non-Qualified VI, containing contractual limits limits on
fees, resulting in reduced daily charges for certain funding options effective May 29, 1997.
Non-Qualified XIII Certain individual Retirement Annuity contracts issued since October 1, 1998.
Non-Qualified XIV Certain individual Retirement Annuity contracts issued since September 1, 1998.
Non-Qualified XV Certain individual Retirement Annuity contracts issued since September 1, 1998.
Non-Qualified XVII Group AetnaPlus contracts issued in connection with Deferred Compensation Plans having contract
modifications effective May 29, 1997.
</TABLE>
Notes to Condensed Financial Information:
(1) -- Reflects less than a full year of performance activity. Funds were
first received in this option during January 1999.
(2) -- Reflects less than a full year of performance activity. Funds were
first received in this option during March 1999.
(3) -- Reflects less than a full year of performance activity. Funds were
first received in this option during April 1999.
(4) -- Reflects less than a full year of performance activity. Funds were
first received in this option during May 1999.
(5) -- Reflects less than a full year of performance activity. Funds were
first received in this option during June 1999.
(6) -- Reflects less than a full year of performance activity. Funds were
first received in this option during July 1999.
(7) -- Reflects less than a full year of performance activity. Funds were
first received in this option during August 1999.
(8) -- Reflects less than a full year of performance activity. Funds were
first received in this option during September 1999.
(9) -- Reflects less than a full year of performance activity. Funds were
first received in this option during October 1999.
(10) -- Reflects less than a full year of performance activity. Funds were
first received in this option during November 1999.
(11) -- Reflects less than a full year of performance activity. Funds were
first received in this option during December 1999.
See Notes to Financial Statements
S-18
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999
1. Summary of Significant Accounting Policies
Variable Annuity Account B (the "Account") is a separate account established
by Aetna Life Insurance and Annuity Company (the "Company") registered under
the Investment Company Act of 1940 as a unit investment trust. The Account
is sold exclusively for use with variable annuity contracts that may be
entitled to tax-deferred treatment under specific sections of the Internal
Revenue Code of 1986, as amended.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Actual results could
differ from these estimates.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset
value per share as determined by each Fund on December 31, 1999:
<TABLE>
<S> <C>
Aetna Ascent VP Fidelity Variable Insurance Products Fund:
Aetna Balanced VP, Inc. o Equity-Income Portfolio
Aetna Bond VP o Growth Portfolio
Aetna Crossroads VP o High Income Portfolio
Aetna Get Fund, Series C o Overseas Portfolio
Aetna Get Fund, Series D Fidelity Variable Insurance Products Fund II:
Aetna Get Fund, Series E o Asset Manager Portfolio
Aetna Get Fund, Series G o Contrafund Portfolio
Aetna Get Fund, Series H o Index 500 Portfolio
Aetna Growth and Income VP o Investment Grade Bond Portfolio
Aetna Growth VP Janus Aspen Series:
Aetna High Yield VP o Aggressive Growth Portfolio
Aetna Index Plus Large Cap VP o Balanced Portfolio
Aetna Index Plus Mid Cap VP o Flexible Income Portfolio
Aetna Index Plus Small Cap VP o Growth Portfolio
Aetna International VP o Worldwide Growth Portfolio
Aetna Legacy VP Lexington Emerging Markets Fund, Inc.
Aetna Money Market VP Lexington Natural Resources Trust Fund
Aetna Real Estate Securities VP MFS Funds:
Aetna Small Company VP o Global Government Series
Aetna Value Opportunity VP o Total Return Series
AIM V.I. Funds: Mitchell Hutchins Series Trust:
o Capital Appreciation Fund o Growth & Income Portfolio
o Growth and Income Fund o Small Cap portfolio
o Growth Fund o Tactical Allocation Portfolio
o Value Fund Oppenheimer Funds:
Alger American Funds: o Aggressive Growth Fund/VA
o Balanced Portfolio o Global Securities Fund/VA
o Income & Growth Portfolio o Main Street Growth & Income Fund/VA
o Leveraged AllCap Portfolio o Strategic Bond Fund/VA
American Century VP Funds: Portfolio Partners, Inc. (PPI):
o Balanced Fund o PPI MFS Emerging Equities Portfolio
o International Fund o PPI MFS Research Growth Portfolio
Calvert Social Balanced Portfolio o PPI MFS Value Equity Portfolio
Federated Insurance Series: o PPI Scudder International Growth Portfolio
o American Leaders Fund II o PPI T. Rowe Price Growth Equity Portfolio
o Equity Income Fund II
o Growth Strategies Fund II
o High Income Bond Fund II
o International Equity Fund II
o Prime Money Fund II
o U.S. Government Securities Fund II
o Utility Fund II
</TABLE>
S-19
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
b. Other
Investment transactions are accounted for on a trade date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is
determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of the Company which is taxed as a life insurance company under
the Internal Revenue Code of 1986, as amended.
d. Annuity Reserves
Annuity reserves held in the Account are computed for currently payable
contracts according to the Progressive Annuity, a49, 1971 Individual Annuity
Mortality, 1971 Group Annuity Mortality, 83a, and 1983 Group Annuity
Mortality tables using various assumed interest rates not to exceed seven
percent. Mortality experience is monitored by the Company. Charges to
annuity reserves for mortality experience are reimbursed to the Company if
the reserves required are less than originally estimated. If additional
reserves are required, the Company reimburses the Account.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made in
accordance with the terms of the contracts and are paid to the Company.
3. Dividend Income
On an annual basis, the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions to
the Account are automatically reinvested in shares of the Funds. The
Account's proportionate share of each Fund's undistributed net investment
income (distributions in excess of net investment income) and accumulated
net realized gain (loss) on investments is included in net unrealized gain
(loss) in the Statement of Operations.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the year ended December 31, 1999 aggregated
$3,435,456,040 and $1,971,718,606.
S-20
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
5. Supplemental Information to Statements of Operations
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds Cost of
Period from Investments
Dividends Deductions Sales Sold
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Ascent VP:
Annuity contracts in accumulation $1,340,444 ($270,151) $9,313,006 $8,698,919
- -----------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation 26,401,416 (2,291,480) 33,436,167 27,637,858
- -----------------------------------------------------------------------------------------------------------
Aetna Bond VP:
Annuity contracts in accumulation 6,124,925 (1,115,110) 40,901,359 41,151,754
- -----------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Annuity contracts in accumulation 1,502,501 (342,919) 8,948,614 8,113,257
- -----------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Annuity contracts in accumulation 7,848,121 (128,073) 19,750,183 23,962,269
- -----------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Annuity contracts in accumulation 1,957,571 (74,044) 3,666,266 2,463,747
- -----------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Annuity contracts in accumulation 3,756,117 (2,728,466) 32,922,228 32,044,756
- -----------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series E:
Annuity contracts in accumulation 2,481,190 (1,968,291) 9,474,528 9,239,165
- -----------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series G:
Annuity contracts in accumulation 102,974 (208,523) 522,773 511,829
- -----------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series H:
Annuity contracts in accumulation 0 (535) 0 0
- -----------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Annuity contracts in accumulation 207,834,884 (12,198,695) 237,901,365 210,303,160
- -----------------------------------------------------------------------------------------------------------
Aetna Growth VP:
Annuity contracts in accumulation 3,084,013 (580,261) 51,360,082 42,601,164
- -----------------------------------------------------------------------------------------------------------
Aetna High Yield VP:
Annuity contracts in accumulation 23,128 (2,983) 278,712 305,621
- -----------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation 9,509,103 (1,876,028) 67,290,981 54,385,900
- -----------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Annuity contracts in accumulation 158,723 (7,101) 5,181,529 5,178,353
- -----------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Annuity contracts in accumulation 2,021 (8,247) 1,258,038 1,253,262
- -----------------------------------------------------------------------------------------------------------
Aetna International VP:
Annuity contracts in accumulation 343,759 (29,531) 12,411,249 11,614,440
- -----------------------------------------------------------------------------------------------------------
Aetna Legacy VP:
Annuity contracts in accumulation 1,676,882 (417,080) 10,198,632 9,520,795
- -----------------------------------------------------------------------------------------------------------
Aetna Money Market VP:
Annuity contracts in accumulation 7,203,776 (2,397,398) 588,072,224 585,938,903
- -----------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Annuity contracts in accumulation 98,540 (19,120) 1,488,862 1,583,368
- -----------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Annuity contracts in accumulation 299,261 (252,577) 9,437,948 8,942,352
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net Unrealized Net Net
Net Gain (Loss) Change in Increase (Decrease)
Realized ----------- Unrealized in Net Assets
Gain (Loss) Beginning End Gain (Loss) Resulting from
on Investments of Year of Year on Investments Operations
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP:
Annuity contracts in accumulation $614,087 ($204,552) $483,736 $688,288 $2,372,668
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation 5,798,309 13,657,518 6,704,110 (6,953,408) 22,954,837
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP:
Annuity contracts in accumulation (250,395) (271,440) (6,898,223) (6,626,783) (1,867,363)
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Annuity contracts in accumulation 835,357 455,992 548,689 92,697 2,087,636
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Annuity contracts in accumulation (4,212,086) 3,285,620 0 (3,285,620) 222,342
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Annuity contracts in accumulation 1,202,519 2,432,614 786,857 (1,645,757) 1,440,289
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Annuity contracts in accumulation 877,472 (64,824) 9,587,836 9,652,660 11,557,783
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series E:
Annuity contracts in accumulation 235,363 0 23,410,070 23,410,070 24,158,332
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series G:
Annuity contracts in accumulation 10,944 0 5,934,910 5,934,910 5,840,305
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series H:
Annuity contracts in accumulation 0 0 2,439 2,439 1,904
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Annuity contracts in accumulation 27,598,205 (14,386,593) (68,936,164) (54,549,571) 168,684,823
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP:
Annuity contracts in accumulation 8,758,918 4,054,739 8,580,844 4,526,105 15,788,775
- -------------------------------------------------------------------------------------------------------------------------------
Aetna High Yield VP:
Annuity contracts in accumulation (26,909) (38,627) (16,080) 22,547 15,783
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation 12,905,081 9,544,413 23,757,249 14,212,836 34,750,992
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Annuity contracts in accumulation 3,176 25,068 (42,233) (67,301) 87,497
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Annuity contracts in accumulation 4,776 8,264 96,292 88,028 86,578
- -------------------------------------------------------------------------------------------------------------------------------
Aetna International VP:
Annuity contracts in accumulation 796,809 (4,447) 330,445 334,892 1,445,929
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP:
Annuity contracts in accumulation 677,837 230,393 (38,204) (268,597) 1,669,042
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP:
Annuity contracts in accumulation 2,133,321 1,434,703 1,765,548 330,845 7,270,544
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Annuity contracts in accumulation (94,506) (78,505) (181,523) (103,018) (118,104)
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Annuity contracts in accumulation 495,596 1,188,423 6,242,096 5,053,673 5,595,953
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-21
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
5. Supplemental Information to Statements of Operations (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds Cost of
Period from Investments
Dividends Deductions Sales Sold
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Value Opportunity VP:
Annuity contracts in accumulation $797,048 ($226,028) $7,969,978 $6,860,631
- ------------------------------------------------------------------------------------------------------
Capital Appreciation Fund:
Annuity contracts in accumulation 199,178 (36,849) 1,961,367 1,742,638
- ------------------------------------------------------------------------------------------------------
Growth and Income Fund:
Annuity contracts in accumulation 179,109 (106,709) 716,417 632,280
- ------------------------------------------------------------------------------------------------------
Growth Fund:
Annuity contracts in accumulation 631,309 (62,029) 747,792 656,292
- ------------------------------------------------------------------------------------------------------
Value Fund:
Annuity contracts in accumulation 629,443 (155,450) 2,307,793 2,034,925
- ------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation 454,912 (85,354) 1,556,530 1,053,499
- ------------------------------------------------------------------------------------------------------
Income & Growth Portfolio:
Annuity contracts in accumulation 914,221 (222,145) 2,270,282 1,259,702
- ------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation 1,249,119 (271,946) 3,592,783 1,650,828
- ------------------------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation 683,536 (56,724) 1,675,116 1,632,360
- ------------------------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation 0 (80,728) 1,365,915 995,445
- ------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 247,325 (26,165) 406,307 370,404
- ------------------------------------------------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation 13,552,341 (1,896,640) 21,302,731 12,295,752
- ------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation 830,081 (412,745) 4,773,203 3,622,910
- ------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 0 (459,868) 4,243,118 2,328,173
- ------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation 4,081,257 (651,738) 10,263,690 9,738,521
- ------------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation 503,745 (271,182) 3,123,504 1,926,381
- ------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 411,869 (127,832) 9,317,264 9,315,041
- ------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 733,040 (203,519) 4,193,043 3,940,186
- ------------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 2,100,934 (397,724) 5,009,213 3,572,281
- ------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net Unrealized Net Net
Net Gain (Loss) Change in Increase (Decrease)
Realized ----------- Unrealized in Net Assets
Gain (Loss) Beginning End Gain (Loss) Resulting from
on Investments of Year of Year on Investments Operations
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Value Opportunity VP:
Annuity contracts in accumulation $1,109,347 $1,733,031 $2,822,690 $1,089,659 $2,770,026
- ----------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund:
Annuity contracts in accumulation 218,729 19,720 2,111,777 2,092,057 2,473,115
- ----------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund:
Annuity contracts in accumulation 84,137 17,765 3,746,947 3,729,182 3,885,719
- ----------------------------------------------------------------------------------------------------------------------------
Growth Fund:
Annuity contracts in accumulation 91,500 12,342 2,711,961 2,699,619 3,360,399
- ----------------------------------------------------------------------------------------------------------------------------
Value Fund:
Annuity contracts in accumulation 272,868 22,553 4,671,998 4,649,445 5,396,306
- ----------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 503,031 1,582,996 2,168,767 585,771 1,458,360
- ----------------------------------------------------------------------------------------------------------------------------
Income & Growth Portfolio:
Annuity contracts in accumulation 1,010,580 4,215,812 8,170,558 3,954,746 5,657,402
- ----------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation 1,941,955 6,533,437 15,044,425 8,510,988 11,430,116
- ----------------------------------------------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation 42,756 487,853 113,895 (373,958) 295,610
- ----------------------------------------------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation 370,470 743,148 3,420,828 2,677,680 2,967,422
- ----------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 35,903 14,930 8,210 (6,720) 250,343
- ----------------------------------------------------------------------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation 9,006,979 37,231,660 23,291,163 (13,940,497) 6,722,183
- ----------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation 1,150,293 3,973,133 6,982,904 3,009,771 4,577,400
- ----------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 1,914,945 5,244,563 22,782,494 17,537,931 18,993,008
- ----------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation 525,169 2,714,767 (768,082) (3,482,849) 471,839
- ----------------------------------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation 1,197,123 3,819,534 15,689,012 11,869,478 13,299,164
- ----------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 2,223 2,223 0 (2,223) 284,037
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 252,857 1,013,377 (71,689) (1,085,066) (302,688)
- ----------------------------------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 1,436,932 7,053,257 3,900,529 (3,152,728) (12,586)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-22
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
5. Supplemental Information to Statements of Operations (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds Cost of
Period from Investments
Dividends Deductions Sales Sold
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation $8,367,628 ($2,573,916) $30,786,251 $23,310,042
- ----------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 16,174,596 (2,218,187) 15,856,150 10,078,861
- ----------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 5,027,115 (781,519) 15,051,314 17,531,702
- ----------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 639,927 (217,131) 17,051,576 15,470,272
- ----------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 1,521,294 (290,423) 3,958,472 3,549,278
- ----------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 6,677,923 (2,522,798) 42,148,010 26,560,684
- ----------------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 2,351,381 (2,155,269) 61,376,663 41,833,912
- ----------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation 278,742 (67,977) 1,529,299 1,459,169
- ----------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 4,328,099 (1,464,290) 180,428,933 153,089,375
- ----------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 3,289,917 (1,574,299) 7,838,806 4,594,554
- ----------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 1,403,262 (265,146) 9,325,969 9,178,770
- ----------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 990,849 (1,633,385) 22,246,086 14,336,557
- ----------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 538,521 (3,924,479) 85,749,085 54,113,435
- ----------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc.:
Annuity contracts in accumulation 8,564 (22,933) 463,764 730,052
- ----------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation 20,628 (42,793) 1,388,088 1,704,273
- ----------------------------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation 103,104 (25,617) 1,099,699 1,092,429
- ----------------------------------------------------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation 2,209,450 (612,684) 5,002,849 3,909,198
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net Unrealized Net
Net Gain (Loss) Change in
Realized ----------- Unrealized
Gain (Loss) Beginning End Gain (Loss)
on Investments of Year of Year on Investments
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation $7,476,209 $22,859,546 $17,824,133 $(5,035,413)
- --------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 5,777,289 33,940,400 67,658,735 33,718,335
- --------------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation (2,480,388) (4,425,686) (2,606,690) 1,818,996
- --------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 1,581,304 669,980 4,814,866 4,144,886
- --------------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 409,194 1,633,427 1,897,225 263,798
- --------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 15,587,326 35,201,475 56,818,405 21,616,930
- --------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 19,542,751 25,538,020 32,900,456 7,362,436
- --------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation 70,130 478,048 75,103 (402,945)
- --------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 27,339,558 8,106,849 100,137,615 92,030,766
- --------------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 3,244,252 15,241,071 40,182,173 24,941,102
- --------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 147,199 255,193 (999,230) (1,254,423)
- --------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 7,909,529 12,281,148 56,878,486 44,597,338
- --------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 31,635,650 37,241,442 183,495,928 146,254,486
- --------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc.:
Annuity contracts in accumulation (266,288) (1,196,659) 579,071 1,775,730
- --------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation (316,185) (1,266,269) (494,145) 772,124
- --------------------------------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation 7,270 102,292 (52,025) (154,317)
- --------------------------------------------------------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation 1,093,651 3,834,735 1,850,808 (1,983,927)
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease)
in Net Assets
Resulting from
Operations
- -----------------------------------------------------------------------
<S> <C>
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation $8,234,508
- -----------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 53,452,033
- -----------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 3,584,204
- -----------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 6,148,986
- -----------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 1,903,863
- -----------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 41,359,381
- -----------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 27,101,299
- -----------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation (122,050)
- -----------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 122,234,133
- -----------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 29,900,972
- -----------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 30,892
- -----------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 51,864,331
- -----------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 174,504,178
- -----------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc.:
Annuity contracts in accumulation 1,495,073
- -----------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation 433,774
- -----------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation (69,560)
- -----------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation 706,490
- -----------------------------------------------------------------------
</TABLE>
S-23
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
5. Supplemental Information to Statements of Operations (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds Cost of
Period from Investments
Dividends Deductions Sales Sold
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Annuity contracts in accumulation $3 $(2,950) $134,571 $132,047
- ------------------------------------------------------------------------------------------------------------------------
Small Cap Portfolio:
Annuity contracts in accumulation 5,932 (761) 1,608 1,675
- ------------------------------------------------------------------------------------------------------------------------
Tactical Allocation Portfolio:
Annuity contracts in accumulation 473,308 (12,484) 259,982 250,453
- ------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation 0 (228,766) 29,784,999 24,129,999
- ------------------------------------------------------------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation 280,254 (94,735) 6,574,995 4,790,427
- ------------------------------------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation 454,029 (588,876) 5,827,992 5,360,308
- ------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation 786,643 (214,526) 4,087,701 4,296,040
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Partners,Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation 1,395,386 (1,803,211) 69,154,424 53,471,073
- ------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation 179,933 (1,192,525) 22,188,694 17,498,425
- ------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 1,111,624 (447,967) 6,884,756 4,709,438
- ------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 1,024,592 (243,925) 75,090,895 65,822,845
- ------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 2,862,703 (1,607,370) 19,816,183 14,545,431
- ------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $372,453,223 ($ 59,498,930) $1,971,718,606 $1,728,629,845
========================================================================================================================
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net Unrealized Net
Net Gain (Loss) Change in
Realized ----------- Unrealized
Gain (Loss) Beginning End Gain (Loss)
on Investments of Year of Year on Investments
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Annuity contracts in accumulation $2,524 $0 $74,102 $74,102
- ----------------------------------------------------------------------------------------------------------------------
Small Cap Portfolio:
Annuity contracts in accumulation (67) 0 9,469 9,469
- ----------------------------------------------------------------------------------------------------------------------
Tactical Allocation Portfolio:
Annuity contracts in accumulation 9,529 0 35,469 35,469
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation 5,655,000 1,243,228 8,288,775 7,045,547
- ----------------------------------------------------------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation 1,784,568 786,005 2,312,761 1,526,756
- ----------------------------------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation 467,684 (435,824) 7,488,511 7,924,335
- ----------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation (208,339) 47,663 (12,690) (60,353)
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Partners,Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation 15,683,351 19,423,983 64,359,069 44,935,086
- ----------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation 4,690,269 11,016,482 26,374,011 15,357,529
- ----------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 2,175,318 3,770,053 17,014,014 13,243,961
- ----------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 9,268,050 863,502 3,641,431 2,777,929
- ----------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 5,270,752 24,891,619 40,800,081 15,908,462
- ----------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $243,088,761 $349,806,583 $860,262,998 $510,456,415
======================================================================================================================
<CAPTION>
- ----------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease)
in Net Assets
Resulting from
Operations
- ----------------------------------------------------------------------
<S> <C>
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Annuity contracts in accumulation $73,679
- ----------------------------------------------------------------------
Small Cap Portfolio:
Annuity contracts in accumulation 14,573
- ----------------------------------------------------------------------
Tactical Allocation Portfolio:
Annuity contracts in accumulation 505,822
- ----------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation 12,471,781
- ----------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation 3,496,843
- ----------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation 8,257,172
- ----------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation 303,425
- ----------------------------------------------------------------------
Portfolio Partners,Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation 60,210,612
- ----------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation 19,035,206
- ----------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 16,082,936
- ----------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 12,826,646
- ----------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 22,434,547
- ----------------------------------------------------------------------
Total Variable Annuity Account B $1,066,499,469
======================================================================
</TABLE>
(1) - Effective May 1, 1999, MFS Worldwide Government Series name changed to
MFS Global Government Series.
(2) - Effective May 1, 1999, Oppenheimer Aggressive Growth Fund/OVAF's name
changed to Oppenheimer Aggressive Growth Fund/VA.
(3) - Effective May 1, 1999, Oppenheimer Global Securities Fund/OVAF's name
changed to Oppenheimer Global Securities Fund/VA.
(4) - Effective May 1, 1999, Oppenheimer Growth and Income Fund/OVAF's name
changed to Oppenheimer Main Street Growth and Income Fund/VA.
(5) - Effective May 1, 1999, Oppenheimer Strategic Bond Fund/OVAF's name
changed to Oppenheimer Strategic Bond Fund/VA.
S-24
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP:
Annuity contracts in accumulation $1,070,293 $614,087 $688,288
- ----------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation 24,109,936 5,798,309 (6,953,408)
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna Bond VP:
Annuity contracts in accumulation 5,009,815 (250,395) (6,626,783)
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna Crossroads VP:
Annuity contracts in accumulation 1,159,582 835,357 92,697
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Annuity contracts in accumulation 7,720,048 (4,212,086) (3,285,620)
- ----------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Annuity contracts in accumulation 1,883,527 1,202,519 (1,645,757)
- ----------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Annuity contracts in accumulation 1,027,651 877,472 9,652,660
- ----------------------------------------------------------------------------------------
Aetna Get Fund, Series E:
Annuity contracts in accumulation 512,899 235,363 23,410,070
- ----------------------------------------------------------------------------------------
Aetna Get Fund, Series G:
Annuity contracts in accumulation (105,549) 10,944 5,934,910
- ----------------------------------------------------------------------------------------
Aetna Get Fund, Series H:
Annuity contracts in accumulation (535) 0 2,439
- ----------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Annuity contracts in accumulation 195,636,189 27,598,205 (54,549,571)
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna Growth VP:
Annuity contracts in accumulation 2,503,752 8,758,918 4,526,105
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna High Yield VP:
Annuity contracts in accumulation 20,145 (26,909) 22,547
- ----------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation 7,633,075 12,905,081 14,212,836
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Annuity contracts in accumulation 151,622 3,176 (67,301)
- ----------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Annuity contracts in accumulation (6,226) 4,776 88,028
- ----------------------------------------------------------------------------------------
Aetna International VP:
Annuity contracts in accumulation 314,228 796,809 334,892
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna Legacy VP:
Annuity contracts in accumulation 1,259,802 677,837 (268,597)
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP:
Annuity contracts in accumulation ($7,289,731) $24,898,190 $19,981,127
- -----------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation (10,869,045) 176,154,146 180,920,898
Annuity contracts in payment period 18,758,905 26,077,945
- -----------------------------------------------------------------------------------------
Aetna Bond VP:
Annuity contracts in accumulation 10,606,260 85,100,187 93,390,139
Annuity contracts in payment period 5,213,758 5,662,703
- -----------------------------------------------------------------------------------------
Aetna Crossroads VP:
Annuity contracts in accumulation (6,748,440) 28,289,880 23,405,948
Annuity contracts in payment period 1,317,322 1,540,450
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Annuity contracts in accumulation (19,622,110) 19,399,768 0
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Annuity contracts in accumulation (3,591,840) 9,276,019 7,124,468
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Annuity contracts in accumulation 75,168,020 89,907,126 176,632,929
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series E:
Annuity contracts in accumulation 357,540,044 0 381,698,376
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series G:
Annuity contracts in accumulation 206,014,754 0 211,855,059
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series H:
Annuity contracts in accumulation 1,725,051 0 1,726,955
- -----------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Annuity contracts in accumulation (106,172,195) 955,586,320 980,638,280
Annuity contracts in payment period 155,197,661 192,658,329
- -----------------------------------------------------------------------------------------
Aetna Growth VP:
Annuity contracts in accumulation 25,546,818 28,467,187 66,260,594
Annuity contracts in payment period 1,199,857 4,742,043
- -----------------------------------------------------------------------------------------
Aetna High Yield VP:
Annuity contracts in accumulation (487) 230,386 245,682
- -----------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation 117,244,893 85,248,495 198,210,089
Annuity contracts in payment period 1,829,647 40,863,938
- -----------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Annuity contracts in accumulation 403,520 375,745 866,762
- -----------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Annuity contracts in accumulation (145,065) 969,800 911,313
- -----------------------------------------------------------------------------------------
Aetna International VP:
Annuity contracts in accumulation 1,562,914 1,528,847 4,434,269
Annuity contracts in payment period 2,086 105,507
- -----------------------------------------------------------------------------------------
Aetna Legacy VP:
Annuity contracts in accumulation (7,254,086) 32,331,905 26,597,646
Annuity contracts in payment period 2,822,843 2,972,058
- -----------------------------------------------------------------------------------------
</TABLE>
S-25
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Money Market VP:
Annuity contracts in accumulation $4,806,378 $2,133,321 $330,845
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Annuity contracts in accumulation 79,420 (94,506) (103,018)
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna Small Company VP:
Annuity contracts in accumulation 46,684 495,596 5,053,673
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Annuity contracts in accumulation 571,020 1,109,347 1,089,659
- ---------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation 162,329 218,729 2,092,057
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Growth and Income Fund:
Annuity contracts in accumulation 72,400 84,137 3,729,182
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Growth Fund:
Annuity contracts in accumulation 569,280 91,500 2,699,619
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Value Fund:
Annuity contracts in accumulation 473,993 272,868 4,649,445
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation 369,558 503,031 585,771
- ---------------------------------------------------------------------------------------
Income & Growth Portfolio:
Annuity contracts in accumulation 692,076 1,010,580 3,954,746
- ---------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation 977,173 1,941,955 8,510,988
- ---------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation 626,812 42,756 (373,958)
- ---------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation (80,728) 370,470 2,677,680
- ---------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 221,160 35,903 (6,720)
- ---------------------------------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation 11,655,701 9,006,979 (13,940,497)
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation 417,336 1,150,293 3,009,771
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation (459,868) 1,914,945 17,537,931
- ---------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Money Market VP:
Annuity contracts in accumulation $58,499,955 $149,772,871 $214,710,443
Annuity contracts in payment period 229,509 1,062,436
- -------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Annuity contracts in accumulation 1,076,287 965,259 1,925,817
Annuity contracts in payment period 16,278 13,903
- -------------------------------------------------------------------------------------------
Aetna Small Company VP:
Annuity contracts in accumulation 1,501,029 18,295,242 25,125,952
Annuity contracts in payment period 197,498 463,770
- -------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Annuity contracts in accumulation (4,540,412) 18,689,212 16,918,826
- -------------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation 7,199,232 298,792 9,923,942
Annuity contracts in payment period 0 47,197
- -------------------------------------------------------------------------------------------
Growth and Income Fund:
Annuity contracts in accumulation 19,382,908 221,558 22,700,889
Annuity contracts in payment period 0 789,296
- -------------------------------------------------------------------------------------------
Growth Fund:
Annuity contracts in accumulation 15,273,804 296,860 18,608,980
Annuity contracts in payment period 0 322,083
- -------------------------------------------------------------------------------------------
Value Fund:
Annuity contracts in accumulation 35,726,392 703,970 40,884,392
Annuity contracts in payment period 0 942,276
- -------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation (1,430,177) 6,185,618 6,213,801
- -------------------------------------------------------------------------------------------
Income & Growth Portfolio:
Annuity contracts in accumulation (2,033,469) 15,463,737 19,087,670
- -------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation (3,289,670) 16,971,895 25,112,341
- -------------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation (1,575,541) 4,732,298 3,452,367
- -------------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation (1,259,618) 5,791,227 7,499,031
- -------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 380,705 1,958,082 2,589,130
- -------------------------------------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation (16,005,273) 134,398,144 125,105,874
Annuity contracts in payment period 51,858 61,038
- -------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation (2,848,736) 28,656,460 30,384,515
Annuity contracts in payment period 7,576 8,185
- -------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 234,105 27,450,515 46,677,628
- -------------------------------------------------------------------------------------------
</TABLE>
S-26
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Income Bond Fund II:
Annuity contracts in accumulation $3,429,519 $525,169 $(3,482,849)
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation 232,563 1,197,123 11,869,478
- -------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 284,037 2,223 (2,223)
- -------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 529,521 252,857 (1,085,066)
- -------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 1,703,210 1,436,932 (3,152,728)
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation 5,793,712 7,476,209 (5,035,413)
- -------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 13,956,409 5,777,289 33,718,335
- -------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 4,245,596 (2,480,388) 1,818,996
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 422,796 1,581,304 4,144,886
- -------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 1,230,871 409,194 263,798
- -------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 4,155,125 15,587,326 21,616,930
- -------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 196,112 19,542,751 7,362,436
- -------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation 210,765 70,130 (402,945)
- -------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 2,863,809 27,339,558 92,030,766
- -------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 1,715,618 3,244,252 24,941,102
- -------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 1,138,116 147,199 (1,254,423)
- -------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation (642,536) 7,909,529 44,597,338
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation (3,385,958) 31,635,650 146,254,486
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc.:
Annuity contracts in accumulation (14,369) (266,288) 1,775,730
- -------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Income Bond Fund II:
Annuity contracts in accumulation $(8,553,264) $49,887,731 $41,788,490
Annuity contracts in payment period 0 17,816
- --------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation (1,894,959) 17,521,464 28,925,669
- --------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 306,114 8,067,320 8,657,471
- --------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation (2,937,725) 16,054,824 12,814,411
- --------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation (3,766,513) 30,329,937 26,498,835
Annuity contracts in payment period 7,667 59,670
- --------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation 7,411,679 176,108,721 191,754,908
- --------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 17,013,720 138,516,768 208,982,521
- --------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 9,278,961 49,328,098 61,938,947
Annuity contracts in payment period 503,361 755,677
- --------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation (3,946,889) 17,886,843 20,088,940
- --------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation (799,139) 20,414,738 21,519,462
- --------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 30,664,230 162,974,413 234,998,024
- --------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 1,630,498 141,735,838 170,467,635
- --------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation (1,453,541) 5,695,641 4,120,050
- --------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 95,062,093 57,368,774 274,665,000
- --------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 83,194,454 72,228,489 185,323,915
- --------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation (1,081,920) 20,633,439 19,582,411
- --------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 101,412,913 68,058,273 213,572,309
Annuity contracts in payment period 1,585,189 9,348,397
- --------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 59,587,939 243,902,115 470,413,281
Annuity contracts in payment period 3,724,747 11,305,698
- --------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc.:
Annuity contracts in accumulation (430,469) 1,509,423 2,574,027
- --------------------------------------------------------------------------------------------------
</TABLE>
S-27
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation $(22,165) $(316,185) $772,124
- -----------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation 77,487 7,270 (154,317)
- -----------------------------------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation 1,596,766 1,093,651 (1,983,927)
- -----------------------------------------------------------------------------------------------
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Annuity contracts in accumulation (2,947) 2,524 74,102
- -----------------------------------------------------------------------------------------------
Small Cap Portfolio:
Annuity contracts in accumulation 5,171 (67) 9,469
- -----------------------------------------------------------------------------------------------
Tactical Allocation Portfolio:
Annuity contracts in accumulation 460,824 9,529 35,469
- -----------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation (228,766) 5,655,000 7,045,547
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation 185,519 1,784,568 1,526,756
- -----------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation (134,847) 467,684 7,924,335
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation 572,117 (208,339) (60,353)
Annuity contracts in payment period 0 0 0
- -----------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation (407,825) 15,683,351 44,935,086
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation (1,012,592) 4,690,269 15,357,529
- -----------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 663,657 2,175,318 13,243,961
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 780,667 9,268,050 2,777,929
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 1,255,333 5,270,752 15,908,462
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Total Variable Annuity Account B $312,954,293 $243,088,761 $510,456,415
===============================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation $(1,219,704) $3,954,893 $3,168,963
- ------------------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation (301,164) 2,014,138 1,643,414
- ------------------------------------------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation 11,945,226 38,137,728 50,789,444
- ------------------------------------------------------------------------------------------------------
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Annuity contracts in accumulation 736,277 0 809,956
- ------------------------------------------------------------------------------------------------------
Small Cap Portfolio:
Annuity contracts in accumulation 157,949 0 172,522
- ------------------------------------------------------------------------------------------------------
Tactical Allocation Portfolio:
Annuity contracts in accumulation 6,858,373 0 7,364,195
- ------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation 6,541,844 11,917,723 29,291,524
Annuity contracts in payment period 0 1,639,824
- ------------------------------------------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation (1,636,196) 7,653,101 9,513,748
- ------------------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation 12,915,912 35,193,209 56,214,303
Annuity contracts in payment period 0 151,990
- ------------------------------------------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation 6,368,812 12,897,019 19,569,256
Annuity contracts in payment period 27,229 201,581 228,810
- ------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation (9,039,734) 131,150,274 181,712,440
Annuity contracts in payment period 922,555 1,531,267
- ------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation (5,108,995) 88,610,687 102,536,898
- ------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 10,888,326 27,062,849 53,173,898
Annuity contracts in payment period 903,680 1,763,893
- ------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 5,029,371 17,577,310 35,328,550
Annuity contracts in payment period 18,946 123,723
- ------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation (14,489,363) 118,791,854 126,069,747
Annuity contracts in payment period 56,523 723,814
- ------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $1,150,783,141 $3,956,568,422 $6,173,851,032
======================================================================================================
</TABLE>
(1) - Effective May 1, 1999, MFS Worldwide Government Series name changed to
MFS Global Government Series.
(2) - Effective May 1, 1999, Oppenheimer Aggressive Growth Fund/OVAF's name
changed to Oppenheimer Aggressive Growth Fund/VA.
(3) - Effective May 1, 1999, Oppenheimer Global Securities Fund/OVAF's name
changed to Oppenheimer Global Securities Fund/VA.
(4) - Effective May 1, 1999, Oppenheimer Growth and Income Fund/OVAF's name
changed to Oppenheimer Main Street Growth and Income Fund/VA.
(5) - Effective May 1, 1999, Oppenheimer Strategic Bond Fund/OVAF's name
changed to Oppenheimer Strategic Bond Fund/VA.
S-28
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP: (1)
Annuity contracts in accumulation $878,477 $871,974 ($1,238,982)
- -----------------------------------------------------------------------------------------
Aetna Balanced VP: (2)
Annuity contracts in accumulation 28,982,565 4,413,800 (7,474,240)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Bond VP: (3)
Annuity contracts in accumulation 4,385,261 2,012,976 (1,053,158)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Crossroads VP: (4)
Annuity contracts in accumulation 792,688 438,508 (248,169)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Annuity contracts in accumulation 4,701,182 1,466,703 (2,909,123)
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Annuity contracts in accumulation 974,026 1,329,280 288,064
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Annuity contracts in accumulation 284,442 60 (64,824)
- -----------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5)
Annuity contracts in accumulation 183,021,214 29,084,074 (82,062,430)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Growth VP: (6)
Annuity contracts in accumulation (127,836) (347,867) 4,999,810
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna High Yield VP: (7)
Annuity contracts in accumulation 21,541 42 (38,627)
- -----------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (8)
Annuity contracts in accumulation 3,193,925 3,120,964 8,202,029
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP: (9)
Annuity contracts in accumulation 17,150 (7,168) 25,068
- -----------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP: (10)
Annuity contracts in accumulation 36,190 (33,035) 8,264
- -----------------------------------------------------------------------------------------
Aetna International VP: (11)
Annuity contracts in accumulation 72,618 (50,060) (4,447)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Legacy VP: (12)
Annuity contracts in accumulation 1,112,714 509,928 (325,629)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Money Market VP: (13)
Annuity contracts in accumulation 4,609,417 958,394 4,835
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Real Estate Securities VP: (14)
Annuity contracts in accumulation 45,121 (25,500) (78,505)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Small Company VP: (15)
Annuity contracts in accumulation (18,206) (1,755,032) 1,488,099
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP: (1)
Annuity contracts in accumulation $3,942,985 $20,443,736 $24,898,190
- ------------------------------------------------------------------------------------------
Aetna Balanced VP: (2)
Annuity contracts in accumulation 6,148,805 150,761,384 176,154,146
Annuity contracts in payment period 12,080,737 18,758,905
- ------------------------------------------------------------------------------------------
Aetna Bond VP: (3)
Annuity contracts in accumulation 12,050,394 69,236,488 85,100,187
Annuity contracts in payment period 3,681,984 5,213,758
- ------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4)
Annuity contracts in accumulation 8,303,550 20,250,904 28,289,880
Annuity contracts in payment period 69,721 1,317,322
- ------------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Annuity contracts in accumulation (4,718,918) 20,859,924 19,399,768
- ------------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Annuity contracts in accumulation (4,244,458) 10,929,107 9,276,019
- ------------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Annuity contracts in accumulation 89,687,448 0 89,907,126
- ------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5)
Annuity contracts in accumulation (42,142,027) 892,006,381 955,586,320
Annuity contracts in payment period 130,876,769 155,197,661
- ------------------------------------------------------------------------------------------
Aetna Growth VP: (6)
Annuity contracts in accumulation 21,924,027 3,210,344 28,467,187
Annuity contracts in payment period 8,566 1,199,857
- ------------------------------------------------------------------------------------------
Aetna High Yield VP: (7)
Annuity contracts in accumulation 247,430 0 230,386
- ------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (8)
Annuity contracts in accumulation 44,321,436 28,074,705 85,248,495
Annuity contracts in payment period 165,083 1,829,647
- ------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP: (9)
Annuity contracts in accumulation 340,695 0 375,745
- ------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP: (10)
Annuity contracts in accumulation 958,381 0 969,800
- ------------------------------------------------------------------------------------------
Aetna International VP: (11)
Annuity contracts in accumulation 1,512,822 0 1,528,847
Annuity contracts in payment period 0 2,086
- ------------------------------------------------------------------------------------------
Aetna Legacy VP: (12)
Annuity contracts in accumulation 13,863,127 18,710,015 32,331,905
Annuity contracts in payment period 1,284,593 2,822,843
- ------------------------------------------------------------------------------------------
Aetna Money Market VP: (13)
Annuity contracts in accumulation 19,490,597 124,939,137 149,772,871
Annuity contracts in payment period 0 229,509
- ------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP: (14)
Annuity contracts in accumulation 1,040,421 0 965,259
Annuity contracts in payment period 0 16,278
- ------------------------------------------------------------------------------------------
Aetna Small Company VP: (15)
Annuity contracts in accumulation 12,670,750 6,059,783 18,295,242
Annuity contracts in payment period 47,346 197,498
- ------------------------------------------------------------------------------------------
</TABLE>
S-29
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Value Opportunity VP: (16)
Annuity contracts in accumulation $32,768 $(95,362) $2,278,113
- --------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation 4,604 2,342 19,720
- --------------------------------------------------------------------------------------
Growth and Income Fund:
Annuity contracts in accumulation 2,446 3,734 17,765
- --------------------------------------------------------------------------------------
Growth Fund:
Annuity contracts in accumulation 9,531 3,714 12,342
- --------------------------------------------------------------------------------------
Value Fund:
Annuity contracts in accumulation 24,489 5,144 22,553
- --------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation 404,757 212,710 891,394
- --------------------------------------------------------------------------------------
Income & Growth Portfolio:
Annuity contracts in accumulation 1,261,633 1,121,965 1,506,757
- --------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation 428,467 1,178,197 4,993,194
- --------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund:
Annuity contracts in accumulation 528,065 61,039 25,474
- --------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation 304,847 243,131 381,327
- --------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 127,415 119,256 (44,356)
- --------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation 6,762,670 4,643,346 3,051,873
- --------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 9,878,072 5,383,950 19,355,887
- --------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 4,018,324 (478,695) (7,148,373)
Annuity contracts in payment period
- --------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 820,880 787,883 209,050
- --------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 1,361,761 264,591 495,725
- --------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 4,885,888 11,863,324 16,999,643
- --------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 1,707,451 8,567,398 14,655,179
- --------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation 254,649 90,675 90,888
- --------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31, 1998 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Value Opportunity VP: (16)
Annuity contracts in accumulation $12,561,099 $3,912,594 $18,689,212
- ------------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation 272,126 0 298,792
- ------------------------------------------------------------------------------------------
Growth and Income Fund:
Annuity contracts in accumulation 197,613 0 221,558
- ------------------------------------------------------------------------------------------
Growth Fund:
Annuity contracts in accumulation 271,273 0 296,860
- ------------------------------------------------------------------------------------------
Value Fund:
Annuity contracts in accumulation 651,784 0 703,970
- ------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation (979,394) 5,656,151 6,185,618
- ------------------------------------------------------------------------------------------
Income & Growth Portfolio:
Annuity contracts in accumulation (2,575,078) 14,148,460 15,463,737
- ------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation (3,907,972) 14,280,009 16,971,895
- ------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund:
Annuity contracts in accumulation (525,510) 4,643,230 4,732,298
- ------------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation (991,033) 5,852,955 5,791,227
- ------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 784,430 971,337 1,958,082
- ------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation 22,941,092 138,709,740 176,108,721
- ------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 23,497,310 80,401,549 138,516,768
- ------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 18,153,824 35,217,837 49,328,098
Annuity contracts in payment period 68,542 503,361
- ------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 3,064,387 13,004,643 17,886,843
- ------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 6,549,586 11,743,075 20,414,738
- ------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 21,398,116 107,827,442 162,974,413
- ------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 39,819,038 76,986,772 141,735,838
- ------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation (1,318,753) 6,578,182 5,695,641
- ------------------------------------------------------------------------------------------
</TABLE>
S-30
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance Management Series:
American Leaders Fund II:
Annuity contracts in accumulation $6,205,550 $4,799,578 $7,120,071
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation (222,529) 434,027 3,061,727
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 1,093,875 720,386 1,686,112
- ------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation 834,077 852,846 (1,048,315)
- ------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation (216,708) 474,001 2,881,033
- ------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 263,248 0 2,223
- ------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 31,718 275,671 500,178
- ------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 1,351,222 735,614 1,252,242
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation (548,576) 11,062,640 3,512,332
- ------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 1,620,017 1,490,655 11,778,213
- ------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 842,156 316,618 (112,372)
- ------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 2,610,124 7,033,011 6,516,940
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 5,363,231 21,545,989 19,031,176
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Annuity contracts in accumulation 133,353 (350,599) (487,111)
- ------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation 278,095 3,027 (1,444,141)
- ------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series:
Annuity contracts in accumulation 372,500 613,337 1,859,586
- ------------------------------------------------------------------------------------------
Worldwide Government Series:
Annuity contracts in accumulation (5,538) (1,135) 108,229
- ------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund:
Annuity contracts in accumulation 39,364 (225,494) 1,109,442
- ------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance Management Series:
American Leaders Fund II:
Annuity contracts in accumulation $(524,859) $116,800,911 $134,398,144
Annuity contracts in payment period 48,751 51,858
- ----------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation 5,452,240 19,938,571 28,656,460
Annuity contracts in payment period 0 7,576
- ----------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 1,241,036 22,709,106 27,450,515
- ----------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation (3,963,730) 53,212,853 49,887,731
- ----------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation 437,110 13,946,028 17,521,464
- ----------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 271,362 7,530,487 8,067,320
- ----------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 2,050,473 13,196,784 16,054,824
- ----------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 695,668 26,302,858 30,329,937
Annuity contracts in payment period 0 7,667
- ----------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 4,958,453 38,383,925 57,368,774
- ----------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 26,193,826 31,145,778 72,228,489
- ----------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 9,052,449 10,534,588 20,633,439
- ----------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 12,764,560 40,072,928 68,058,273
Annuity contracts in payment period 645,899 1,585,189
- ----------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 39,032,925 160,658,096 243,902,115
Annuity contracts in payment period 1,995,445 3,724,747
- ----------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Annuity contracts in accumulation (619,636) 2,833,416 1,509,423
- ----------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation (1,812,452) 6,930,364 3,954,893
- ----------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series:
Annuity contracts in accumulation 16,318,427 18,973,878 38,137,728
- ----------------------------------------------------------------------------------------------
Worldwide Government Series:
Annuity contracts in accumulation 588,287 1,324,295 2,014,138
- ----------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund:
Annuity contracts in accumulation 7,306,211 3,688,200 11,917,723
- ----------------------------------------------------------------------------------------------
</TABLE>
S-31
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Securities Fund:
Annuity contracts in accumulation $317,658 $(373,983) $786,851
- -----------------------------------------------------------------------------------------------
Growth & Income Fund:
Annuity contracts in accumulation 697,969 126,292 (901,751)
- -----------------------------------------------------------------------------------------------
Strategic Bond Fund:
Annuity contracts in accumulation 37,162 (25,262) 68,836
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation (1,172,488) 8,905,074 20,177,815
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation (1,002,802) 3,344,659 12,179,408
- -----------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation (241,843) 1,430,022 3,549,391
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation (138,109) 2,709,959 668,075
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation (835,041) 1,547,217 23,093,697
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Total Variable Annuity Account B $283,508,891 $143,410,533 $94,282,077
===============================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Securities Fund:
Annuity contracts in accumulation $4,241,638 $2,680,937 $7,653,101
- ------------------------------------------------------------------------------------------------------
Growth & Income Fund:
Annuity contracts in accumulation 22,581,792 12,688,907 35,193,209
- ------------------------------------------------------------------------------------------------------
Strategic Bond Fund:
Annuity contracts in accumulation 9,925,163 3,092,701 12,897,019
Annuity contracts in payment period 0 201,581
- ------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation 8,869,734 94,796,247 131,150,274
Annuity contracts in payment period 496,447 922,555
- ------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation 8,222,292 65,867,130 88,610,687
- ------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 7,801,278 15,049,606 27,062,849
Annuity contracts in payment period 378,075 903,680
- ------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 1,706,168 12,650,163 17,577,310
Annuity contracts in payment period 0 18,946
- ------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 4,872,246 90,170,258 118,791,854
Annuity contracts in payment period 0 56,523
- ------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $512,924,064 $2,922,442,857 $3,956,568,422
======================================================================================================
</TABLE>
(1) - Effective May 1, 1998, Aetna Ascent Variable Portfolio's name changed to
Aetna Ascent VP.
(2) - Effective May 1, 1998, Aetna Investment Advisors Fund's name changed to
Aetna Balanced VP.
(3) - Effective May 1, 1998, Aetna Income Shares began doing business under
the name Aetna Bond VP.
(4) - Effective May 1, 1998, Aetna Crossroads Variable Portfolio's name
changed to Aetna Crossroads VP.
(5) - Effective May 1, 1998, Aetna Variable Fund began doing business under
the name Aetna Growth and Income VP.
(6) - Effective May 1, 1998, Aetna Variable Growth Portfolio's name changed to
Aetna Growth VP.
(7) - Effective May 1, 1998, Aetna High Yield Portfolio's name changed to
Aetna High Yield VP.
(8) - Effective May 1, 1998, Aetna Variable Index Plus Portfolio's name
changed to Aetna Index Plus Large Cap VP.
(9) - Effective May 1, 1998, Aetna Index Plus Mid Cap Portfolio's name changed
to Aetna Index Plus Mid Cap VP.
(10) - Effective May 1, 1998, Aetna Index Plus Small Cap Portfolio's name
changed to Aetna Index Plus Small Cap VP.
(11) - Effective May 1, 1998, Aetna International Portfolio's name changed to
Aetna International VP.
(12) - Effective May 1, 1998, Aetna Legacy Variable Portfolio's name changed to
Aetna Legacy VP.
(13) - Effective May 1, 1998, Aetna Variable Encore Fund began doing business
under the name Aetna Money Market VP.
(14) - Effective May 1, 1998, Aetna Real Estate Securities Portfolio's name
changed to Aetna Real Estate Securities VP.
(15) - Effective May 1, 1998, Aetna Variable Small Company Portfolio's name
changed to Aetna Small Company VP.
(16) - Effective May 1, 1998, Aetna Variable Capital Appreciation Portfolio's
name changed to Aetna Value Opportunity VP.
S-32
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and
Annuity Company and Contract Owners of Variable Annuity Account B:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account B (the "Account") as
of December 31, 1999, and the related statement of operations for the year then
ended, statements of changes in net assets for each of the years in the two-year
period then ended and condensed financial information for the year ended
December 31, 1999. These financial statements and condensed financial
information are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements and
condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1999, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of Aetna Life Insurance and Annuity Company Variable Annuity Account B
as of December 31, 1999, the results of its operations for the year then ended,
changes in its net assets for each of the years in the two-year period then
ended and condensed financial information for the year ended December 31, 1999,
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
February 11, 2000
S-33
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................................ F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended December 31, 1999,
1998 and 1997.................................................................. F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998..................... F-4
Consolidated Statements of Changes in Shareholder's Equity for the Years Ended
December 31, 1999, 1998 and 1997............................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998
and 1997....................................................................... F-6
Notes to Consolidated Financial Statements....................................... F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of income, changes in
shareholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of Aetna Life
Insurance and Annuity Company and Subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
February 7, 2000
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Revenue:
Premiums $ 107.5 $ 79.4 $ 69.1
Charges assessed against policyholders 388.3 324.3 262.0
Net investment income 886.3 871.8 881.7
Net realized capital (losses) gains (21.5) 10.4 29.7
Other income 129.7 100.2 96.8
-------- -------- --------
Total revenue 1,490.3 1,386.1 1,339.3
-------- -------- --------
Benefits and expenses:
Current and future benefits 746.2 714.4 720.4
Operating expenses:
Salaries and related benefits 153.0 141.0 133.5
Other 214.9 200.8 182.8
Amortization of deferred policy acquisition costs 104.9 91.2 66.3
-------- -------- --------
Total benefits and expenses 1,219.0 1,147.4 1,103.0
-------- -------- --------
Income from continuing operations before income
taxes 271.3 238.7 236.3
Income taxes 90.1 66.6 68.4
-------- -------- --------
Income from continuing operations 181.2 172.1 167.9
Discontinued operations, net of tax:
Income from operations -- 61.8 67.8
Amortization of deferred gain on sale 5.7 -- --
Immediate gain on sale -- 59.0 --
-------- -------- --------
Net income $ 186.9 $ 292.9 $ 235.7
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------- --------------
<S> <C> <C>
Assets
Investments:
Debt securities available for sale, at fair value
(amortized cost: $11,657.9 and $11,571.3) $11,410.1 $12,068.2
Equity securities, available for sale:
Nonredeemable preferred stock (cost: $134.7 and $202.6) 130.9 203.3
Investment in affiliated mutual funds (cost: $63.5 and $96.8) 64.1 100.1
Common stock (cost: $6.7 and $1.0) 11.5 2.0
Short-term investments 74.2 48.9
Mortgage loans 6.7 12.7
Policy loans 314.0 292.2
Other investments 13.2 12.7
----------- -----------
Total investments 12,024.7 12,740.1
Cash and cash equivalents 693.3 628.3
Short-term investments under securities loan agreement 232.5 277.3
Accrued investment income 150.7 151.6
Premiums due and other receivables 298.3 61.1
Reinsurance recoverable 3,001.2 2,959.8
Deferred income taxes 150.4 114.3
Deferred policy acquisition costs 1,046.4 893.1
Other assets 96.5 70.4
Separate Accounts assets 38,692.6 29,430.2
----------- -----------
Total assets $56,386.6 $47,326.2
=========== ===========
Liabilities and Shareholder's Equity
Liabilities:
Future policy benefits $ 3,850.4 $ 3,815.9
Unpaid claims and claim expenses 27.3 18.8
Policyholders' funds left with the Company 11,121.7 11,305.6
----------- -----------
Total insurance reserve liabilities 14,999.4 15,140.3
Payables under securities loan agreement 232.5 277.3
Current income taxes 14.7 279.6
Other liabilities 1,063.0 805.5
Separate Accounts liabilities 38,692.6 29,430.2
----------- -----------
Total liabilities 55,002.2 45,932.9
----------- -----------
Shareholder's equity:
Common stock, par value $50 (100,000 shares
authorized; 55,000 shares issued and outstanding) 2.8 2.8
Paid-in capital 431.8 431.8
Accumulated other comprehensive (loss) income (44.8) 104.8
Retained earnings 994.6 853.9
----------- -----------
Total shareholder's equity 1,384.4 1,393.3
----------- -----------
Total liabilities and shareholder's equity $56,386.6 $47,326.2
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Shareholder's equity, beginning of year $1,393.3 $1,852.8 $1,618.3
Comprehensive income:
Net income 186.9 292.9 235.7
Other comprehensive income, net of tax:
Unrealized (losses) gains on securities
($(230.2), $18.2 $49.9, pretax)(1) (149.6) 11.9 32.4
---------- ---------- ----------
Total comprehensive income 37.3 304.8 268.1
---------- ---------- ----------
Capital contribution -- 9.3 (5.0)
Other changes 2.8 2.4 5.7
---------- ---------- ----------
Common stock dividends (49.0) (776.0) (34.3)
---------- ---------- ----------
Shareholder's equity, end of year $1,384.4 $1,393.3 $1,852.8
========== ========== ==========
</TABLE>
(1) Net of reclassification adjustments.
See Notes to Consolidated Financial Statements
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 186.9 $ 292.9 $ 235.7
Adjustments to reconcile net income to net cash (used for) provided by
operating activities:
Net accretion of discount on investments (26.5) (29.5) (66.8)
Amortization of deferred gain on sale ( 5.7) -- --
Immediate gain on sale -- (59.0) --
Net realized capital losses (gains) 21.5 (11.1) (36.0)
Changes in assets and liabilities:
Decrease (increase) in accrued investment income 0.9 11.4 ( 4.0)
Increase in premiums due and other receivables 23.3 (23.7) (30.0)
(Increase) decrease in policy loans (21.8) 177.4 (70.3)
Increase in deferred policy acquisition costs (153.3) (132.8) (155.8)
Decrease in reinsurance loan to affiliate -- 397.2 231.1
Net increase in universal life account balances 55.7 122.9 157.1
Decrease in other insurance reserve liabilities (28.6) (41.8) (120.3)
Decrease in other liabilities and other assets (53.9) (53.6) (74.0)
(Decrease) increase in income taxes (259.8) 106.4 (25.8)
---------- ---------- ----------
Net cash (used for) provided by operating activities (261.3) 756.7 40.9
---------- ---------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 5,890.1 6,790.2 5,311.4
Equity securities 111.2 150.1 103.1
Mortgage loans 6.1 0.3 0.2
Life Business -- 966.5 --
Investment maturities and collections of:
Debt securities available for sale 1,216.5 1,296.3 1,212.7
Short-term investments 80.6 135.3 108.4
Cost of investment purchases in:
Debt securities available for sale (7,099.7) (6,706.4) (6,734.8)
Equity securities (13.0) (125.7) (113.3)
Short-term investments (106.0) (83.9) (167.1)
Increase in property and equipment 5.7 9.0 10.0
Other, net 3.7 (2,725.9) --
---------- ---------- ----------
Net cash provided by (used for) investing activities 95.2 (294.2) (269.4)
---------- ---------- ----------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 2,040.2 1,571.1 1,621.2
Withdrawals of investment contracts (1,680.8) (1,393.1) (1,256.3)
Capital contribution to Separate Account -- -- (25.0)
Return of capital from Separate Account -- 1.7 12.3
Capital contribution from HOLDCO -- 9.3 (5.0)
Dividends paid to shareholder (255.0) (570.0) (34.3)
Other, net 126.7 (34.3) 26.4
---------- ---------- ----------
Net cash provided by (used for) financing activities 231.1 (415.3) 339.3
---------- ---------- ----------
Net increase in cash and cash equivalents 65.0 47.2 110.8
Cash and cash equivalents, beginning of year 628.3 581.1 470.3
---------- ---------- ----------
Cash and cash equivalents, end of year $ 693.3 $ 628.3 $ 581.1
========== ========== ==========
Supplemental cash flow information:
Income taxes paid, net $ 316.5 $ 60.5 $ 130.3
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Aetna Life Insurance and Annuity Company ("ALIAC") and its wholly owned
subsidiaries (collectively, the "Company") are providers of financial products
and services and investment management services in the United States. The
Company has two business segments: Financial Products and Investment Management
Services. On October 1, 1998, the Company sold its individual life insurance
business to Lincoln National Corporation ("Lincoln") and accordingly, it is now
classified as Discontinued Operations (refer to note 3).
Financial Products include annuity contracts that offer a variety of funding
and payout options for individual and employer-sponsored retirement plans
qualified under Internal Revenue Code Sections 401, 403, 408 and 457,
nonqualified annuity contracts and mutual funds. Annuity contracts may be
deferred or immediate ("payout annuities"). These products also include
programs offered to qualified plans and nonqualified deferred compensation
plans that package administrative and recordkeeping services along with a menu
of investment options, including mutual funds (both ALIAC and nonaffiliated
mutual funds), variable and fixed investment options. Financial Products also
include investment advisory services and pension plan administrative services.
Investment Management Services provides: investment advisory services to
affiliated and unaffiliated institutional and retail clients on a
fee-for-service basis; underwriting services to the Aetna Series Fund Inc.;
distribution services for other Aetna products; and trustee, administrative,
and other fiduciary services to retirement plans requiring or otherwise
utilizing a trustee or custodian.
Discontinued Operations include universal life, variable universal life,
traditional whole life and term insurance.
Principles of Consolidation
The consolidated financial statements include ALIAC and its wholly owned
subsidiaries, Aetna Insurance Company of America ("AICA") and Aetna Investment
Adviser Holding Company, Inc. ("IA Holdco"). ALIAC is a wholly owned subsidiary
of Aetna Retirement Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly owned
subsidiary of Aetna Retirement Services, Inc. whose ultimate parent is Aetna
Inc. ("Aetna"). On July 1, 1999, HOLDCO contributed IA Holdco to the Company
(refer to note 2).
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. The contribution of IA Holdco to the
Company was accounted for in a manner similar to that of a pooling-of-interests
and accordingly, the Company's historical consolidated financial statements
have been restated to include the accounts and results of operations of IA
Holdco. Certain reclassifications have been made to 1998 and 1997 financial
information to conform to the 1999 presentation.
F-7
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
New Accounting Standards
Accounting by Insurance and Other Enterprises for Insurance-Related Assesments
As of January 1, 1999, the Company adopted Statement of Position ("SOP") 97-3,
Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments, issued by the American Institute of Certified Public Accountants
("AICPA"). This statement provides guidance for determining when an insurance
or other enterprise should recognize a liability for guaranty-fund and other
insurance-related assessments and guidance for measuring the liability. The
adoption of this standard did not have a material effect on the Company's
financial position or results of operations, as the Company had previously
accounted for guaranty-fund and other insurance-related assessments in a manner
consistent with this standard.
Future Application of Accounting Standards
Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do
Not Transfer Insurance Risk
In October 1998, the AICPA issued SOP 98-7, Deposit Accounting: Accounting for
Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk, which
provides guidance on how to account for all insurance and reinsurance contracts
that do not transfer insurance risk, except for long-duration life and health
insurance contracts. This statement is effective for the Company's financial
statements beginning January 1, 2000. The Company does not expect the adoption
of this standard to have a material effect on its financial position and
results of operations.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. This standard requires companies to record
all derivatives on the balance sheet as either assets or liabilities and
measure those instruments at fair value. The manner in which companies are to
record gains or losses resulting from changes in the values of those
derivatives depends on the use of the derivative and whether it qualifies for
hedge accounting. As amended by FAS No. 137, Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133, this standard is effective for the Company's financial
statements beginning January 1, 2001, with early adoption permitted. The impact
of FAS No. 133 on the Company's financial statements will vary based on certain
factors including future interpretative guidance from the FASB, the extent of
the Company's hedging activities, the types of hedging instruments used and the
effectiveness of such instruments. The Company is evaluating the impact of
adoption of this standard and currently does not believe that it will have a
material effect on its financial position and results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the
F-8
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
financial statements and accompanying notes. Actual results could differ from
reported results using those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity of 90 days or less when purchased.
Investments
Debt and equity securities are classified as available for sale and carried at
fair value. Securities are written down (as realized capital losses) for other
than temporary declines in value. Included in available-for-sale securities are
investments that support experience-rated products.
Experience-rated products are products where the customer, not the Company,
assumes investment (including realized capital gains and losses) and other
risks, subject to, among other things, minimum guarantees. As long as minimum
guarantees are not triggered, the effect of experience- rated products'
investment performance does not impact the Company's results of operations.
Realized and unrealized capital gains and losses on investments supporting
these products are reflected in policyholder's funds left with the Company.
Realized capital gains and losses on all other investments are reflected in the
Company's results of operations. Unrealized capital gains and losses on all
other investments are reflected in shareholders' equity, net of related income
taxes. Purchases and sales of debt and equity securities are recorded on the
trade date. Sales of mortgage loans are recorded on the closing date.
Fair values for debt and equity securities are based on quoted market prices or
dealer quotations. Where quoted market prices or dealer quotations are not
available, fair values are measured utilizing quoted market prices for similar
securities or by using discounted cash flow methods. Cost for mortgage-backed
securities is adjusted for unamortized premiums and discounts, which are
amortized using the interest method over the estimated remaining term of the
securities, adjusted for anticipated prepayments. The Company does not accrue
interest on problem debt securities when management believes the collection of
interest is unlikely.
The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time. Initial
collateral, primarily cash, is required at a rate of 102% of the market value
of a loaned domestic security and 105% of the market value of a loaned foreign
security. The collateral is deposited by the borrower with a lending agent, and
retained and invested by the lending agent according to the Company's
guidelines to generate additional income. The market value of the loaned
securities is monitored on a daily basis with additional collateral obtained or
refunded as the market value of the loaned securities fluctuates. At December
31, 1999 and 1998, the Company loaned securities (which are reflected as
invested assets) with a fair value of approximately $232.5 million and $277.3
million, respectively.
The investment in affiliated mutual funds represents an investment in Aetna
managed mutual funds which have been seeded by the Company, and is carried at
fair value.
F-9
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Mortgage loans and policy loans are carried at unpaid principal balances, net
of impairment reserves.
Short-term investments, consisting primarily of money market instruments and
other debt issues purchased with an original maturity of 91 days to one year,
are considered available for sale and are carried at fair value, which
approximates amortized cost.
The Company utilizes futures contracts for other than trading purposes in order
to hedge interest rate risk (i.e. market risk, refer to note 5.)
Futures contracts are carried at fair value and require daily cash settlement.
Changes in the fair value of futures contracts allocable to experience rated
contracts are deducted from capital gains and losses with an offsetting amount
reported in future policy benefits. Changes in the fair value of futures
contracts allocable to non-experienced-rated contracts that qualify as hedges
are deferred and recognized as an adjustment to the hedged asset or liability.
Deferred gains or losses on such futures contracts are amortized over the life
of the acquired asset or liability as a yield adjustment or through net
realized capital gains or losses upon disposal of an asset. Changes in the fair
value of futures contracts that do not qualify as hedges are recorded in net
realized capital gains or losses. Hedge designation requires specific asset or
liability identification, a probability at inception of high correlation with
the position underlying the hedge, and that high correlation be maintained
throughout the hedge period. If a hedging instrument ceases to be highly
correlated with the position underlying the hedge, hedge accounting ceases at
that date and excess gains or losses on the hedging instrument are reflected in
net realized capital gains or losses.
Included in common stock are warrants which represent the right to purchase
specific securities. Upon exercise, the cost of the warrants is added to the
basis of the securities purchased.
On occasion, the Company sells call options written on underlying securities
which are carried at fair value. Changes in fair value of these options are
recorded in net realized capital gains or losses.
Deferred Policy Acquisition Costs
Certain costs of acquiring certain insurance business are deferred. These
costs, all of which vary with and are primarily related to the production of
new and renewal business, consist principally of commissions, certain expenses
of underwriting and issuing contracts, and certain agency expenses. For certain
annuity and pension contracts, such costs are amortized in proportion to
estimated gross profits and adjusted to reflect actual gross profits over the
life of the contracts (up to 20 years for annuity and pension contracts.)
Periodically, modifications may be made to deferred annuity contract features,
such as shortening the surrender charge period or waiving the surrender charge,
changing the mortality and expense fees, etc. Unamortized deferred policy
acquisition costs associated with these modified contracts are not written off,
but rather, continue to be associated with the original block of business to
F-10
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
which these costs were previously recorded. Such costs are amortized based on
revised estimates of expected gross profits based upon the contract after the
modification. Unamortized deferred policy acquisition costs related to deferred
annuity products were approximately $1.0 billion and $893 million as of
December 31, 1999 and 1998, respectively.
Deferred policy acquisition costs are written off to the extent that it is
determined that future policy premiums and investment income or gross profits
are not adequate to cover related expenses.
Insurance Reserve Liabilities
Future policy benefits include reserves for universal life, immediate annuities
with life contingent payouts and traditional life insurance contracts. Reserves
for universal life products are equal to cumulative deposits less withdrawals
and charges plus credited interest thereon. Reserves for traditional life
insurance contracts represent the present value of future benefits to be paid
to or on behalf of policyholders and related expenses less the present value of
future net premiums.
Reserves for immediate annuities with life contingent payouts contracts are
computed on the basis of assumed investment yield, mortality, and expenses,
including a margin for adverse deviations. Such assumptions generally vary by
plan, year of issue and policy duration. Reserve interest rates range from
1.50% to 11.25% for all years presented. Investment yield is based on the
Company's experience. Mortality and withdrawal rate assumptions are based on
relevant Aetna experience and are periodically reviewed against both industry
standards and experience.
Because the sale of the domestic individual life insurance business was
substantially in the form of an indemnity reinsurance agreement, the Company
reported an addition to its reinsurance recoverable approximating the Company's
total individual life reserves at the sale date.
Policyholders' funds left with the Company include reserves for deferred
annuity investment contracts and immediate annuities without life contingent
payouts. Reserves on such contracts are equal to cumulative deposits less
charges and withdrawals plus credited interest thereon (rates range from 1.50%
to 11.25% for all years presented) net of adjustments for investment experience
that the Company is entitled to reflect in future credited interest. These
reserves also include unrealized gains/losses related to FAS No. 115. Reserves
on contracts subject to experience rating reflect the rights of
contractholders, plan participants and the Company.
Unpaid claims for all lines of insurance include benefits for reported losses
and estimates of benefits for losses incurred but not reported.
Revenue Recognition
For certain annuity contracts, charges assessed against policyholders' funds
for the cost of insurance, surrender charges, actuarial margin and other fees
are recorded as revenue in charges assessed against policyholders. Other
amounts received for these contracts are reflected as deposits
F-11
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
and are not recorded as revenue. Related policy benefits are recorded in
relation to the associated premiums or gross profit so that profits are
recognized over the expected lives of the contracts. When annuity payments with
life contingencies begin under contracts that were initially investment
contracts, the accumulated balance in the account is treated as a single
premium for the purchase of an annuity and reflected as an offsetting amount in
both premiums and current and future benefits in the Consolidated Statements of
Income.
Separate Accounts
Separate Accounts assets and liabilities generally represent funds maintained
to meet specific investment objectives of contractholders who bear the
investment risk, subject, in some cases, to minimum guaranteed rates.
Investment income and investment gains and losses generally accrue directly to
such contractholders. The assets of each account are legally segregated and are
not subject to claims that arise out of any other business of the Company.
Separate Accounts assets supporting variable options under universal life and
annuity contracts are invested, as designated by the contractholder or
participant under a contract (who bears the investment risk subject, in limited
cases, to minimum guaranteed rates) in shares of mutual funds which are managed
by the Company, or other selected mutual funds not managed by the Company.
Separate Accounts assets are carried at fair value. At December 31, 1999 and
1998 , unrealized losses of $8.0 million and unrealized gains of $10.0 million,
respectively, after taxes, on assets supporting a guaranteed interest option
are reflected in shareholder's equity. Separate Accounts liabilities are
carried at fair value, except for those relating to the guaranteed interest
option. Reserves relating to the guaranteed interest option are maintained at
fund value and reflect interest credited at rates ranging from 3.70% to 12.00%
in 1999 and 3.00 to 8.10% in 1998.
Separate Accounts assets and liabilities are shown as separate captions in the
Consolidated Balance Sheets. Deposits, investment income and net realized and
unrealized capital gains and losses of the Separate Accounts are not reflected
in the Consolidated Financial Statements (with the exception of realized and
unrealized capital gains and losses on the assets supporting the guaranteed
interest option). The Consolidated Statements of Cash Flows do not reflect
investment activity of the Separate Accounts.
Reinsurance
The Company utilizes indemnity reinsurance agreements to reduce its exposure to
large losses in all aspects of its insurance business. Such reinsurance permits
recovery of a portion of losses from reinsurers, although it does not discharge
the primary liability of the Company as direct insurer of the risks reinsured.
The Company evaluates the financial strength of potential reinsurers and
continually monitors the financial condition of reinsurers. Only those
reinsurance recoverable deemed probable of recovery are reflected as assets on
the Company's Consolidated Balance Sheets. Of the reinsurance recoverable on
the Consolidated Balance Sheets at December 31, 1999 and 1998, $2,989 million
and $2,946 million, respectively, is related to the reinsurance recoverable
from Lincoln arising from the sale of the domestic life insurance business.
(Refer to note 3)
F-12
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company is included in the consolidated federal income tax return of Aetna.
The Company is taxed at regular corporate rates after adjusting income reported
for financial statement purposes for certain items. Deferred income tax
expenses/benefits result from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and liabilities.
2. Contribution of IA Holdco from HOLDCO
On July 1, 1999, HOLDCO contributed IA Holdco to the Company. The primary
operating subsidiary of IA Holdco is Aeltus Investment Management, Inc.
("Aeltus") which has two wholly-owned operating subsidiaries: Aeltus Capital,
Inc. ("ACI"), a broker dealer, and Aeltus Trust Company ("ATC"), a limited
purpose banking entity. Aeltus is a registered investment advisor under the
Investment Advisers Act of 1940 and provides investment advisory services to
institutional and retail clients on a fee-for-service basis. In addition,
Aeltus, through its ACI subsidiary, provides distribution services for certain
Aetna mutual funds and other Aetna products. Aeltus' ATC subsidiary provides
trustee, administrative, and other fiduciary services to retirement plans
requiring or otherwise utilizing a trustee or custodian.
3. Discontinued Operations-Individual Life Insurance
On October 1, 1998, the Company sold its domestic individual life insurance
business to Lincoln for $1 billion in cash. The transaction was generally in
the form of an indemnity reinsurance arrangement, under which Lincoln
contractually assumed from the Company certain policyholder liabilities and
obligations, although the Company remains directly obligated to policyholders.
Assets related to and supporting the life policies were transferred to Lincoln
and the Company recorded a reinsurance recoverable from Lincoln. The
transaction resulted in an after-tax gain on the sale of approximately $117
million, of which $57.7 million was deferred and was being recognized over
approximately 15 years. The remaining portion of the gain is recognized
immediately in net income and was largely attributed to access to the agency
sales force and brokerage distribution channel. Approximately $5.2 million
(after tax) of the deferred gain was recognized during 1999. During the fourth
quarter of 1999, the Company refined certain accrual and tax estimates which
had been established in connection with the recording of the deferred gain. As
a result, the deferred gain was increased by $12.9 million (after tax) to $65.4
million at December 31, 1999. The remaining deferred gain will be recognized
over approximately 14 years. The unamortized portion of the deferred gain is
presented in other liabilities on the Consolidated Balance Sheets.
The operating results of the domestic individual life insurance business are
presented as Discontinued Operations. All prior year income statement data has
been restated to reflect the presentation as Discontinued Operations. Revenues
for the individual life segment were $652.2 million and $620.4 million for 1998
and 1997. Premiums ceded and reinsurance recoveries made in 1999 totaled $476.5
million and $513.4 million, respectively, and in 1998 totaled $153.4 million
and $70.5 million, respectively.
F-13
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Investments
Debt securities available for sale as of December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1999 (Millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and government agencies
and authorities $ 1,087.2 $ 4.6 $ 22.1 $ 1,069.7
States, municipalities and political subdivisions 0.3 -- -- 0.3
U.S. corporate securities:
Utilities 514.5 5.6 12.7 507.4
Financial 1,869.8 8.2 44.7 1,833.3
Transportation/capital goods 623.4 .9 39.0 585.3
Health care/consumer products 1,138.7 9.3 51.3 1,096.7
Natural resources 424.6 1.3 15.4 410.5
Other corporate securities 214.0 1.0 14.9 200.1
- ----------------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 4,785.0 26.3 178.0 4,633.3
- ----------------------------------------------------------------------------------------------------------------
Foreign securities:
Government, including political subdivisions 364.6 17.1 11.9 369.8
Utilities 196.4 7.3 .4 203.3
Other 748.2 8.9 34.3 722.8
- ----------------------------------------------------------------------------------------------------------------
Total foreign securities 1,309.2 33.3 46.6 1,295.9
- ----------------------------------------------------------------------------------------------------------------
Residential mortgage-backed securities:
Pass-throughs 1,055.9 19.8 17.6 1,058.1
Collateralized mortgage obligations 1,683.1 25.1 37.7 1,670.5
- ----------------------------------------------------------------------------------------------------------------
Total residential mortgage-backed securities 2,739.0 44.9 55.3 2,728.6
- ----------------------------------------------------------------------------------------------------------------
Commercial/Multifamily mortgage-backed
securities 1,031.5 3.4 48.7 986.2
Other asset-backed securities 705.7 0.3 9.9 696.1
- ----------------------------------------------------------------------------------------------------------------
Total debt securities $ 11,657.9 $ 112.8 $ 360.6 $ 11,410.1
================================================================================================================
</TABLE>
F-14
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
Debt securities available for sale as of December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1998 (Millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and government agencies
and authorities $ 718.9 $ 60.4 $ 0.2 $ 779.1
States, municipalities and political subdivisions 0.3 -- -- 0.3
U.S. corporate securities:
Utilities 615.2 29.8 4.1 640.9
Financial 2,260.2 94.6 5.6 2,349.2
Transportation/capital goods 580.8 33.0 1.1 612.7
Healthcare/consumer products 1,328.2 69.8 4.8 1,393.2
Natural resources 254.5 6.9 2.3 259.1
Other corporate securities 261.7 5.8 7.4 260.1
- ----------------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 5,300.6 239.9 25.3 5,515.2
- ----------------------------------------------------------------------------------------------------------------
Foreign securities:
Government, including political subdivisions 507.6 30.4 32.9 505.1
Utilities 147.0 32.4 -- 179.4
Other 511.2 14.9 1.8 524.3
- ----------------------------------------------------------------------------------------------------------------
Total foreign securities 1,165.8 77.7 34.7 1,208.8
- ----------------------------------------------------------------------------------------------------------------
Residential mortgage-backed securities:
Pass-throughs 671.9 38.4 2.9 707.4
Collateralized mortgage obligations 1,879.6 119.7 10.4 1,988.9
- ----------------------------------------------------------------------------------------------------------------
Total residential mortgage-backed securities 2,551.5 158.1 13.3 2,696.3
- ----------------------------------------------------------------------------------------------------------------
Commercial/Multifamily mortgage-backed
securities 1,114.9 30.9 9.8 1,136.0
Other asset-backed securities 719.3 13.8 0.6 732.5
- ----------------------------------------------------------------------------------------------------------------
Total debt securities $ 11,571.3 $ 580.8 $ 83.9 $ 12,068.2
================================================================================================================
</TABLE>
F-15
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
At December 31, 1999 and 1998, net unrealized (depreciation) appreciation of
$(247.8) million and $496.9 million, respectively, on available-for-sale debt
securities included $(189.7) million and $355.8 million, respectively, related
to experience-rated contracts, which were not reflected in shareholder's equity
but in insurance reserves.
The amortized cost and fair value of debt securities for the year ended
December 31, 1999 are shown below by contractual maturity. Actual maturities
may differ from contractual maturities because securities may be restructured,
called, or prepaid.
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
- -------------------------------------------------------------------------
<S> <C> <C>
Due to mature:
One year or less $ 266.4 $ 266.5
After one year through five years 2,838.4 2,798.7
After five years through ten years 1,718.0 1,674.6
After ten years 2,351.4 2,250.1
Mortgage-backed securities 3,776.5 3,722.3
Other asset-backed securities 707.2 697.9
- -------------------------------------------------------------------------
Total $ 11,657.9 $ 11,410.1
=========================================================================
</TABLE>
At December 31, 1999 and 1998, debt securities carried at fair value of $8.7
million and $8.8 million, respectively, were on deposit as required by
regulatory authorities.
The Company did not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10% of
the Company's shareholder's equity at December 31, 1999.
Included in the Company's debt securities were residential collateralized
mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1999 1998
----------------------------- --------------------------
Amortized Fair Amortized Fair
(Millions) Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total residential CMOs (1) $ 1,683.1 $ 1,670.5 $ 1,879.6 $ 1,988.9
=====================================================================================================
Percentage of total:
Supporting experience rated products 80.7% 81.7%
Supporting remaining products 19.3% 18.3%
- -----------------------------------------------------------------------------------------------------
100.0% 100.0%
=====================================================================================================
</TABLE>
(1) At December 31, 1999 and 1998, approximately 81% and 66%, respectively, of
the Company's residential CMO holdings were backed by government agencies
such as GNMA, FNMA, FHLMC.
F-16
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
There are various categories of CMOs which are subject to different degrees of
risk from changes in interest rates and, for CMO's that are not agency-backed,
defaults. The principal risks inherent in holding CMOs are prepayment and
extension risks related to dramatic decreases and increases in interest rates
resulting in the repayment of principal from the underlying mortgages either
earlier or later than originally anticipated. At December 31, 1999 and 1998,
approximately 1% and 2%, respectively, of the Company's CMO holdings were
invested in types of CMOs which are subject to more prepayment and extension
risk than traditional CMOs (such as interest- or principal-only strips).
Investments in equity securities available for sale as of December 31 were as
follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998
- ----------------------------------------------------
<S> <C> <C>
Amortized Cost $ 204.9 $ 300.4
Gross unrealized gains 12.5 13.1
Gross unrealized losses 10.9 8.1
- ----------------------------------------------------
Fair Value $ 206.5 $ 305.4
====================================================
</TABLE>
5. Financial Instruments
Estimated Fair Value
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------- ----------------------
Carrying Fair Carrying Fair
(Millions) Value Value Value Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Mortgage loans $ 6.7 $ 6.8 $ 12.7 $ 12.3
Liabilities:
Investment contract liabilities:
With a fixed maturity 1,055.3 991.0 1,063.9 984.3
Without a fixed maturity 10,066.4 9,452.8 10,241.7 9,686.2
- ------------------------------------------------------------------------------------------
</TABLE>
Fair value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument, such as
estimates of timing and amount of future cash flows. Such estimates do not
reflect any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial instrument, nor do
they consider the tax impact of the realization of unrealized gains or losses.
In many cases, the fair value estimates cannot be substantiated by comparison
to independent markets, nor can the disclosed value be realized in immediate
settlement of the instrument. In evaluating the Company's management of
interest rate, price and liquidity risks, the fair values of all assets and
liabilities should be taken into consideration, not only those presented above.
F-17
<PAGE>
Notes to Consolidated Financial Statements (continued)
5. Financial Instruments (continued)
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Mortgage loans: Fair values are estimated by discounting expected mortgage loan
cash flows at market rates which reflect the rates at which similar loans would
be made to similar borrowers. The rates reflect management's assessment of the
credit quality and the remaining duration of the loans.
Investment contract liabilities (included in Policyholders' funds left with the
Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Off-Balance-Sheet and Other Financial Instruments
Without a fixed maturity: Fair value is estimated as the amount payable to the
contractholder upon demand. However, the Company has the right under such
contracts to delay payment of withdrawals which may ultimately result in paying
an amount different than that determined to be payable on demand.
Futures Contracts:
Futures contracts are used to manage interest rate risk in the Company's bond
portfolio. Futures contracts represent commitments to either purchase or sell
securities at a specified future date and at a specified price or yield.
Futures contracts trade on organized exchanges and, therefore, have minimal
credit risk. Cash settlements are made daily based on changes in the prices of
the underlying assets. The notional amounts, carrying values and estimated fair
values of the Company's open treasury futures as of December 31, 1998 were
$250.9 million, $.1 million, and $.1 million, respectively. There were no open
treasury futures as of December 31, 1999.
Warrants:
Included in common stocks are warrants which are instruments giving the Company
the right, but not the obligation to buy a security at a given price during a
specified period. The carrying values and estimated fair values of the
Company's warrants to purchase equity securities as of December 31, 1999 were
both $6.5 million. The carrying values and estimated fair values as of December
31, 1998 were both $1.5 million.
Options:
During 1999, the Company earned $0.4 million of investment income for writing
call options on underlying securities. The Company did not write any call
options in 1998. As of December 31, 1999 and 1998, there were no option
contracts outstanding.
F-18
<PAGE>
Notes to Consolidated Financial Statements (continued)
5. Financial Instruments (continued)
Debt Instruments with Derivative Characteristics:
The Company also had investments in certain debt instruments with derivative
characteristics, including those whose market value is at least partially
determined by, among other things, levels of or changes in domestic and/or
foreign interest rates (short- or long-term), exchange rates, prepayment rates,
equity markets or credit ratings/spreads. The amortized cost and fair value of
these securities, included in the debt securities portfolio, as of December 31,
1999 was as follows:
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Residential collateralized mortgage obligations $ 1,683.1 $ 1,670.5
Principal-only strips (included above) 9.2 9.7
Interest-only strips (included above) 10.7 14.6
Other structured securities with derivative
characteristics (1) 81.7 67.2
- --------------------------------------------------------------------------------
</TABLE>
(1) Represents non-leveraged instruments whose fair values and credit risk are
based on underlying securities, including fixed income securities and
interest rate swap agreements.
6. Net Investment Income
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 823.3 $ 798.8 $ 814.6
Nonredeemable preferred stock 17.1 18.4 12.9
Investment in affiliated mutual funds 2.4 6.6 3.8
Mortgage loans 1.1 0.6 0.3
Policy loans 7.7 7.2 5.7
Reinsurance loan to affiliate -- 2.3 5.5
Cash equivalents 39.0 46.1 40.2
Other 15.3 13.2 16.1
- --------------------------------------------------------------------------------
Gross investment income 905.9 893.2 899.1
Less: investment expenses (19.6) (21.4) (17.4)
- --------------------------------------------------------------------------------
Net investment income $ 886.3 $ 871.8 $ 881.7
================================================================================
</TABLE>
Net investment income includes amounts allocable to experience rated
contractholders of $659.6 million, $655.6 million and $673.8 million for the
years ended December 31, 1999, 1998 and 1997, respectively. Interest credited
to contractholders is included in current and future benefits.
F-19
<PAGE>
Notes to Consolidated Financial Statements (continued)
7. Dividend Restrictions and Shareholder's Equity
The Company paid $255.0 million, $570.0 million and $34.3 million in cash
dividends to HOLDCO in 1999,1998 and 1997, respectively. Of the $255.0 million
paid in 1999, $206 million was accrued for in 1998. Of the $776.0 million
dividends paid or accrued in 1998, $756.0 million (all of which was approved by
the Insurance Commissioner of the State of Connecticut) was attributable to
proceeds from the sale of the domestic individual life insurance business.
The Department recognizes as net income and shareholder's capital and surplus
those amounts determined in conformity with statutory accounting practices
prescribed or permitted by the Department, which differ in certain respects
from generally accepted accounting principles. Statutory net income was $133.9
million, $148.1 million and $80.5 million for the years ended December 31,
1999, 1998 and 1997, respectively. Statutory capital and surplus was $845.2
million and $773.0 million as of December 31, 1999 and 1998, respectively.
As of December 31, 1999, the Company does not utilize any statutory accounting
practices which are not prescribed by state regulatory authorities that,
individually or in the aggregate, materially affect statutory capital and
surplus.
8. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying value
and sale proceeds of specific investments sold.
Net realized capital (losses) gains on investments were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ (23.6) $ 7.4 $ 21.1
Equity securities 2.1 3.0 8.6
- ----------------------------------------------------------------------------------
Pretax realized capital (losses) gains $ (21.5) $ 10.4 $ 29.7
==================================================================================
After-tax realized capital (losses) gains $ (14.0) $ 7.3 $ 19.2
==================================================================================
</TABLE>
Net realized capital (losses) gains of $(36.7) million, $15.0 million and $83.7
million for 1999, 1998 and 1997, respectively, allocable to experience rated
contracts, were deducted from net realized capital gains and an offsetting
amount was reflected in Policyholders' funds left with the Company. Net
unamortized gains allocable to experienced-rated contractholders were $68.5
million and $118.6 million at December 31, 1999 and 1998, respectively.
F-20
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Capital Gains and Losses on Investment Operations (continued)
Proceeds from the sale of available-for-sale debt securities and the related
gross gains and losses were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds on sales $ 5,890.1 $ 6,790.2 $ 5,311.3
Gross gains 10.5 98.8 23.8
Gross losses 34.1 91.4 2.7
- ------------------------------------------------------------------
</TABLE>
Changes in shareholder's equity related to changes in accumulated other
comprehensive income (unrealized capital gains and losses on securities,
excluding those related to experience-rated contractholders) were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ (199.2) $ 18.9 $ 44.3
Equity securities (3.4) (16.1) 5.6
Other (27.6) 15.4 --
- -------------------------------------------------------------------------------------
Subtotal (230.2) 18.2 49.9
(Decrease) increase in deferred income taxes
(Refer to note 9) (80.6) 6.3 17.5
- -------------------------------------------------------------------------------------
Net changes in accumulated other
comprehensive (loss) income $ (149.6) $ 11.9 $ 32.4
=====================================================================================
</TABLE>
Net unrealized capital (losses) gains allocable to experience-rated contracts
of $(189.7) and $355.8 million at December 31, 1999 and December 31, 1998
respectively, are reflected on the Consolidated Balance Sheets in
Policyholders' funds left with the Company and are not included in
shareholder's equity.
F-21
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Capital Gains and Losses on Investment Operations (continued)
Shareholder's equity included the following accumulated other comprehensive
(loss) income, which is net of amounts allocable to experience-rated
contractholders, at December 31:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities:
Gross unrealized capital gains $ 18.6 $ 157.3 $ 140.6
Gross unrealized capital losses (76.7) (16.2) (18.4)
- -----------------------------------------------------------------------------------
(58.1) 141.1 122.2
- -----------------------------------------------------------------------------------
Equity securities:
Gross unrealized capital gains 12.5 13.1 21.2
Gross unrealized capital losses (10.9) (8.1) (0.1)
- -----------------------------------------------------------------------------------
1.6 5.0 21.1
- -----------------------------------------------------------------------------------
Other:
Gross unrealized capital gains 1.3 17.1 --
Gross unrealized capital losses (13.7) (1.8) --
- -----------------------------------------------------------------------------------
(12.4) 15.3 --
- -----------------------------------------------------------------------------------
Deferred income taxes (Refer to note 9) (24.1) 56.6 50.4
- -----------------------------------------------------------------------------------
Net accumulated other comprehensive (loss)
income $ (44.8) $ 104.8 $ 92.9
===================================================================================
</TABLE>
Changes in accumulated other comprehensive income related to changes in
unrealized gains (losses) on securities (excluding those related to
experience-rated contractholders) were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized holding (losses) gains arising
during the year (1) $ (146.3) $ 38.3 $ 99.2
Less: reclassification adjustment for gains and
other items included in net income (2) 3.3 26.4 66.8
========================================================================================
Net unrealized (losses) gains on securities $ (149.6) $ 11.9 $ 32.4
========================================================================================
</TABLE>
(1) Pretax unrealized holding (losses) gains arising during the year were
$(225.2) million, $58.8 million and $152.7 million for 1999, 1998 and
1997, respectively.
(2) Pretax reclassification adjustments for gains and other items included in
net income were $5.0 million, $40.6 million and $102.8 million for 1999,
1998 and 1997, respectively.
F-22
<PAGE>
Notes to Consolidated Financial Statements (continued)
9. Income Taxes
The Company is included in the consolidated federal income tax return, the
combined New York return, and Illinois unitary state income tax return of
Aetna. Aetna allocates to each member, as permitted under a tax sharing
arrangement, an amount approximating the tax it would have incurred were it not
a member of the consolidated group, and credits the member for the use of its
tax saving attributes in the consolidated federal income tax return.
Income taxes from continuing operations consist of the following:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes (benefits):
Federal $ 63.8 $ 257.4 $ 40.0
State 2.5 3.0 3.3
Net realized capital (losses) gains (20.1) 16.8 39.1
- -----------------------------------------------------------------------------
46.2 277.2 82.4
- -----------------------------------------------------------------------------
Deferred taxes (benefits):
Federal 31.3 (196.7) 14.3
Net realized capital gains (losses) 12.6 (13.9) (28.3)
- -----------------------------------------------------------------------------
43.9 (210.6) (14.0)
- -----------------------------------------------------------------------------
Total $ 90.1 $ 66.6 $ 68.4
=============================================================================
</TABLE>
Income taxes were different from the amount computed by applying the federal
income tax rate to income from continuing operations before income taxes for
the following reasons:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations before
income taxes $ 271.3 $ 238.7 $ 236.3
Tax rate 35% 35% 35%
- ------------------------------------------------------------------------------------
Application of the tax rate 95.0 83.5 82.7
Tax effect of:
State income tax, net of federal benefit 1.6 2.0 2.1
Excludable dividends (6.1) (17.1) (15.6)
Other, net (0.4) (1.8) (0.8)
- ------------------------------------------------------------------------------------
Income taxes $ 90.1 $ 66.6 $ 68.4
=====================================================================================
</TABLE>
F-23
<PAGE>
Notes to Consolidated Financial Statements (continued)
9. Income Taxes (continued)
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
(Millions) 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 323.1 $ 324.1
Unrealized gains allocable to experience rated contracts -- 124.5
Net unrealized capital losses 90.5 --
Investment losses 1.3 --
Postretirement benefits other than pensions 24.8 27.6
Deferred compensation 42.5 37.3
Sale of individual life 44.9 48.9
Other 20.2 20.4
- ---------------------------------------------------------------------------------------
Total gross assets 547.3 582.8
- ---------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs 324.0 282.9
Market discount 6.5 4.5
Net unrealized capital gains -- 181.1
Unrealized losses allocable to experience rated contracts 66.4 --
- ---------------------------------------------------------------------------------------
Total gross liabilities 396.9 468.5
- ---------------------------------------------------------------------------------------
Net deferred tax asset $ 150.4 $ 114.3
=======================================================================================
</TABLE>
Net unrealized capital gains and losses are presented in shareholder's equity
net of deferred taxes.
Management believes that it is more likely than not that the Company will
realize the benefit of the net deferred tax asset. The Company expects
sufficient taxable income in the future to realize the net deferred tax asset
because of the Company's long-term history of having taxable income, which is
projected to continue.
The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that has
not been subject to taxation. As of December 31, 1983, no further additions
could be made to the Policyholders' Surplus Account for tax return purposes
under the Deficit Reduction Act of 1984. The balance in such account was
approximately $17.2 million at December 31, 1999. This amount would be taxed
only under certain conditions. No income taxes have been provided on this
amount since management believes under current tax law the conditions under
which such taxes would become payable are remote.
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1994. Discussions are
being held with the Service with respect to proposed adjustments. Management
believes there are adequate defenses against, or sufficient reserves to provide
for, any such adjustments. The Service has commenced its examinations for the
years 1995 through 1997.
F-24
<PAGE>
Notes to Consolidated Financial Statements (continued)
10. Benefit Plans
Aetna has noncontributory defined benefit pension plans covering substantially
all employees. Aetna's accrued pension cost has been allocated to its
subsidiaries, including the Company, under an allocation based on eligible
salaries. Data on a separate company basis regarding the proportionate share of
the projected benefit obligation and plan assets is not available. The
accumulated benefit obligation and plan assets are recorded by Aetna. As of the
measurement date (September 30), fair value of plan assets exceed projected
benefit obligations. Allocated pretax charges to operations for the pension
plan (based on the Company's total salary cost as a percentage of Aetna's total
salary cost) were $6.6 million and $3.0 million for the years ended December
31, 1999 and 1997, respectively. There were no charges in 1998 due to favorable
plan asset performance.
Effective January 1, 1999, the Company, in conjunction with Aetna, changed the
formula from the previous final average pay formula to a cash balance formula,
which will credit employees annually with an amount equal to a percentage of
eligible pay based on age and years of service as well as an interest credit
based on individual account balances. The formula also provides for a
transition period until December 1, 2006, which allows certain employees to
receive vested benefits at the higher of the final average pay or cash balance
formula. The changing of this formula did not have a material effect on the
Company's results of operations, liquidity or financial condition.
In addition to providing pension benefits, Aetna currently provides certain
health care and life insurance benefits for retired employees. A comprehensive
medical and dental plan is offered to all full-time employees retiring at age
45 with 10 years of service. The company provides subsidized benefits to
employees whose sum of age and service is at least equal to 65. There is a cap
on the portion of the cost paid by the Company relating to medical and dental
benefits. The costs to the Company associated with the Aetna postretirement
plans for 1999, 1998 and 1997 were $2.1 million, $1.0 million and $2.4 million,
respectively.
The Company, in conjunction with Aetna, has a non-qualified pension plan
covering certain agents. The plan provides pension benefits based on annual
commission earnings. As of the measurement date (September 30), accumulated
benefit obligations exceeded fair value of plan assets.
The Company, in conjunction with Aetna, also provides certain postretirement
health care and life insurance benefits for certain agents. The costs to the
Company associated with the agents' postretirement plans for 1999, 1998 and
1997 were $2.1 million, $1.4 million and $0.6 million, respectively.
Incentive Savings Plan--Substantially all employees are eligible to participate
in a savings plan under which designated contributions, which may be invested
in common stock of Aetna or certain other investments, are matched, up to 5% of
compensation, by Aetna. Pretax charges to operations for the incentive savings
plan were $7.7 million, $5.3 million and $5.0 million in 1999, 1998 and 1997,
respectively.
Stock Plans--Aetna has a stock incentive plan that provides for stock options,
deferred contingent common stock or equivalent cash awards or restricted stock
to employees. Executive, middle
F-25
<PAGE>
Notes to Consolidated Financial Statements (continued)
10. Benefit Plans (continued)
management and non-management employees may be granted options to purchase
common stock of Aetna at or above the market price on the date of grant.
Options generally become 100% vested three years after the grant is made, with
one-third of the options vesting each year. Aetna does not recognize
compensation expense for stock options granted at or above the market price on
the date of grant under its stock incentive plans. In addition, executives may,
from time to time, be granted incentive units which are rights to receive
common stock or an equivalent value in cash. The incentive units may vest
within a range from 0% to 175% at the end of a four year period based on the
attainment of performance goals. The costs to the Company associated with the
Aetna stock plans for 1999, 1998 and 1997, were $0.4 million, $4.2 million and
$2.9 million, respectively.
11. Related Party Transactions
Investment Advisory and Other Fees
The Company serves as investment advisor to the Aetna managed mutual funds and
variable funds (collectively, the Funds). Under the advisory agreements, the
Funds pay the Company a daily fee which, on an annual basis, ranged, depending
on the fund, from 0.25% to 0.95% of their average daily net assets. The Company
is also compensated by the Separate Accounts (variable funds) for bearing
mortality and expense risks pertaining to variable life and annuity contracts.
Under the insurance and annuity contracts, the Separate Accounts pay the
Company a daily fee which, on an annual basis is, depending on the product, up
to 2.15% of their average daily net assets. The amount of compensation and fees
received from the Funds and Separate Accounts, included in charges assessed
against policyholders and other income, amounted to $424.2 million, $349.0
million and $271.2 million in 1999, 1998 and 1997, respectively.
Reinsurance Transactions
Effective December 31, 1988, the Company entered into a modified coinsurance
reinsurance agreement ("MODCO") with Aetna Life Insurance Company ("Aetna
Life"), an affiliate company, in which substantially all of the
non-participating individual life and annuity business written by Aetna Life
prior to 1981 was assumed by the Company. Effective January 1, 1997, this
agreement was amended to transition (based on underlying investment rollover in
Aetna Life) from a modified coinsurance arrangement to a coinsurance agreement.
As a result of this change, reserves were ceded to the Company from Aetna Life
as investment rollover occurred. Effective October 1, 1998, this agreement was
fully transitioned to a coinsurance arrangement and this business along with
the Company's direct individual non-participation life insurance business was
sold to Lincoln. (Refer to note 3).
The operating results of the domestic individual life business are presented as
Discontinued Operations. Premiums of $17.9 million, $336.3 million and $176.7
million and current and future benefits of $8.6 million, $341.1 million and
$183.9 million, were assumed in 1999, 1998 and 1997, respectively. Investment
income of $17.0 million and $37.5 million was generated from a reinsurance loan
to affiliate for the years ended December 31, 1998 and 1997, respectively.
Prior to the sale of the domestic individual life insurance business to Lincoln
on October 1, 1998, the Company's retention limit per individual life was $2.0
million and amounts in excess of this
F-26
<PAGE>
Notes to Consolidated Financial Statements (continued)
11. Related Party Transactions (continued)
limit, up to a maximum of $8.0 million on any new individual life business was
reinsured with Aetna Life on a yearly renewable term basis. Premium amounts
related to this agreement were $2.0 million and $5.9 million for 1998 and 1997,
respectively. This agreement was terminated effective October 1, 1998.
Effective October 1, 1997, the Company entered into a reinsurance agreement
with Aetna Life to assume amounts in excess of $0.2 million for certain of its
participating life insurance, on a yearly renewable term basis. Premium amounts
related to this agreement were $4.4 million in1998. The business assumed under
this agreement was retroceded to Lincoln effective October 1, 1998.
On December 16, 1988, the Company assumed $25.0 million of premium revenue from
Aetna Life for the purchase and administration of a life contingent single
premium variable payout annuity contract. In addition, the Company is also
responsible for administering fixed annuity payments that are made to
annuitants receiving variable payments. Reserves of $115.3 million and $87.8
million were maintained for this contract as of December 31, 1999 and 1998,
respectively.
Capital Transactions
The Company received no capital contributions in 1999. In 1998, the Company
received a capital contribution of $9.3 million in cash from HOLDCO. In 1997,
the Company returned capital of $5.0 million to HOLDCO.
Refer to note 7 for dividends paid to HOLDCO.
Other
Premiums due and other receivables include $10.5 million and $1.6 million due
from affiliates in 1999 and 1998, respectively. Other liabilities include $1.9
million and $2.2 million due to affiliates for 1999 and 1998, respectively.
Aetna transferred to the Company $0.8 million, $1.7 million and $3.8 million
based on its decision not to settle state tax liabilities for the years 1999,
1998 and 1997, respectively, as permitted under the tax sharing arrangement,
which is reported in other changes in retained earnings.
Substantially all of the administrative and support functions of the Company
are provided by Aetna and its affiliates. The financial statements reflect
allocated charges for these services based upon measures appropriate for the
type and nature of service provided.
12. Reinsurance
On October 1, 1998, the Company sold its domestic individual life insurance
business to Lincoln for $1 billion in cash. The transaction is generally in the
form of an indemnity reinsurance arrangement, under which Lincoln contractually
assumed from the Company certain policyholder liabilities and obligations,
although the Company remains directly obligated to policyholders. (Refer to
note 3)
F-27
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Reinsurance (continued)
Effective January 1, 1998, 90% of the mortality risk on substantially all
individual universal life product business written from June 1, 1991 through
October 31, 1997 was reinsured externally. Beginning November 1, 1997, 90% of
new business written on these products was reinsured externally. Effective
October 1, 1998 this agreement was assigned from the third party reinsurer to
Lincoln.
The following table includes premium amounts ceded/assumed as discussed in note
11.
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
(Millions) Amount Companies Companies Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
----
Premiums:
Discontinued Operations $ 460.1 $ 478.0 $ 17.9 $ --
Accident and Health Insurance 33.4 33.4 -- --
Annuities 111.5 4.9 .9 107.5
- ---------------------------------------------------------------------------------------
Total earned premiums $ 605.0 $ 516.3 $ 18.8 $ 107.5
=======================================================================================
1998
----
Premiums:
Discontinued Operations $ 166.8 $ 165.4 $ 340.6 $ 342.0
Accident and Health Insurance 16.3 16.3 -- --
Annuities 80.8 2.9 1.5 79.4
- ---------------------------------------------------------------------------------------
Total earned premiums $ 263.9 $ 184.6 $ 342.1 $ 421.4
=======================================================================================
1997
----
Premiums:
Discontinued Operations $ 35.7 $ 15.1 $ 177.4 $ 198.0
Accident and Health Insurance 5.6 5.6 -- --
Annuities 67.9 -- 1.2 69.1
- ---------------------------------------------------------------------------------------
Total earned premiums $ 109.2 $ 20.7 $ 178.6 $ 267.1
=======================================================================================
</TABLE>
F-28
<PAGE>
Notes to Consolidated Financial Statements (continued)
13. Segment Information
Summarized financial information for the Company's principal operations was as
follows:
<TABLE>
<CAPTION>
Investment
Year ended December 31, Financial Management Discontinued
1999 (Millions) Products (1) Services (1) Operations (1) Other (1) Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from external
customers $ 551.1 $ 118.3 -- $ (43.9) $ 625.5
Net investment income 881.5 1.5 -- 3.3 886.3
- ---------------------------------------------------------------------------------------------------------
Total revenue excluding net
realized capital losses $ 1,432.6 $ 119.8 -- $ (40.6) $ 1,511.8
=========================================================================================================
Amortization of deferred policy
acquisition costs $ 93.4 $ 11.5 $ 104.9
- ---------------------------------------------------------------------------------------------------------
Income taxes (benefits) $ 87.0 $ 16.5 $ (13.4) $ 90.1
- ---------------------------------------------------------------------------------------------------------
Operating earnings (losses) (2) $ 192.1 $ 28.1 -- $ (7.5) $ 212.7
Other item (3) -- -- (17.5) (17.5)
Net realized capital losses,
net of tax (14.0) -- -- (14.0)
- ---------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations 178.1 28.1 -- (25.0) 181.2
Discontinued operations,
net of tax:
Amortization of deferred
gain on sale -- $ 5.7 -- 5.7
- ---------------------------------------------------------------------------------------------------------
Net income (loss) $ 178.1 $ 28.1 $ 5.7 $ (25.0) $ 186.9
=========================================================================================================
Segment assets $ 53,324.4 $ 73.2 $ 2,989.0 $ 56,386.6
- ---------------------------------------------------------------------------------------------------------
Expenditures for long-lived
assets (4) -- -- -- $ 5.7 $ 5.7
- ---------------------------------------------------------------------------------------------------------
Balance of long-lived assets -- -- -- $ 16.5 $ 16.5
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Financial Products include: deferred and immediate annuity contracts,
mutual funds, programs offered to qualified plans and nonqualified
deferred compensation plans that package administrative and recordkeeping
services along with a menu of investment options, investment advisory
services and pension plan administrative services. Investment Management
Services include the following services: investment advisory to affiliated
and unaffiliated institutional and retail clients, underwriting,
distribution for Company products and trustee, administrative and other
fiduciary services to retirement plans. (Refer to notes 1 and 2.)
Discontinued operations include life insurance products. (Refer to note
3.) Other includes consolidating adjustments and Year 2000 costs.
(2) Operating earnings is comprised of net income (loss) excluding net
realized capital gains and losses and any other items. While operating
earnings is the measure of profit or loss used by the Company's management
when assessing performance or making operating decisions, it does not
replace operating income or net income as a measure of profitability.
(3) Other item excluded from operating earnings represents after-tax Year 2000
costs of $17.5 million
(4) Expenditures of long-lived assets represents additions to property and
equipment not allocable to business segments.
F-29
<PAGE>
Notes to Consolidated Financial Statements (continued)
13. Segment Information (continued)
<TABLE>
<CAPTION>
Investment
Year ended December 31, Financial Management Discontinued
1998 (Millions) Products (1) Services (1) Operations (1) Other (1) Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from external
customers $ 445.6 $ 96.7 -- $ (38.4) $ 503.9
Net investment income 865.3 1.5 -- 5.0 871.8
- --------------------------------------------------------------------------------------------------------
Total revenue excluding net
realized capital gains $ 1,310.9 $ 98.2 -- $ (33.4) $ 1,375.7
========================================================================================================
Amortization of deferred policy
acquisition costs $ 80.3 -- -- $ 10.9 $ 91.2
- --------------------------------------------------------------------------------------------------------
Income Taxes (benefits) $ 67.7 $ 14.7 -- $ (15.8) $ 66.6
- --------------------------------- ---------- ------- -- ------- ----------
Operating earnings (2) $ 170.3 $ 24.0 -- $ (7.1) $ 187.2
Other item (3) -- -- -- (22.4) (22.4)
Net realized capital gains,
net of tax 7.3 -- -- -- 7.3
- --------------------------------------------------------------------------------------------------------
Income from continuing
operations 177.6 24.0 -- (29.5) 172.1
Discontinued operations,
net of tax:
Income from operations -- -- $ 61.8 -- 61.8
Immediate gain on sale -- -- 59.0 -- 59.0
- --------------------------------------------------------------------------------------------------------
Net income (loss) $ 177.6 $ 24.0 $ 120.8 $ (29.5) $ 292.9
========================================================================================================
Segment assets $ 44,366.4 $ 13.4 $ 2,946.4 $ 47,326.2
- --------------------------------------------------------------------------------------------------------
Expenditures for long-lived
assets (4) -- -- -- $ 9.0 $ 9.0
- --------------------------------------------------------------------------------------------------------
Balance of long-lived assets $ 14.8 $ 14.8
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Financial products include: deferred and immediate annuity contracts,
mutual funds, programs offered to qualified plans and nonqualified
deferred compensation plans that package administrative and recordkeeping
services along with a menu of investment options, investment advisory
services and pension plan administrative services. Investment Management
Services include the following services: investment advisory to affiliated
and unaffiliated institutional and retail clients, underwriting,
distribution for Company products and trustee, administrative and other
fiduciary services to retirement plans. (Refer to notes 1 and 2.)
Discontinued operations include life insurance products. (Refer to note
3.) Other includes consolidating adjustments and Year 2000 costs.
(2) Operating earnings is comprised of net income (loss) excluding net
realized capital gains and losses and any other items. While operating
earnings is the measure of profit or loss used by the Company's management
when assessing performance or making operating decisions, it does not
replace operating income or net income as a measure of profitability.
(3) Other item excluded from operating earnings represents after-tax Year 2000
costs of $22.4 million
(4) Expenditures of long-lived assets represents additions to property and
equipment not allocable to business segments.
F-30
<PAGE>
Notes to Consolidated Financial Statements (continued)
13. Segment Information (continued)
<TABLE>
<CAPTION>
Investment
Year ended December 31, Financial Management Discontinued
1997 (Millions) Products (1) Services (1) Operations (1) Other (1) Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from external
customers $ 371.5 $80.3 -- $(23.9) $ 427.9
Net investment income 876.7 1.4 -- 3.6 881.7
- --------------------------------------------------------------------------------------------------------
Total revenue excluding net
realized capital gains $ 1,248.2 $81.7 -- $(20.3) $ 1,309.6
========================================================================================================
Amortization of deferred policy
acquisition costs $ 57.2 -- -- $ 9.1 $ 66.3
- --------------------------------------------------------------------------------------------------------
Income Taxes (benefits) $ 59.7 $11.9 -- $ (3.2) $ 68.4
- --------------------------------------------------------------------------------------------------------
Operating earnings (2) $ 134.9 $19.7 -- $ (5.9) $ 148.7
Net realized capital gains,
net of tax 19.2 -- -- -- 19.2
- --------------------------------------------------------------------------------------------------------
Income from continuing
operations 154.1 $19.7 -- (5.9) 167.9
Discontinued operations,
net of tax:
Income from operations -- -- $ 67.8 -- 67.8
Deferred gain on sale -- -- -- -- --
- --------------------------------------------------------------------------------------------------------
Net income (loss) $ 154.1 $19.7 $ 67.8 $ (5.9) $ 235.7
========================================================================================================
Segment assets $ 36,379.5 $17.9 $ 3,792.5 -- $ 40,189.9
- --------------------------------------------------------------------------------------------------------
Expenditures for long-lived
assets (3) -- -- -- $ 10.0 $ 10.0
- --------------------------------------------------------------------------------------------------------
Balance of long-lived assets $ 12.7 $ 12.7
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Financial products include: deferred and immediate annuity contracts,
mutual funds, programs offered to qualified plans and nonqualified
deferred compensation plans that package administrative and recordkeeping
services along with a menu of investment options, investment advisory
services and pension plan administrative services. Investment Management
Services include the following services: investment advisory to affiliated
and unaffiliated institutional and retail clients, underwriting,
distribution for Company products and trustee, administrative and other
fiduciary services to retirement plans. (Refer to notes 1 and 2.)
Discontinued operations include life insurance products. (Refer to note
3.) Other includes consolidating adjustments and Year 2000 costs.
(2) Operating earnings is comprised of net income (loss) excluding net
realized capital gains and losses and any other items. While operating
earnings is the measure of profit or loss used by the Company's management
when assessing performance or making operating decisions, it does not
replace operating income or net income as a measure of profitability.
(3) Expenditures of long-lived assets represents additions to property and
equipment not allocable to business segments.
F-31
<PAGE>
Notes to Consolidated Financial Statements (continued)
14. Commitments and Contingent Liabilities
Commitments
Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a specified
future date and at a specified price or yield. The inability of counterparties
to honor these commitments may result in either higher or lower replacement
cost. Also, there is likely to be a change in the value of the securities
underlying the commitments. At December 31,1998, the Company had off-balance
sheet commitments to purchase investments of $68.7 million with an estimated
fair value of $68.9 million. At December 31, 1999, there were no off-balance
sheet commitments.
Litigation
The Company is involved in numerous lawsuits arising, for the most part, in the
ordinary course of its business operations. While the ultimate outcome of
litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related reserves
established, it is not expected to result in liability for amounts material to
the financial condition of the Company, although it may adversely affect
results of operations in future periods.
F-32
<PAGE>
Form No. SAI. 56297-00 ALIAC Ed. May 2000
