As filed with the Securities and Exchange Registration No. 333-87305
Commission on February 7, 2000 Registration No. 811-2512
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
POST-EFFECTIVE AMENDMENT NO. 2 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment to
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Variable Annuity Account B of Aetna Life Insurance and Annuity Company
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, TS31, Hartford, Connecticut 06156
Depositor's Telephone Number, including Area Code: (860) 273-4686
Julie E. Rockmore, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, TS31, Hartford, Connecticut 06156
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
--------
X on February 10, 2000 pursuant to paragraph (b) of Rule 485
--------
<PAGE>
VARIABLE ANNUITY ACCOUNT B
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-4 PART A (PROSPECTUS) LOCATION - PROSPECTUS DATED DECEMBER 17, 1999
ITEM NO. AND AS AMENDED BY SUPPLEMENT DATED FEBRUARY 10, 2000
<S> <C> <C>
1 Cover Page........................................... Cover Page
2 Definitions.......................................... Not Applicable
3 Synopsis............................................. Contract Overview; Fee Table, and as amended
4 Condensed Financial Information...................... Condensed Financial Information
5 General Description of Registrant, Depositor, and
Portfolio Companies.................................. Other Topics - The Company; Variable Annuity
Account B; Appendix III - Description of
Underlying Funds, and as amended
6 Deductions and Expenses.............................. Fees, and as amended
7 General Description of Variable Annuity Contracts.... Contract Overview
8 Annuity Period....................................... The Income Phase
9 Death Benefit........................................ Death Benefit
10 Purchases and Contract Value......................... Purchase and Rights; Your Account Value
11 Redemptions.......................................... Your Right to Cancel; Systematic Distribution
Options
12 Taxes................................................ Taxation
13 Legal Proceedings.................................... Other Topics - Legal Matters and Proceedings
14 Table of Contents of the Statement of Additional
Information.......................................... Contents of the Statement of Additional
Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM N-4 PART B (STATEMENT OF LOCATION - STATEMENT OF ADDITIONAL INFORMATION
ITEM NO. ADDITIONAL INFORMATION) DATED FEBRUARY 10, 2000
<S> <C> <C>
15 Cover Page........................................... Cover page
16 Table of Contents.................................... Table of Contents
17 General Information and History...................... General Information and History
18 Services............................................. General Information and History; Independent
Auditors
19 Purchase of Securities Being Offered................. Offering and Purchase of Contract
20 Underwriters......................................... Offering and Purchase of Contract
21 Calculation of Performance Data...................... Performance Data; Average Annual Total Return
Quotations
22 Annuity Payments..................................... Income Phase Payments
23 Financial Statements................................. Financial Statements
</TABLE>
Part C (Other Information)
--------------------------
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
PARTS A AND B
The Prospectus dated December 17, 1999 is incorporated into Part A of this
Post-Effective Amendment No. 2 by reference to Registrant's filing under Rule
497(c), as filed on December 20, 1999 (File No. 333-87305).
A Prospectus Supplement dated February 10, 2000 and a Statement of Additional
Information dated February 10, 2000 are included in Parts A and B, respectively,
of this Post-Effective Amendment No. 2.
<PAGE>
VARIABLE ANNUITY ACCOUNT B
Aetna Life Insurance and Annuity Company
Supplement Dated February 10, 2000
to December 17, 1999 Prospectus
GENERAL DESCRIPTION OF GET I
Series I of the Aetna GET Fund (GET I) is an investment option that may be
available during the accumulation phase of the contract. Aetna Life Insurance
and Annuity Company (the Company, we, our) makes a guarantee, as described
below, when you direct money into GET I. Aeltus Investment Management, Inc.
serves as investment adviser to GET I.
We will offer GET I shares only during its offering period, which is scheduled
to run from March 15, 2000 through the close of business on June 14, 2000. GET
I may not be available under your contract, your plan or in your state. Please
read the GET I prospectus for a more complete description of GET I, including
its charges and expenses.
INVESTMENT OBJECTIVE OF GET I
GET I seeks to achieve maximum total return, without compromising a minimum
targeted return, by participating in favorable equity market performance during
the guarantee period.
GET I's guarantee period runs from June 15, 2000 through June 14, 2005. During
the offering period, all GET I assets will be invested in short-term
instruments, and during the guarantee period will be invested in a combination
of fixed income and equity securities.
THE GET FUND GUARANTEE
The guarantee period for GET I will end on June 14, 2005 which is GET I's
maturity date. The Company guarantees that the value of an accumulation unit of
the GET I subaccount under the contract on the maturity date (as valued after
the close of business on June 14, 2005) will not be less than its value as
determined after the close of business on the last day of the offering period.
If the value on the maturity date is lower than it was on the last day of the
offering period, we will transfer funds from our general account to the GET I
subaccount to make up the difference. This means that if you remain invested in
GET I until the maturity date, at the maturity date you will receive no less
than the value of your separate account investment directed to GET I as of the
last day of the offering period, less any maintenance fees or any amounts you
transfer or withdraw from the GET I subaccount. The value of dividends and
distributions made by GET I throughout the guarantee period is taken into
account in determining whether, for purposes of the guarantee, the value of
your GET I investment on the maturity date is no less than its value as of the
last day of the offering period. The guarantee does not promise that you will
earn the fund's minimum targeted return referred to in the investment
objective.
If you withdraw or transfer funds from GET I before the maturity date, we will
process the transactions at the actual unit value next determined after we
receive your order. The guarantee will not apply to these amounts or to amounts
deducted as a maintenance fee, if applicable.
MATURITY DATE
Before the maturity date, we will send a notice to each contract holder who has
amounts in GET I. This notice will remind you that the maturity date is
approaching and that you must choose other investment options for your GET I
amounts. If you do not make a choice, on the maturity date we will transfer
your GET I amounts to another available series of the GET Fund that is
accepting deposits. If no GET Fund series is available, we will transfer your
GET I amounts to the fund or funds designated by the Company.
X-GETI87305-00 February 2000
<PAGE>
The following information supplements the "Fee Table" contained in the
prospectus:
MAXIMUM FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT
In addition to the amounts currently listed under the heading "Fee Table" in
the prospectus, we will make a daily deduction of a GET I Guarantee Charge,
equal on an annual basis to the percentage shown below, from the amounts
allocated to the GET I investment option:
<TABLE>
<S> <C>
GET I Guarantee Charge (deducted daily during the Guarantee Period) ..... 0.50%
Maximum Total Separate Account Expenses ................................... 2.10%(1)
</TABLE>
(1) The total separate account expenses that apply to your contract may be
lower. Please refer to the "Fee Table" section of your prospectus.
The following information supplements the "Fund Expense Table" contained in the
prospectus:
Aetna GET Fund Series I Annual Expenses
(As a percentage of the average net assets)
<TABLE>
<CAPTION>
Investment Total Fund Annual Expenses
Advisory Fees(2) Other Expenses(3) (after expense reimbursement)(4)
---------------- ----------------- --------------------------------
<S> <C> <C> <C>
Aetna GET Fund Series I 0.60% 0.15% 0.75%
</TABLE>
For more information regarding expenses paid out of assets of the fund, see the
GET I prospectus.
- -----------------------
(2) The Investment Advisory Fee will be 0.25% during the offering period and
0.60% during the guarantee period.
(3) "Other Expenses" include an annual fund administrative fee of 0.075% of the
average daily net assets of GET I and any additional direct fund expenses.
(4) The investment adviser is contractually obligated through GET I's maturity
date to waive all or a portion of its investment advisory fee and/or its
administrative fee and/or to reimburse a portion of the fund's other
expenses in order to ensure that GET I's Total Fund Annual Expenses do not
exceed 0.75% of the fund's average daily net assets. It is not expected that
GET I's actual expenses without this waiver or reimbursement will exceed
this amount.
<PAGE>
The following information supplements the "Hypothetical Examples" contained in
the prospectus.
HYPOTHETICAL EXAMPLES--AETNA GET FUND SERIES 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 GET I
investment option under the contract (until GET I's maturity date) and assume a
5% annual return on the investment.(5)
<TABLE>
<CAPTION>
> THESE EXAMPLES ARE PURELY Example A Example B
HYPOTHETICAL. If at the end of the
> THEY SHOULD NOT BE periods shown you (1)
CONSIDERED A REPRESENTATION leave your entire account
OF PAST OR FUTURE EXPENSES If you withdraw your entire value invested or (2) select
OR EXPECTED RETURNS. account value at the end of an income phase payment
> ACTUAL EXPENSES AND/OR the periods shown, you would option, you would pay
RETURNS MAY BE MORE OR LESS pay the following expenses, the following expenses
THAN THOSE SHOWN BELOW. including any applicable (no early withdrawal charge
early withdrawal charge: is reflected):
1 Year 3 Years 5 Years 1 Year 3 Years 5 Years
-------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Aetna GET Fund Series I $101 $151 $196 $29 $89 $151
</TABLE>
- -----------------------
(5) The examples shown above reflect an annual mortality and expense risk charge
of 1.45%, an annual contract administrative expense charge of 0.15%, an
annual GET I guarantee charge of 0.50%, a $30 annual maintenance fee that
has been converted to a percentage of assets equal to 0.022%, and all
charges and expenses of the GET I Fund. The effect of the premium bonus is
not reflected in the examples. Example A reflects an early withdrawal charge
of 8% of the purchase payments at the end of year 1, 7% at the end of year
3, and 5% at the end of year 5. (The expenses that you would pay under your
contract may be lower. Please refer to the "Fee Table" section of your
prospectus.)
<PAGE>
The following information supplements "Appendix III--Description of Underlying
Funds" contained in the prospectus:
Aetna GET Fund (Series I)
INVESTMENT OBJECTIVE
Seeks to achieve maximum total return without compromising a minimum targeted
return (Targeted Return) by participating in favorable equity market
performance during the guarantee period, from June 15, 2000 through June 14,
2005, the maturity date.
POLICIES
Prior to June 15, 2000, assets are invested entirely in short-term instruments.
After that date, assets are allocated between equities and fixed income
securities. Equities consist primarily of common stocks. Fixed income
securities consist primarily of short- to intermediate-duration U.S. Government
securities and may also consist of mortgage backed securities and corporate
obligations. The investment adviser uses a proprietary computer model to
determine the percentage of assets to allocate between the fixed and the equity
components. As the value of the equity component declines, more assets are
allocated to the fixed component.
RISKS
The principal risks of investing in Series I are those generally attributable
to stock and bond investing. The success of Series I's strategy depends on the
investment adviser's skill in allocating assets between the equity and fixed
components and in selecting investments within each component. Because Series I
invests in both stocks and bonds, it may underperform stock funds when stocks
are in favor and underperform bond funds when bonds are in favor. The risks
associated with investing in stocks include sudden and unpredictable drops in
the value of the market as a whole and periods of lackluster or negative
performance. The principal risk associated with investing in bonds is that
interest rates may rise, which generally causes bond prices to fall. If at the
inception of, or any time during, the guarantee period interest rates are low,
Series I assets may be largely invested in the fixed component in order to
increase the likelihood of achieving the Targeted Return at the maturity date.
The effect of low interest rates on Series I would likely be more pronounced at
the beginning of the guarantee period as the initial allocation of assets would
include more fixed income securities. In addition, if during the guarantee
period the equity markets experienced a major decline, Series I assets may
become largely invested in the fixed component in order to increase the
likelihood of achieving the Targeted Return at the maturity date. Use of the
fixed component reduces Series I's ability to participate as fully in upward
equity market movements, and therefore represents some loss of opportunity, or
opportunity cost, compared to a portfolio that is fully invested in equities.
Investment Adviser: Aeltus Investment Management, Inc.
X.GETI87305-00 February 2000
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
Statement of Additional Information dated February 10, 2000
AETNA BONUS 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 December 17, 1999 and amended by supplement dated
February 10, 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
Page
General Information and History.......................................... 2
Variable Annuity Account B............................................... 2
Offering and Purchase of Contract........................................ 3
Performance Data......................................................... 3
General............................................................. 3
Average Annual Total Return Quotations.............................. 3
Income Phase Payments.................................................... 6
Sales Material and Advertising........................................... 6
Independent Auditors..................................................... 7
Financial Statements of the Separate Account............................. S-1
Financial Statements of Aetna Life Insurance and Annuity Company......... F-1
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Life Insurance and Annuity Company (the Company, 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
which was 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, 1998, the Company and its subsidiary life company had $43
billion invested through its products, including $29 billion in its separate
accounts (of which the Company or an affiliate oversees the management of $21
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, 1997.
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" 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.
The funds currently available under the contract are as follows:
<TABLE>
<S> <C>
Aetna Balanced VP, Inc. Fidelity Variable Insurance Products Fund (VIP) High Income
Aetna Income Shares d/b/a Aetna Bond VP Portfolio
Aetna Growth VP Fidelity Variable Insurance Products Fund II (VIP II)
Aetna Variable Fund d/b/a Aetna Growth and Income VP Contrafund Portfolio
Aetna Index Plus Large Cap VP Janus Aspen Aggressive Growth Portfolio
Aetna International VP Janus Aspen Balanced Portfolio
Aetna Variable Encore Fund d/b/a Aetna Money Market VP Janus Aspen Growth Portfolio
Aetna Real Estate Securities VP Janus Aspen Worldwide Growth Portfolio
Aetna Small Company VP MFS Total Return Series
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 (PPI) MFS Emerging Equities Portfolio
Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio Partners (PPI) MFS Research Growth Portfolio
Portfolio Portfolio Partners (PPI) MFS Value Equity Portfolio
Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio Portfolio Partners (PPI) Scudder International Growth Portfolio
</TABLE>
Complete descriptions of each of the funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectuses and statements of additional information for each of the funds.
2
<PAGE>
OFFERING AND PURCHASE OF CONTRACT
The Company is both the depositor and the principal underwriter for the
securities sold under the prospectus. We offer the contract 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 contract is continuous. A
description of the manner in which the contract is 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., 1.45% mortality and expense risk charge for
Death Benefit Option II, $30 annual maintenance fee, 0.15% administrative
charge, and early withdrawal charge of 8% of purchase payments grading down to
0% after 8 years) and currently do not include any premium bonus. 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 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.
Standardized and non-standardized calculations do not currently include the
premium bonus, but to the extent permitted by applicable law, we may include the
premium bonus in the standardized and non-standardized average annual total
returns in the future.
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 September 30, 1999 for the
subaccounts under the contract. The standardized returns assume the maximum
charges under the contract as described under "General" above. The
non-standardized returns assume the same charges but do not include the early
withdrawal charge. We may also advertise returns based on lower charges that
apply to contracts under Death Benefit Option I.
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.
<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) 5.70% 14.41% 10.65%
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) (8.63%) 5.02% 6.37%
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 23.25% 24.66% 05/30/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 13.54% 18.34% 12.73%
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 18.01% 22.47% 10/31/1996
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna International VP 20.79% 1.54% 05/05/1998
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) (4.98%) 3.00% 3.71%
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP (12.84%) (16.38%) 05/06/1998
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 11.32% 7.07% 05/30/1997
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 25.05% 10/02/1998
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund 32.88% 10/02/1998
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund 28.74% 10/02/1998
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund 31.25% 10/02/1998
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 7.53% 16.39% 12/30/1994
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 25.20% 23.38% 12/30/1994
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio (1.46%) 6.19% 06/30/1995
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 18.44% 19.28% 06/30/1995
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 72.45% 21.85% 10/31/1994
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 18.69% 19.72% 01/31/1995
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 34.74% 22.24% 21.63% 07/29/1994
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 26.51% 24.98% 04/28/1995
- -----------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series (2.01%) 9.61% 05/31/1996
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund/VA 42.13% 16.86% 05/30/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Fund/VA 17.60% 9.77% 05/30/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA (7.54%) (0.67%) 05/30/1997
- ---------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PPI MFS Emerging Equities Portfolio 31.00% 16.73% 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI MFS Emerging Equities(3) 31.00% 17.43% 13.10% 09/30/1993
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 12.99% 6.46% 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI MFS Research
Growth(3) 12.99% 6.66% 6.94% 08/31/1992
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio 29.91% 18.67% 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Growth/PPI MFS Value Equity(3) 29.91% 18.83% 13.82% 11/30/1992
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio 26.18% 17.70% 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI Scudder
International Growth(3) 26.18% 11.65% 12.49% 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
September 30, 1999 (on an annualized basis) was 3.41%. 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 8% 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.
<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) 14.89% 13.73% 14.88% 10.65%
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) (0.68%) 4.52% 5.72% 6.37%
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 33.96% 26.88% 12/13/1996
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 23.42% 17.19% 18.72% 12.73%
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 28.27% 24.72% 24.64% 09/16/1996
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna International VP 31.30% 19.33% 12/22/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 3.29% 3.63% 3.77% 3.71%
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP (5.26%) (7.95%) 12/15/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 21.01% 12.47% 12/27/1996
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 30.00% 11.57% 16.28% 15.69% 05/05/1993
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund 38.80% 23.06% 22.32% 18.16% 05/05/1993
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund 35.52% 20.84% 20.51% 19.08% 05/02/1994
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund 37.92% 22.72% 21.00% 19.04% 05/05/1993
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio(1) 16.88% 14.35% 15.73% 11.78%
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio(1) 36.09% 23.06% 22.98% 15.69%
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio(1) 7.11% 4.45% 7.98% 9.70%
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 28.74% 20.91% 23.13% 01/03/1995
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 87.44% 25.62% 23.45% 23.98% 09/13/1993
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 29.01% 20.71% 18.79% 16.67% 09/13/1993
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 46.46% 23.75% 22.56% 19.17% 09/13/1993
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 37.51% 22.21% 22.28% 21.73% 09/13/1993
- -----------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 6.51% 11.25% 13.77% 01/03/1995
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund/VA(1) 54.49% 13.43% 18.34% 13.49%
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Fund/VA 27.83% 15.49% 22.23% 07/05/1995
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA 0.50% 3.47% 5.61% 4.33% 05/03/1993
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PPI MFS Emerging Equities Portfolio 42.40% 19.98% 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI MFS Emerging Equities(3) 42.40% 13.46% 17.83% 14.27%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 22.82% 10.04% 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI MFS Research
Growth(3) 22.82% 1.76% 7.31% 6.78%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio 41.21% 21.77% 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Growth/PPI MFS Value Equity(3) 41.21% 22.45% 19.21% 11.19%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio 37.15% 21.06% 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI Scudder
International Growth(3) 37.15% 16.28% 12.18% 9.49%
- ------------------------------------------------------------------------------------------------------------------------------------
</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
September 30, 1999 (on an annualized basis) was 3.41%. 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 8% 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.
<PAGE>
3
<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 the 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 payments also vary
depending on the assumed net investment rate selected (3.5% or 5% per annum).
Selection of a 5% rate causes a higher first income phase payment, but 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 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 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.
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 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 neutralize the
assumed net investment rate of 3.5% per annum built into the number of annuity
units determined above) produces a result of 1.0014057. This is then multiplied
by the annuity unit value for the prior valuation (assume such value to be
$13.504376) to produce an annuity unit value of $13.523359 for the valuation
occurring when the second payment is due. The second monthly payment is then
determined by multiplying the number of annuity units by the current annuity
unit value, or times $13.523359, which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
neutralize such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
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.
4
<PAGE>
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 contract. 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.
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.
5
<PAGE>
VARIABLE ANNUITY ACCOUNT B
Index
<TABLE>
<S> <C>
Statement of Assets and Liabilities........................... S-2
Statements of Operations and Changes in Net Assets............ S-7
Condensed Financial Information............................... S-8
Notes to Financial Statements................................. S-16
Independent Auditors' Report.................................. S-36
</TABLE>
S-1
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1998
ASSETS:
Investments, at net asset value: (Note 1)
<TABLE>
<CAPTION>
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
Aetna Ascent VP: 1,775,905 $ 25,102,742 $ 24,898,190
Aetna Balanced VP: 12,391,167 181,255,533 194,913,051
Aetna Bond VP: 6,915,310 90,585,384 90,313,945
Aetna Crossroads VP: 2,222,763 29,151,210 29,607,202
Aetna Get Fund, Series B: 1,328,751 16,114,148 19,399,768
Aetna Get Fund, Series C: 641,495 6,843,405 9,276,019
Aetna Get Fund, Series D: 8,945,182 89,971,949 89,907,126
Aetna Growth and Income VP: 34,864,532 1,125,170,574 1,110,783,981
Aetna Growth VP: 2,192,686 25,612,305 29,667,044
Aetna High Yield VP: 25,485 269,013 230,386
Aetna Index Plus Large Cap VP: 4,950,434 77,533,729 87,078,142
Aetna Index Plus Mid Cap VP: 30,799 350,678 375,745
Aetna Index Plus Small Cap VP: 98,357 961,535 969,800
Aetna International VP: 132,091 1,535,380 1,530,933
Aetna Legacy VP: 2,841,936 34,924,355 35,154,748
Aetna Money Market VP: 11,204,743 148,567,676 150,002,380
Aetna Real Estate Securities VP: 115,069 1,060,043 981,537
Aetna Small Company VP: 1,445,875 17,304,318 18,492,740
Aetna Value Opportunity VP: 1,296,961 16,956,181 18,689,212
AIM V.I. Funds:
Capital Appreciation Fund: 11,857 279,072 298,792
Growth and Income Fund: 9,329 203,793 221,558
Growth Fund: 11,970 284,519 296,860
Value Fund: 26,818 681,416 703,970
Alger American Funds:
Balanced Portfolio: 476,550 4,602,622 6,185,618
Income & Growth Portfolio: 1,178,638 11,247,924 15,463,737
Leveraged AllCap Portfolio: 486,301 10,438,458 16,971,895
American Century Investments:
Balanced Fund: 567,422 4,244,446 4,732,298
International Fund: 760,004 5,048,080 5,791,227
Calvert Social Balanced Portfolio: 916,276 1,943,153 1,958,082
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 6,927,959 153,249,176 176,108,721
Growth Portfolio: 3,087,069 104,576,368 138,516,768
High Income Portfolio: 4,321,896 54,257,145 49,831,459
Overseas Portfolio: 892,112 17,216,864 17,886,843
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 1,124,160 18,781,312 20,414,738
Contrafund Portfolio: 6,668,348 127,772,939 162,974,413
Index 500 Portfolio: 1,003,440 116,197,819 141,735,838
Investment Grade Bond Portfolio: 439,478 5,217,593 5,695,641
Insurance Management Series:
American Leaders Fund II: 6,201,568 97,218,342 134,450,002
Equity Income Fund II: 2,025,727 24,690,902 28,664,036
Growth Strategies Fund II: 1,532,692 22,205,952 27,450,515
High Income Bond Fund II: 4,568,474 47,172,964 49,887,731
International Equity Fund II: 1,138,497 13,701,931 17,521,464
Prime Money Fund II: 8,067,320 8,065,097 8,067,320
</TABLE>
S-2
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1998 (continued):
<TABLE>
<CAPTION>
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
U.S. Government Securities II: 1,439,895 $ 15,041,447 $ 16,054,824
Utility Fund II: 1,986,746 23,284,347 30,337,604
Janus Aspen Series:
Aggressive Growth Portfolio: 2,079,332 49,261,924 57,368,774
Balanced Portfolio: 3,210,155 56,987,418 72,228,489
Flexible Income Portfolio: 1,710,899 20,378,246 20,633,439
Growth Portfolio: 2,958,516 57,362,313 69,643,462
Worldwide Growth Portfolio: 8,512,439 210,385,419 247,626,862
Lexington Emerging Markets Fund: 266,212 2,706,082 1,509,423
Lexington Natural Resources Trust Fund: 358,558 5,221,161 3,954,893
MFS Funds:
Total Return Series: 2,104,731 34,302,993 38,137,728
Worldwide Government Series: 185,123 1,911,846 2,014,138
Oppenheimer Funds:
Aggressive Growth Fund: 265,843 10,674,495 11,917,723
Global Securities Fund: 346,765 6,867,095 7,653,101
Growth & Income Fund: 1,718,418 35,629,032 35,193,209
Strategic Bond Fund: 2,558,320 13,050,936 13,098,600
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 2,382,266 112,648,846 132,072,829
PPI MFS Research Growth Portfolio: 7,421,331 77,594,206 88,610,687
PPI MFS Value Equity Portfolio: 738,878 24,196,477 27,966,529
PPI Scudder International Growth Portfolio: 1,049,896 16,732,753 17,596,256
PPI T. Rowe Price Growth Equity Portfolio: 2,148,768 93,956,758 118,848,377
-------------- --------------
NET ASSETS $3,606,761,839 $3,956,568,422
============== ==============
</TABLE>
Net assets represented by:
Reserves for annuity contracts in accumulation and payment period: (Notes 1 and
5)
<TABLE>
<CAPTION>
<S> <C>
Aetna Ascent VP:
Annuity contracts in accumulation ........... $ 24,898,190
Aetna Balanced VP:
Annuity contracts in accumulation ........... 176,154,146
Annuity contracts in payment period ......... 18,758,905
Aetna Bond VP:
Annuity contracts in accumulation ........... 85,100,187
Annuity contracts in payment period ......... 5,213,758
Aetna Crossroads VP:
Annuity contracts in accumulation ........... 28,289,880
Annuity contracts in payment period ......... 1,317,322
Aetna Get Fund, Series B:
Annuity contracts in accumulation ........... 19,399,768
Aetna Get Fund, Series C:
Annuity contracts in accumulation ........... 9,276,019
Aetna Get Fund, Series D:
Annuity contracts in accumulation ........... 89,907,126
Aetna Growth and Income VP:
Annuity contracts in accumulation ........... 955,586,320
Annuity contracts in payment period ......... 155,197,661
Aetna Growth VP:
Annuity contracts in accumulation ........... 28,467,187
Annuity contracts in payment period ......... 1,199,857
</TABLE>
S-3
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1998 (continued):
<TABLE>
<CAPTION>
<S> <C>
Aetna High Yield VP:
Annuity contracts in accumulation ........... $ 230,386
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation ........... 85,248,495
Annuity contracts in payment period ......... 1,829,647
Aetna Index Plus Mid Cap VP:
Annuity contracts in accumulation ........... 375,745
Aetna Index Plus Small Cap VP:
Annuity contracts in accumulation ........... 969,800
Aetna International VP:
Annuity contracts in accumulation ........... 1,528,847
Annuity contracts in payment period ......... 2,086
Aetna Legacy VP:
Annuity contracts in accumulation ........... 32,331,905
Annuity contracts in payment period ......... 2,822,843
Aetna Money Market VP:
Annuity contracts in accumulation ........... 149,772,871
Annuity contracts in payment period ......... 229,509
Aetna Real Estate Securities VP:
Annuity contracts in accumulation ........... 965,259
Annuity contracts in payment period ......... 16,278
Aetna Small Company VP:
Annuity contracts in accumulation ........... 18,295,242
Annuity contracts in payment period ......... 197,498
Aetna Value Opportunity VP:
Annuity contracts in accumulation ........... 18,689,212
AIM V.I. Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation ........... 298,792
Growth and Income Fund:
Annuity contracts in accumulation ........... 221,558
Growth Fund:
Annuity contracts in accumulation ........... 296,860
Value Fund:
Annuity contracts in accumulation ........... 703,970
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation ........... 6,185,618
Income & Growth Portfolio:
Annuity contracts in accumulation ........... 15,463,737
Leveraged AllCap Portfolio:
Annuity contracts in accumulation ........... 16,971,895
American Century Investments:
Balanced Fund:
Annuity contracts in accumulation ........... 4,732,298
International Fund:
Annuity contracts in accumulation ........... 5,791,227
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation ........... 1,958,082
</TABLE>
S-4
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1998 (continued):
<TABLE>
<CAPTION>
<S> <C>
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation .................... $ 176,108,721
Growth Portfolio:
Annuity contracts in accumulation .................... 138,516,768
High Income Portfolio:
Annuity contracts in accumulation .................... 49,328,098
Annuity contracts in payment period .................. 503,361
Overseas Portfolio:
Annuity contracts in accumulation .................... 17,886,843
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation .................... 20,414,738
Contrafund Portfolio:
Annuity contracts in accumulation .................... 162,974,413
Index 500 Portfolio:
Annuity contracts in accumulation .................... 141,735,838
Investment Grade Bond Portfolio:
Annuity contracts in accumulation .................... 5,695,641
Insurance Management Series:
American Leaders Fund II:
Annuity contracts in accumulation .................... 134,398,144
Annuity contracts in payment period .................. 51,858
Equity Income Fund II:
Annuity contracts in accumulation .................... 28,656,460
Annuity contracts in payment period .................. 7,576
Growth Strategies Fund II:
Annuity contracts in accumulation .................... 27,450,515
High Income Bond Fund II:
Annuity contracts in accumulation .................... 49,887,731
International Equity Fund II:
Annuity contracts in accumulation .................... 17,521,464
Prime Money Fund II:
Annuity contracts in accumulation .................... 8,067,320
U.S. Government Securities II:
Annuity contracts in accumulation .................... 16,054,824
Utility Fund II:
Annuity contracts in accumulation .................... 30,329,937
Annuity contracts in payment period .................. 7,667
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation .................... 57,368,774
Balanced Portfolio:
Annuity contracts in accumulation .................... 72,228,489
Flexible Income Portfolio:
Annuity contracts in accumulation .................... 20,633,439
Growth Portfolio:
Annuity contracts in accumulation .................... 68,058,273
Annuity contracts in payment period .................. 1,585,189
Worldwide Growth Portfolio:
Annuity contracts in accumulation .................... 243,902,115
Annuity contracts in payment period .................. 3,724,747
</TABLE>
S-5
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1998 (continued):
<TABLE>
<CAPTION>
<S> <C>
Lexington Emerging Markets Fund:
Annuity contracts in accumulation ........... $ 1,509,423
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation ........... 3,954,893
MFS Funds:
Total Return Series:
Annuity contracts in accumulation ........... 38,137,728
Worldwide Government Series:
Annuity contracts in accumulation ........... 2,014,138
Oppenheimer Funds:
Aggressive Growth Fund:
Annuity contracts in accumulation ........... 11,917,723
Global Securities Fund:
Annuity contracts in accumulation ........... 7,653,101
Growth & Income Fund:
Annuity contracts in accumulation ........... 35,193,209
Strategic Bond Fund:
Annuity contracts in accumulation ........... 12,897,019
Annuity contracts in payment period ......... 201,581
Portfolio Partners, Inc (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation ........... 131,150,274
Annuity contracts in payment period ......... 922,555
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation ........... 88,610,687
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation ........... 27,062,849
Annuity contracts in payment period ......... 903,680
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation ........... 17,577,310
Annuity contracts in payment period ......... 18,946
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation ........... 118,791,854
Annuity contracts in payment period ......... 56,523
--------------
$3,956,568,422
==============
</TABLE>
See Notes to Financial Statements
S-6
<PAGE>
Variable Annuity Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ............................................................. $ 325,794,651 $ 278,833,116
Expenses: (Notes 2 and 5)
Valuation period deductions ........................................... (42,285,760) (29,243,851)
-------------- --------------
Net investment income .................................................. 283,508,891 249,589,265
-------------- --------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ................................................... 1,555,519,398 1,004,789,371
Cost of investments sold .............................................. 1,412,108,865 933,728,508
-------------- --------------
Net realized gain .................................................... 143,410,533 71,060,863
-------------- --------------
Net unrealized gain on investments: (Note 5)
Beginning of year ..................................................... 255,524,506 122,191,053
End of year ........................................................... 349,806,583 255,524,506
-------------- --------------
Net change in unrealized gain ........................................ 94,282,077 133,333,453
-------------- --------------
Net realized and unrealized gain on investments ........................ 237,692,610 204,394,316
-------------- --------------
Net increase in net assets resulting from operations ................... 521,201,501 453,983,581
-------------- --------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ............................ 489,286,251 571,501,505
Transfers from the Company for mortality guarantee adjustments ......... (906,373) 371,835
Transfers from the Company's fixed account options ..................... 212,914,994 144,526,667
Redemptions by contract holders ........................................ (167,845,102) (82,942,177)
Annuity payments ....................................................... (22,421,712) (16,137,431)
Other .................................................................. 1,896,006 2,327,153
-------------- --------------
Net increase in net assets from unit transactions (Note 5) ........... 512,924,064 619,647,552
-------------- --------------
Change in net assets ................................................... 1,034,125,565 1,073,631,133
NET ASSETS:
Beginning of year ...................................................... 2,922,442,857 1,848,811,724
-------------- --------------
End of year ............................................................ $3,956,568,422 $2,922,442,857
============== ==============
</TABLE>
See Notes to Financial Statements
S-7
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998
<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>
Aetna Ascent VP:
Non-Qualified V $ 15.392 $ 15.855 3.01% 274,115.2 $ 4,346,011
Non-Qualified V (0.75) 15.535 16.082 3.52% 104,608.3 1,682,346
Non-Qualified VII 15.333 15.769 2.84% 1,027,839.2 16,207,554
Non-Qualified VIII 14.947 14.012 (6.26%) (4) 160,746.0 2,252,334
Non-Qualified IX 15.364 15.786 2.75% 1,717.5 27,113
Non-Qualified X 15.422 15.942 3.37% 24,014.0 382,832
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP:
Non-Qualified V 18.989 21.929 15.48% 2,929,719.6 64,245,891
Non-Qualified V (0.75) 19.166 22.244 16.06% 1,798,424.8 40,003,913
Non-Qualified VI 15.962 18.445 15.56% 43,363.3 799,818
Non-Qualified VII 18.653 21.507 15.30% 2,533,501.2 54,487,004
Non-Qualified VIII 14.392 15.212 5.70% (4) 363,744.6 5,533,430
Non-Qualified IX 18.954 21.834 15.19% 30,063.5 656,418
Non-Qualified X 19.016 22.015 15.77% 452,763.7 9,967,686
Non-Qualified XI 15.985 18.517 15.84% 6,799.7 125,910
Non-Qualified XIII 9.555 10.337 8.18% (10) 5,234.6 54,109
Non-Qualified XIV 9.276 10.323 11.29% (8) 17,680.9 182,516
Non-Qualified XV 9.581 10.316 7.67% (10) 9,446.8 97,451
Annuity contracts in payment period 18,758,905
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP:
Non-Qualified V 13.361 14.270 6.80% 1,129,588.7 16,119,085
Non-Qualified V (0.75) 13.486 14.475 7.33% 2,012,308.2 29,127,850
Non-Qualified VI 12.204 13.041 6.86% 51,406.2 670,396
Non-Qualified VII 13.128 13.998 6.63% 1,948,372.8 27,273,239
Non-Qualified VIII 11.367 11.910 4.78% (4) 387,994.7 4,620,903
Non-Qualified IX 13.337 14.208 6.53% 18,429.1 261,845
Non-Qualified X 13.373 14.304 6.96% 452,992.2 6,479,375
Non-Qualified XI 12.214 13.072 7.02% 1,301.4 17,012
Non-Qualified XIII 10.157 10.319 1.59% (9) 16,581.5 171,096
Non-Qualified XIV 10.119 10.305 1.84% (9) 30,948.7 318,914
Non-Qualified XV 10.188 10.298 1.08% (10) 3,930.2 40,472
Annuity contracts in payment period 5,213,758
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Non-Qualified V 14.432 15.095 4.59% 218,648.6 3,300,593
Non-Qualified V (0.75) 14.566 15.312 5.12% 119,245.6 1,825,908
Non-Qualified VII 14.377 15.013 4.42% 1,316,579.2 19,766,357
Non-Qualified VIII 14.044 13.588 (3.25%) (4) 237,468.1 3,226,692
Non-Qualified IX 14.406 15.030 4.33% 457.5 6,876
Non-Qualified X 14.461 15.179 4.97% 10,768.7 163,454
Annuity contracts in payment period 1,317,322
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Non-Qualified V 20.717 24.373 17.65% 737,172.7 17,966,894
Non-Qualified X 20.717 24.373 17.65% 58,790.1 1,432,874
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Non-Qualified V 12.636 15.904 25.86% 92,330.0 1,468,418
Non-Qualified V (0.75) 12.718 16.087 26.49% 468,819.8 7,541,894
Non-Qualified IX 12.613 15.835 25.55% 9,144.7 144,810
Non-Qualified X 12.636 15.904 25.86% 7,601.7 120,897
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Non-Qualified V 9.997 10.062 0.65% (9) 1,577,071.0 15,867,744
Non-Qualified V (0.75) 9.997 10.073 0.76% (9) 614,759.8 6,192,546
Non-Qualified VII 9.997 10.058 0.61% (9) 3,322,479.7 33,416,640
Non-Qualified VIII 9.998 10.067 0.69% (9) 1,277,188.8 12,857,641
Non-Qualified X 10.023 10.062 0.39% (10) 65,946.9 663,527
Non-Qualified XIII 10.004 10.072 0.68% (9) 931,827.7 9,385,656
Non-Qualified XIV 10.000 10.066 0.66% (9) 884,851.1 8,907,146
Non-Qualified XV 10.009 10.063 0.54% (9) 259,978.3 2,616,226
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-8
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (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>
Aetna Growth and Income VP:
Non-Qualified 1964 $ 236.446 $ 267.347 13.07% 958.7 $ 256,298
Non-Qualified V 22.028 24.907 13.07% 9,491,618.9 236,409,291
Non-Qualified V (0.75) 22.233 25.265 13.64% 12,975,484.3 327,821,341
Non-Qualified VI 20.614 23.322 13.14% 1,842,162.9 42,963,821
Non-Qualified VII 22.004 24.839 12.88% 8,999,335.5 223,538,139
Non-Qualified VIII 16.554 16.604 0.30% (4) 1,327,156.5 22,036,585
Non-Qualified IX 21.988 24.800 12.79% 148,050.5 3,671,604
Non-Qualified X 22.060 25.005 13.35% 3,821,349.4 95,552,990
Non-Qualified XI 20.644 23.414 13.42% 46,205.4 1,081,861
Non-Qualified XIII 7.862 9.886 25.74% (9) 125,488.2 1,240,545
Non-Qualified XIV 7.672 9.872 28.68% (9) 55,706.9 549,962
Non-Qualified XV 8.961 9.866 10.10% (10) 47,019.7 463,883
Annuity contracts in payment period 155,197,661
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP:
Non-Qualified V 13.173 17.912 35.98% 140,521.9 2,516,985
Non-Qualified V (0.75) 13.239 18.067 36.47% (1) 428,697.2 7,745,376
Non-Qualified VII 13.158 17.862 35.75% 738,448.8 13,190,361
Non-Qualified VIII 15.809 17.909 13.28% (4) 266,761.0 4,777,514
Non-Qualified IX 15.727 17.834 13.40% (4) 2,088.8 37,253
Non-Qualified XIII 8.387 10.489 25.06% (9) 8,459.9 88,734
Non-Qualified XIV 8.359 10.475 25.31% (9) 8,297.4 86,912
Non-Qualified XV 8.899 10.468 17.63% (10) 2,297.8 24,052
Annuity contracts in payment period 1,199,857
- --------------------------------------------------------------------------------------------------------------------------------
Aetna High Yield VP:
Non-Qualified V 9.954 9.212 (7.45%) (4) 604.9 5,573
Non-Qualified V (0.75) 9.941 9.244 (7.01%) (5) 24,320.0 224,813
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Non-Qualified V 14.444 18.772 29.96% 527,155.0 9,895,905
Non-Qualified V (0.75) 14.538 18.989 30.62% 1,060,363.0 20,135,153
Non-Qualified VII 14.414 18.704 29.76% 2,252,763.4 42,134,590
Non-Qualified VIII 16.421 18.449 12.35% (4) 609,863.4 11,251,627
Non-Qualified IX 14.418 18.691 29.64% 23,366.8 436,755
Non-Qualified XIII 8.469 10.716 26.53% (9) 31,054.3 332,779
Non-Qualified XIV 8.964 10.702 19.39% (8) 94,255.0 1,008,675
Non-Qualified XV 9.134 10.694 17.08% (9) 4,956.9 53,011
Annuity contracts in payment period 1,829,647
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Non-Qualified V 10.107 10.891 7.76% (4) 17,010.7 185,258
Non-Qualified V (0.75) 9.950 10.928 9.83% (6) 16,206.7 177,112
Non-Qualified IX 8.579 10.872 26.73% (9) 1,230.2 13,375
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Non-Qualified V 9.996 8.815 (11.81%) (4) 55,563.7 489,810
Non-Qualified V (0.75) 9.407 8.846 (5.96%) (5) 53,459.5 472,892
Non-Qualified IX 7.685 8.800 14.51% (8) 806.6 7,098
- --------------------------------------------------------------------------------------------------------------------------------
Aetna International VP:
Non-Qualified V 10.149 9.765 (3.78%) (4) 35,872.2 350,278
Non-Qualified V (0.75) 10.288 9.798 (4.76%) (5) 28,999.8 284,152
Non-Qualified VII 10.169 9.754 (4.08%) (5) 45,143.4 440,322
Non-Qualified VIII 10.100 9.764 (3.33%) (4) 41,046.6 400,784
Non-Qualified XIII 8.583 9.149 6.59% (10) 587.0 5,371
Non-Qualified XIV 8.497 9.137 7.53% (10) 4,529.2 41,383
Non-Qualified XV 8.663 9.131 5.40% (11) 718.1 6,557
Annuity contracts in payment period 2,086
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP:
Non-Qualified V 13.317 14.064 5.61% 197,741.5 2,781,008
Non-Qualified V (0.75) 13.441 14.266 6.14% 120,311.5 1,716,341
Non-Qualified VII 13.267 13.989 5.44% 1,551,324.4 21,701,727
Non-Qualified VIII 13.073 13.037 (0.28%) (4) 467,027.3 6,088,503
</TABLE>
S-9
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (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>
Aetna Legacy VP (continued):
Non-Qualified IX $13.292 $14.003 5.35% 1,187.8 $ 16,633
Non-Qualified X 13.343 14.141 5.98% 1,958.3 27,693
Annuity contracts in payment period 2,822,843
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP:
Non-Qualified V 11.930 12.425 4.15% 1,146,661.0 14,247,696
Non-Qualified V (0.75) 12.041 12.604 4.68% 2,102,275.4 26,496,757
Non-Qualified VI 11.642 12.132 4.21% 67,991.9 824,888
Non-Qualified VII 11.850 12.322 3.98% 6,973,165.3 85,923,420
Non-Qualified VIII 10.847 11.141 2.71% (4) 1,221,158.5 13,605,259
Non-Qualified IX 11.908 12.372 3.90% 32,766.7 405,379
Non-Qualified X 11.930 12.425 4.15% 505,775.1 6,284,447
Non-Qualified XI 11.642 12.132 4.21% 49.6 602
Non-Qualified XIII 10.122 10.199 0.76% (9) 103,625.5 1,056,910
Non-Qualified XIV 10.086 10.186 0.99% (8) 44,014.2 448,309
Non-Qualified XV 10.120 10.179 0.58% (10) 47,079.4 479,204
Annuity contracts in payment period 229,509
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Non-Qualified V 10.095 8.873 (12.11%) (4) 17,925.8 159,052
Non-Qualified V (0.75) 9.678 8.903 (8.01%) (5) 23,760.3 211,549
Non-Qualified VII 10.043 8.863 (11.75%) (4) 40,811.5 361,711
Non-Qualified VIII 10.033 8.872 (11.57%) (4) 13,789.3 122,343
Non-Qualified XIII 8.690 8.903 2.45% (10) 10,325.4 91,925
Non-Qualified XIV 8.833 8.891 0.66% (10) 2,081.8 18,509
Non-Qualified XV 8.648 8.885 2.74% (10) 19.2 170
Annuity contracts in payment period 16,278
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Non-Qualified V 13.654 13.633 (0.15%) 91,991.6 1,254,115
Non-Qualified V (0.75) 13.704 13.751 0.34% 90,091.7 1,238,889
Non-Qualified VII 13.638 13.595 (0.32%) 873,315.8 11,872,953
Non-Qualified VIII 15.596 13.631 (12.60%) (4) 272,561.7 3,715,319
Non-Qualified IX 13.320 13.574 1.91% (1) 797.4 10,824
Non-Qualified XIII 8.799 9.357 6.34% (10) 13,537.9 126,679
Non-Qualified XIV 7.219 9.345 29.45% (9) 7,786.6 72,764
Non-Qualified XV 8.739 9.338 6.85% (11) 396.1 3,699
Annuity contracts in payment period 197,498
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Non-Qualified V 13.261 16.030 20.88% 60,870.3 975,730
Non-Qualified V (0.75) 12.632 16.169 28.00% (1) 91,721.6 1,483,031
Non-Qualified VII 13.246 15.985 20.68% 841,077.5 13,444,950
Non-Qualified VIII 15.274 16.028 4.94% (4) 173,741.4 2,784,641
Non-Qualified IX 14.467 15.960 10.32% (3) 53.9 860
- --------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Non-Qualified XIII 7.522 10.245 36.20% (9) 10,912.8 111,802
Non-Qualified XIV 7.914 10.231 29.28% (9) 17,420.4 178,233
Non-Qualified XV 9.078 10.224 12.62% (10) 856.5 8,757
- --------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund:
Non-Qualified XIII 7.948 10.663 34.16% (9) 3,665.9 39,090
Non-Qualified XIV 8.179 10.649 30.20% (9) 9,967.9 106,146
Non-Qualified XV 8.830 10.641 20.51% (9) 7,172.1 76,322
- --------------------------------------------------------------------------------------------------------------------------------
Growth Fund:
Non-Qualified XIII 7.856 10.779 37.21% (9) 11,162.9 120,321
Non-Qualified XIV 8.120 10.764 32.56% (9) 14,904.3 160,430
Non-Qualified XV 9.702 10.757 10.87% (11) 1,497.6 16,109
- --------------------------------------------------------------------------------------------------------------------------------
Value Fund:
Non-Qualified XIII 7.820 10.616 35.75% (9) 27,667.7 293,713
Non-Qualified XIV 8.093 10.601 30.99% (9) 29,485.9 312,592
Non-Qualified XV 9.664 10.594 9.62% (11) 9,218.7 97,665
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-10
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (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>
Alger American Funds:
Balanced Portfolio:
Non-Qualified VII $16.153 $20.946 29.67% 295,306.5 $ 6,185,618
- --------------------------------------------------------------------------------------------------------------------------------
Income & Growth Portfolio:
Non-Qualified VII 16.902 22.064 30.54% 700,861.1 15,463,737
- --------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Non-Qualified VII 15.988 24.881 55.62% 682,007.2 16,968,827
Non-Qualified VIII 13.551 18.206 34.35% (4) 168.5 3,068
- --------------------------------------------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund:
Non-Qualified VII 15.312 17.479 14.15% 270,740.7 4,732,298
- --------------------------------------------------------------------------------------------------------------------------------
International Fund:
Non-Qualified VII 13.782 16.139 17.10% 358,674.4 5,788,553
Non-Qualified VIII 15.241 14.599 (4.21%) (4) 183.2 2,674
- --------------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Non-Qualified V 17.779 20.415 14.83% 8,742.2 178,470
Non-Qualified V (0.75) 17.944 20.708 15.40% 35,543.7 736,032
Non-Qualified VII 9.976 11.437 14.65% 34,437.7 393,873
Non-Qualified VIII 10.882 11.456 5.27% (4) 56,713.4 649,707
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Non-Qualified V 15.784 17.400 10.24% 298,921.1 5,201,225
Non-Qualified V (0.75) 15.930 17.650 10.80% 630,681.6 11,131,403
Non-Qualified VII 18.963 20.872 10.07% 6,923,691.7 144,511,703
Non-Qualified VIII 15.151 14.942 (1.38%) (4) 919,970.0 13,746,143
Non-Qualified IX 15.755 17.325 9.97% 6,719.9 116,422
Non-Qualified X 15.784 17.400 10.24% 13,539.3 235,583
Non-Qualified XIII 8.459 9.911 17.17% (9) 48,259.6 478,287
Non-Qualified XIV 8.314 9.897 19.04% (9) 59,608.6 589,966
Non-Qualified XV 9.412 9.891 5.09% (11) 9,907.3 97,989
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V 13.904 19.155 37.77% 324,557.7 6,216,774
Non-Qualified V (0.75) 14.034 19.430 38.45% 595,859.4 11,577,298
Non-Qualified VII 19.157 26.348 37.54% 4,154,249.8 109,456,984
Non-Qualified VIII 14.533 17.420 19.87% (4) 600,814.2 10,466,173
Non-Qualified IX 13.879 19.072 37.42% 17,622.0 336,085
Non-Qualified X 13.904 19.155 37.77% 24,195.4 463,454
- --------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Non-Qualified VII 13.959 13.168 (5.67%) 3,196,920.6 42,096,053
Non-Qualified VIII 13.167 11.798 (10.40%) (4) 530,361.7 6,257,364
Non-Qualified XIII 8.626 8.949 3.74% (10) 40,909.1 366,076
Non-Qualified XIV 8.411 8.936 6.24% (10) 19,660.9 175,698
Non-Qualified XV 8.987 8.930 (0.63%) (11) 48,475.9 432,907
Annuity contracts in payment period 503,361
- --------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Non-Qualified V 12.381 13.786 11.35% 54,225.5 747,571
Non-Qualified V (0.75) 12.496 13.984 11.91% 141,714.4 1,981,774
Non-Qualified VII 13.682 15.210 11.17% 929,309.5 14,135,208
Non-Qualified VIII 13.796 12.879 (6.65%) (4) 77,430.9 997,217
Non-Qualified IX 12.358 13.727 11.08% 1,826.6 25,073
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Non-Qualified VII 15.679 17.786 13.44% 1,019,122.4 18,126,177
Non-Qualified VIII 13.995 14.783 5.63% (4) 154,808.5 2,288,561
- --------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Non-Qualified V 15.374 19.735 28.37% 488,102.2 9,632,520
Non-Qualified V (0.75) 15.517 20.018 29.01% 779,941.7 15,612,818
Non-Qualified VII 17.066 21.872 28.16% 5,718,965.7 125,086,950
</TABLE>
S-11
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (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>
Contrafund Portfolio (continued):
Non-Qualified VIII $15.503 $17.492 12.83% (4) 637,258.2 $ 11,146,870
Non-Qualified IX 15.346 19.649 28.04% 20,906.9 410,809
Non-Qualified X 15.374 19.735 28.37% 14,618.4 288,488
Non-Qualified XIII 8.083 10.535 30.34% (9) 42,196.2 444,543
Non-Qualified XIV 8.746 10.521 20.29% (8) 29,543.1 310,821
Non-Qualified XV 8.946 10.514 17.53% (10) 3,861.0 40,594
- --------------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Non-Qualified VII 17.961 22.727 26.54% 5,533,320.3 125,753,551
Non-Qualified VIII 17.227 18.925 9.86% (4) 844,489.5 15,982,287
- --------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Non-Qualified VII 11.597 12.446 7.32% 457,640.6 5,695,641
- --------------------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II:
Non-Qualified VII 20.287 23.528 15.98% 5,705,447.4 134,238,634
Non-Qualified VIII 16.597 16.869 1.64% (5) 9,455.9 159,510
Annuity contracts in payment period 51,858
- --------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Non-Qualified VII 12.305 14.013 13.88% 2,043,618.6 28,656,460
Annuity contracts in payment period 7,576
- --------------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Non-Qualified VII 15.777 18.269 15.80% 1,502,535.0 27,450,515
- --------------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Non-Qualified VII 14.724 14.910 1.26% 3,345,668.5 49,883,928
Non-Qualified VIII 12.832 12.629 (1.58%) (4) 301.1 3,803
- --------------------------------------------------------------------------------------------------------------------------------
International Equity Fund II:
Non-Qualified VII 11.888 14.719 23.81% 1,190,289.9 17,519,674
Non-Qualified VIII 13.748 13.523 (1.64%) (7) 132.3 1,790
- --------------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Non-Qualified VII 11.119 11.503 3.45% 701,312.8 8,067,320
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Non-Qualified VII 11.883 12.614 6.15% 1,272,804.3 16,054,824
- --------------------------------------------------------------------------------------------------------------------------------
Utility Fund II:
Non-Qualified VII 16.611 18.663 12.35% 1,625,061.9 30,328,887
Non-Qualified VIII 13.786 15.472 12.23% (7) 67.9 1,050
Annuity contracts in payment period 7,667
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Non-Qualified V 15.410 20.433 32.60% 512,154.4 10,464,741
Non-Qualified V (0.75) 15.554 20.726 33.25% 459,709.5 9,528,051
Non-Qualified VII 15.418 20.410 32.38% 1,622,088.6 33,106,814
Non-Qualified VIII 12.108 14.162 16.96% (4) 216,957.5 3,072,646
Non-Qualified IX 15.382 20.345 32.26% 12,305.4 250,348
Non-Qualified X 15.410 20.433 32.60% 24,372.9 498,007
Non-Qualified XIII 7.183 11.042 53.72% (9) 18,317.8 202,268
Non-Qualified XIV 6.858 11.027 60.79% (9) 21,356.2 235,501
Non-Qualified XV 9.497 11.020 16.04% (11) 943.6 10,398
- --------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Non-Qualified V 14.990 19.880 32.62% 334,507.8 6,649,987
Non-Qualified V (0.75) 15.130 20.165 33.28% 241,070.0 4,861,245
Non-Qualified VII 16.692 22.101 32.40% 2,277,803.6 50,341,553
Non-Qualified VIII 15.156 17.569 15.92% (4) 480,187.2 8,436,522
Non-Qualified IX 14.963 19.794 32.29% 7,705.0 152,514
Non-Qualified X 14.990 19.880 32.62% 6,712.2 133,439
Non-Qualified XIII 9.175 10.945 19.29% (9) 114,602.5 1,254,291
Non-Qualified XIV 8.301 10.930 31.67% (9) 27,397.4 299,452
Non-Qualified XV 9.275 10.923 17.77% (8 9,108.3 99,486
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-12
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (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>
Flexible Income Portfolio:
Non-Qualified V $14.393 $15.509 7.75% 85,516.5 $ 1,326,243
Non-Qualified V (0.75) 14.527 15.731 8.29% 199,466.7 3,137,882
Non-Qualified VII 14.320 15.405 7.58% 855,509.7 13,179,344
Non-Qualified VIII 12.363 12.873 4.13% (4) 221,988.1 2,857,737
Non-Qualified IX 14.367 15.442 7.48% 3,382.6 52,233
Non-Qualified X 14.630 15.509 6.01% (2) 5,158.4 80,000
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V 15.414 20.651 33.98% 217,309.5 4,487,701
Non-Qualified V (0.75) 15.558 20.948 34.64% 244,106.5 5,113,454
Non-Qualified VII 18.340 24.532 33.76% 2,097,548.1 51,456,280
Non-Qualified VIII 15.094 17.461 15.68% (4) 281,233.5 4,910,658
Non-Qualified IX 15.386 20.562 33.64% 4,444.5 91,388
Non-Qualified X 15.414 20.651 33.98% 1,027.9 21,226
Non-Qualified XIII 7.907 10.938 38.33% (9) 138,459.2 1,514,405
Non-Qualified XIV 7.596 10.923 43.80% (9) 35,759.3 390,592
Non-Qualified XV 9.157 10.915 19.20% (10) 6,648.3 72,569
Annuity contracts in payment period 1,585,189
- --------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Non-Qualified V 16.745 21.320 27.32% 1,069,704.4 22,805,969
Non-Qualified V (0.75) 16.901 21.626 27.96% 1,346,456.7 29,118,282
Non-Qualified VII 18.910 24.039 27.12% 7,196,142.1 172,985,648
Non-Qualified VIII 16.509 17.358 5.14% (4) 941,812.3 16,347,812
Non-Qualified IX 16.714 21.228 27.01% 28,229.7 599,257
Non-Qualified X 16.745 21.320 27.32% 45,970.7 980,091
Non-Qualified XIII 7.245 9.576 32.17% (9) 63,712.4 610,124
Non-Qualified XIV 8.027 9.563 19.14% (8) 39,601.7 378,723
Non-Qualified XV 8.519 9.557 12.18% (10) 7,974.3 76,209
Annuity contracts in payment period 3,724,747
- --------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Non-Qualified VII 8.572 6.068 (29.21%) 247,857.1 1,509,423
- --------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Non-Qualified V 13.896 11.030 (20.62%) 89,735.0 989,787
Non-Qualified V (0.75) 14.025 11.189 (20.22%) 92,175.0 1,031,313
Non-Qualified VII 13.794 10.932 (20.75%) 174,370.9 1,906,192
Non-Qualified IX 13.870 10.982 (20.82%) 752.5 8,264
Non-Qualified X 13.896 11.030 (20.62%) 1,753.1 19,337
- --------------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series:
Non-Qualified VII 13.030 14.432 10.76% 2,203,926.5 31,807,542
Non-Qualified VIII 14.096 14.491 2.80% (4) 400,395.8 5,802,076
Non-Qualified XIII 9.712 10.171 4.73% (10) 11,625.0 118,235
Non-Qualified XIV 9.772 10.157 3.94% (10) 12,838.2 130,398
Non-Qualified XV 9.737 10.150 4.24% (10) 27,534.1 279,477
- --------------------------------------------------------------------------------------------------------------------------------
Worldwide Government Series:
Non-Qualified VII 10.207 10.860 6.40% 156,298.4 1,697,332
Non-Qualified VIII 10.312 10.904 5.74% (4) 29,054.9 316,806
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund:
Non-Qualified VII 12.204 13.520 10.78% 659,693.3 8,919,034
Non-Qualified VIII 14.076 13.556 (3.69%) (4) 211,732.4 2,870,164
Non-Qualified XIII 7.289 9.362 28.44% (9) 730.2 6,837
Non-Qualified XIV 6.300 9.350 48.41% (9) 12,608.6 117,886
Non-Qualified XV 8.309 9.343 12.44% (11) 406.9 3,802
- --------------------------------------------------------------------------------------------------------------------------------
Global Securities Fund:
Non-Qualified V 10.027 10.018 (0.09%) (4) 3,998.3 40,057
Non-Qualified V (0.75) 10.004 10.053 0.49% (6) 9,360.1 94,099
Non-Qualified VII 11.539 12.982 12.51% 465,279.3 6,040,369
Non-Qualified VIII 13.007 13.016 0.07% (4) 113,574.5 1,478,339
Non-Qualified IX 9.378 10.001 6.64% (11) 23.7 237
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-13
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (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>
Growth & Income Fund:
Non-Qualified VII $ 12.785 $ 13.199 3.24% 2,014,343.2 $26,587,287
Non-Qualified VIII 14.890 13.234 (11.12%) (4) 602,061.1 7,967,561
Non-Qualified XIII 6.913 9.080 31.35% (9) 27,241.3 247,342
Non-Qualified XIV 6.647 9.067 36.41% (9) 41,656.3 377,715
Non-Qualified XV 8.449 9.061 7.24% (10) 1,468.2 13,304
- --------------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund:
Non-Qualified V 9.952 9.895 (0.57%) (4) 3,006.1 29,745
Non-Qualified V (0.75) 10.098 9.929 (1.67%) (6) 625.2 6,208
Non-Qualified VII 10.764 10.921 1.46% 890,900.1 9,729,448
Non-Qualified VIII 11.084 10.950 (1.21%) (4) 254,861.2 2,790,663
Non-Qualified IX 9.889 9.878 (0.11%) (11) 67.2 664
Non-Qualified XIII 9.550 9.823 2.86% (10) 21,480.1 211,003
Non-Qualified XIV 9.566 9.810 2.55% (9) 13,169.1 129,188
Non-Qualified XV 9.768 9.803 0.36% (11) 10.2 100
Annuity contracts in payment period 201,581
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Non-Qualified V 15.219 19.489 28.06% 695,812.6 13,560,945
Non-Qualified V (0.75) 15.361 19.769 28.70% 562,096.7 11,112,279
Non-Qualified VII 14.707 18.803 27.85% 5,270,772.3 99,108,417
Non-Qualified VIII 12.011 12.761 6.24% (4) 509,943.9 6,507,181
Non-Qualified IX 15.192 19.405 27.73% 13,060.2 253,436
Non-Qualified X 15.219 19.489 28.06% 11,330.3 220,821
Non-Qualified XIII 7.999 10.371 29.65% (9) 11,390.8 118,131
Non-Qualified XIV 6.702 10.357 54.54% (9) 13,509.1 139,910
Non-Qualified XV 8.599 10.350 20.36% (10) 12,479.0 129,154
Annuity contracts in payment period 922,555
- --------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Non-Qualified V 12.744 15.481 21.48% 605,270.9 9,370,125
Non-Qualified V (0.75) 12.863 15.703 22.08% 428,785.0 6,733,360
Non-Qualified VI 10.761 13.080 21.55% 8,187.8 107,093
Non-Qualified VII 12.641 15.331 21.28% 4,136,850.6 63,421,168
Non-Qualified VIII 10.102 10.532 4.26% (4) 554,094.8 5,835,838
Non-Qualified IX 12.721 15.414 21.17% 21,363.0 329,290
Non-Qualified X 12.744 15.481 21.48% 148,963.1 2,306,080
Non-Qualified XI 11.698 13.080 11.81% (10) 2,353.6 30,784
Non-Qualified XIII 8.805 10.113 14.86% (10) 4,603.7 46,556
Non-Qualified XIV 9.089 10.099 11.11% (10) 36,362.5 367,223
Non-Qualified XV 8.886 10.092 13.57% (10) 6,259.4 63,170
- --------------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Non-Qualified V 21.343 26.713 25.16% 303,746.3 8,114,121
Non-Qualified V (0.75) 21.541 27.097 25.79% 167,064.5 4,526,964
Non-Qualified VII 10.152 12.686 24.96% 881,252.1 11,179,905
Non-Qualified VIII 12.147 12.708 4.62% (4) 214,289.8 2,723,123
Non-Qualified IX 21.304 26.598 24.85% 1,925.9 51,224
Non-Qualified X 21.343 26.713 25.16% 9,947.4 265,731
Non-Qualified XIII 9.507 10.193 7.22% (10) 10,086.1 102,811
Non-Qualified XIV 9.302 10.180 9.44% (10) 9,561.3 97,330
Non-Qualified XV 9.421 10.173 7.98% (11) 161.2 1,640
Annuity contracts in payment period 903,680
- --------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Non-Qualified V 17.903 21.057 17.62% 360,392.4 7,588,700
Non-Qualified V (0.75) 18.070 21.359 18.20% 257,953.3 5,509,651
Non-Qualified VII 9.912 11.640 17.43% 199,291.3 2,319,696
Non-Qualified VIII 11.775 11.659 (0.99%) (4) 107,008.6 1,247,585
Non-Qualified IX 17.870 20.966 17.33% 5,411.2 113,451
Non-Qualified X 17.903 21.057 17.62% 5,244.9 110,442
Non-Qualified XIII 8.553 9.248 8.13% (10) 46,182.0 427,101
Non-Qualified XIV 8.395 9.236 10.02% (9) 25,859.7 238,833
</TABLE>
S-14
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (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>
PPI Scudder International Growth Portfolio (continued):
Non-Qualified XV $ 8.841 $ 9.229 4.39% (10) 2,367.5 $ 21,851
Annuity contracts in payment period 18,946
- ---------------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Non-Qualified V 14.400 18.146 26.01% 287,914.4 5,224,616
Non-Qualified V (0.75) 14.534 18.407 26.65% 335,509.9 6,175,728
Non-Qualified VII 18.343 23.078 25.81% 4,440,082.5 102,469,170
Non-Qualified VIII 15.327 16.682 8.84% (4) 272,321.4 4,542,742
Non-Qualified IX 14.374 18.068 25.70% 16,259.0 293,769
Non-Qualified X 14.400 18.146 26.01% 4,729.8 85,829
Annuity contracts in payment period 56,523
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Non-Qualified 1964 Individual contracts issued from December 1, 1964 to March 14, 1967.
Non-Qualified V Group Aetna Plus contracts issued in connection with Deferred
Compensation Plans issued since August 28, 1992.
Non-Qualified VI Certain existing contracts that were converted to ACES, an 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 Aetna Plus contracts issued in connection with Deferred
Compensation Plans having contract modifications effective April 7, 1997.
Non-Qualified X Group Aetna Plus contracts issued in connection with Deferred
Compensation Plans having contract modifications effective May 29, 1997.
Non-Qualified XI Certain contracts previously valued under Non-Qualified VI having
contract modifications effective May 29, 1997.
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.
</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 1998.
(2) - Reflects less than a full year of performance activity. Funds were first
received in this option during February 1998.
(3) - Reflects less than a full year of performance activity. Funds were first
received in this option during March 1998.
(4) - Reflects less than a full year of performance activity. Funds were first
received in this option during May 1998.
(5) - Reflects less than a full year of performance activity. Funds were first
received in this option during June 1998.
(6) - Reflects less than a full year of performance activity. Funds were first
received in this option during July 1998.
(7) - Reflects less than a full year of performance activity. Funds were first
received in this option during August 1998.
(8) - Reflects less than a full year of performance activity. Funds were first
received in this option during September 1998.
(9) - Reflects less than a full year of performance activity. Funds were first
received in this option during October 1998.
(10) - Reflects less than a full year of performance activity. Funds were first
received in this option during November 1998.
(11) - Reflects less than a full year of performance activity. Funds were first
received in this option during December 1998.
See Notes to Financial Statements
S-15
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998
1. Summary of Significant Accounting Policies
Variable Annuity Account B (the "Account") is a separate account established
by Aetna Life Insurance and Annuity Company (the "Company") registered under
the Investment Company Act of 1940 as a unit investment trust. The Account is
sold exclusively for use with variable annuity contracts that may be entitled
to tax-deferred treatment under specific sections of the Internal Revenue
Code of 1986, as amended.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported therein. Although actual results could differ
from these estimates, any such differences are expected to be immaterial to
the net assets of the Account.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset value
per share as determined by each Fund on December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Aetna Ascent VP Fidelity Investments Variable Insurance
Aetna Balanced VP Products Fund II:
Aetna Bond VP o Asset Manager Portfolio
Aetna Crossroads VP o Contrafund Portfolio
Aetna GET Fund, Series B o Index 500 Portfolio
Aetna GET Fund, Series C o Investment Grade Bond Portfolio
Aetna GET Fund, Series D Insurance Management Series:
Aetna Growth and Income VP o American Leaders Fund II
Aetna Growth VP o Equity Income Fund II
Aetna High Yield VP o Growth Strategies Fund II
Aetna Index Plus Large Cap VP o High Income Bond Fund II
Aetna Index Plus Mid Cap VP o International Equity Fund II
Aetna Index Plus Small Cap VP o Prime Money Fund II
Aetna International VP o U.S. Government Securities Fund II
Aetna Legacy VP o Utility Fund II
Aetna Money Market VP Janus Aspen Series:
Aetna Real Estate Securities VP o Aggressive Growth Portfolio
Aetna Small Company VP o Balanced Portfolio
Aetna Value Opportunity VP o Flexible Income Portfolio
AIM V.I. Funds: o Growth Portfolio
o Capital Appreciation Fund o Worldwide Growth Portfolio
o Growth and Income Fund Lexington Emerging Markets Fund
o Growth Fund Lexington Natural Resources Trust Fund
o Value Fund MFS Funds:
Alger American Funds: o Total Return Series
o Balanced Portfolio o Worldwide Government Series
o Income & Growth Portfolio Oppenheimer Funds:
o Leveraged AllCap Portfolio o Aggressive Growth Fund
American Century Investments: o Global Securities Fund
o Balanced Fund o Growth & Income Fund
o International Fund o Strategic Bond Fund
Calvert Social Balanced Portfolio Portfolio Partners, Inc. (PPI):
Fidelity Investments Variable Insurance o PPI MFS Emerging Equities Portfolio
Products Fund: o PPI MFS Research Growth Portfolio
o Equity-Income Portfolio o PPI MFS Value Equity Portfolio
o Growth Portfolio o PPI Scudder International Growth Portfolio
o High Income Portfolio o PPI T. Rowe Price Growth Equity Portfolio
o Overseas Portfolio
</TABLE>
S-16
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (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 Separate Accounts are computed for currently
payable contracts according to the Progressive Annuity, a49, 1971 Individual
Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983 Group Annuity
Mortality tables using various assumed interest rates not to exceed seven
percent. Mortality experience is monitored by the Company. Charges to annuity
reserves for mortality experience are reimbursed to the Company if the
reserves required are less than originally estimated. If additional reserves
are required, the Company reimburses the Account.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made in
accordance with the terms of the contracts and are paid to the Company.
3. Dividend Income
On an annual basis, the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions to the
Account are automatically reinvested in shares of the Funds. The Account's
proportionate share of each Fund's undistributed net investment income
(distributions in excess of net investment income) and accumulated net
realized gain (loss) on investments is included in net unrealized gain (loss)
in the Statements of Operations and Changes in Net Assets.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended December 31, 1998 and December 31,
1997 aggregated $2,351,952,353 and $1,555,519,398; $1,874,026,188 and
$1,004,789,371, respectively.
S-17
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP: (1) $1,192,999 ($314,522) $6,202,187 $5,330,213 $871,974
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP: (2) 31,081,246 (2,098,681) 22,863,897 18,450,097 4,413,800
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP: (3) 5,276,463 (891,202) 45,551,245 43,538,269 2,012,976
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) 1,150,096 (357,408) 3,956,923 3,518,415 438,508
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series B: 5,018,284 (317,102) 5,046,075 3,579,372 1,466,703
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C: 1,099,683 (125,657) 4,593,631 3,264,351 1,329,280
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series D: 375,948 (91,506) 9,290 9,230 60
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) 194,648,930 (11,627,716) 149,305,243 120,221,169 29,084,074
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP: (6) 57,222 (185,058) 12,683,460 13,031,327 (347,867)
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna High Yield VP: (7) 22,406 (865) 33,710 33,668 42
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (8) 3,829,668 (635,743) 17,517,599 14,396,635 3,120,964
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP: (9) 18,437 (1,287) 73,979 81,147 (7,168)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP: (10) 38,562 (2,372) 124,787 157,822 (33,035)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna International VP: (11) 78,439 (5,821) 5,370,639 5,420,699 (50,060)
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP: (12) 1,516,017 (403,303) 5,625,929 5,116,001 509,928
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP: (13) 6,326,910 (1,717,493) 386,526,442 385,568,048 958,394
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP: (14) 49,524 (4,403) 197,598 223,098 (25,500)
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP: (15) 162,321 (180,527) 17,373,472 19,128,504 (1,755,032)
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (16) 205,253 (172,485) 6,514,348 6,609,710 (95,362)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1,034,430 ($204,552) ($1,238,982) $3,942,985
$ 20,443,736 $ 24,898,190
- ------------------------------------------------------------------------------------------------------------------------------------
21,131,758 13,657,518 (7,474,240) 6,148,805
150,761,384 176,154,146
12,080,737 18,758,905
- ------------------------------------------------------------------------------------------------------------------------------------
781,718 (271,440) (1,053,158) 12,050,394
69,236,488 85,100,187
3,681,984 5,213,758
- ------------------------------------------------------------------------------------------------------------------------------------
704,161 455,992 (248,169) 8,303,550
20,250,904 28,289,880
69,721 1,317,322
- ------------------------------------------------------------------------------------------------------------------------------------
6,194,743 3,285,620 (2,909,123) (4,718,918)
20,859,924 19,399,768
- ------------------------------------------------------------------------------------------------------------------------------------
2,144,550 2,432,614 288,064 (4,244,458)
10,929,107 9,276,019
- ------------------------------------------------------------------------------------------------------------------------------------
0 (64,824) (64,824) 89,687,448
0 89,907,126
- ------------------------------------------------------------------------------------------------------------------------------------
67,675,837 (14,386,593) (82,062,430) (42,142,027)
892,006,381 955,586,320
130,876,769 155,197,661
- ------------------------------------------------------------------------------------------------------------------------------------
(945,071) 4,054,739 4,999,810 21,924,027
3,210,344 28,467,187
8,566 1,199,857
- ------------------------------------------------------------------------------------------------------------------------------------
0 (38,627) (38,627) 247,430
0 230,386
- ------------------------------------------------------------------------------------------------------------------------------------
1,342,384 9,544,413 8,202,029 44,321,436
28,074,705 85,248,495
165,083 1,829,647
- ------------------------------------------------------------------------------------------------------------------------------------
0 25,068 25,068 340,695
0 375,745
- ------------------------------------------------------------------------------------------------------------------------------------
0 8,264 8,264 958,381
0 969,800
- ------------------------------------------------------------------------------------------------------------------------------------
0 (4,447) (4,447) 1,512,822
0 1,528,847
0 2,086
- ------------------------------------------------------------------------------------------------------------------------------------
556,022 230,393 (325,629) 13,863,127
18,710,015 32,331,905
1,284,593 2,822,843
- ------------------------------------------------------------------------------------------------------------------------------------
1,429,868 1,434,703 4,835 19,490,597
124,939,137 149,772,871
0 229,509
- ------------------------------------------------------------------------------------------------------------------------------------
0 (78,505) (78,505) 1,040,421
0 965,259
0 16,278
- ------------------------------------------------------------------------------------------------------------------------------------
(299,676) 1,188,423 1,488,099 12,670,750
6,059,783 18,295,242
47,346 197,498
- ------------------------------------------------------------------------------------------------------------------------------------
(545,082) 1,733,031 2,278,113 12,561,099
3,912,594 18,689,212
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-19
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information of Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AIM V.I. Funds:
Capital Appreciation Fund: $4,806 ($202) $14,985 $12,643 $2,342
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund: 2,713 (267) 23,669 19,935 3,734
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Fund: 9,742 (211) 23,394 19,680 3,714
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Value Fund: 25,024 (535) 56,171 51,027 5,144
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 486,973 (82,216) 1,110,574 897,864 212,710
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Income & Growth Portfolio: 1,467,662 (206,029) 3,272,978 2,151,013 1,121,965
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 631,832 (203,365) 4,222,156 3,043,959 1,178,197
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund: 593,854 (65,789) 611,313 550,274 61,039
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
International Fund: 390,912 (86,065) 1,137,750 894,619 243,131
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio: 142,097 (14,682) 869,863 750,607 119,256
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 8,906,937 (2,144,267) 25,370,915 20,727,569 4,643,346
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 11,278,163 (1,400,091) 22,592,809 17,208,859 5,383,950
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 4,692,207 (673,883) 14,109,054 14,587,749 (478,695)
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 1,031,834 (210,954) 48,431,460 47,643,577 787,883
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 1,595,388 (233,627) 3,024,858 2,760,267 264,591
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 6,614,609 (1,728,721) 42,738,053 30,874,729 11,863,324
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 3,204,277 (1,496,826) 30,685,587 22,118,189 8,567,398
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 342,576 (87,927) 1,725,694 1,635,019 90,675
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in in Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0 $19,720 $19,720 $272,126
$0 $298,792
- ------------------------------------------------------------------------------------------------------------------------------------
0 17,765 17,765 197,613
0 221,558
- ------------------------------------------------------------------------------------------------------------------------------------
0 12,342 12,342 271,273
0 296,860
- ------------------------------------------------------------------------------------------------------------------------------------
0 22,553 22,553 651,784
0 703,970
- ------------------------------------------------------------------------------------------------------------------------------------
691,602 1,582,996 891,394 (979,394)
5,656,151 6,185,618
- ------------------------------------------------------------------------------------------------------------------------------------
2,709,055 4,215,812 1,506,757 (2,575,078)
14,148,460 15,463,737
- ------------------------------------------------------------------------------------------------------------------------------------
1,540,243 6,533,437 4,993,194 (3,907,972)
14,280,009 16,971,895
- ------------------------------------------------------------------------------------------------------------------------------------
462,379 487,853 25,474 (525,510)
4,643,230 4,732,298
- ------------------------------------------------------------------------------------------------------------------------------------
361,821 743,148 381,327 (991,033)
5,852,955 5,791,227
- ------------------------------------------------------------------------------------------------------------------------------------
59,286 14,930 (44,356) 784,430
971,337 1,958,082
- ------------------------------------------------------------------------------------------------------------------------------------
19,807,673 22,859,546 3,051,873 22,941,092
138,709,740 176,108,721
- ------------------------------------------------------------------------------------------------------------------------------------
14,584,513 33,940,400 19,355,887 23,497,310
80,401,549 138,516,768
- ------------------------------------------------------------------------------------------------------------------------------------
2,722,687 (4,425,686) (7,148,373) 18,153,824
35,217,837 49,328,098
68,542 503,361
- ------------------------------------------------------------------------------------------------------------------------------------
460,930 669,980 209,050 3,064,387
13,004,643 17,886,843
- ------------------------------------------------------------------------------------------------------------------------------------
1,137,702 1,633,427 495,725 6,549,586
11,743,075 20,414,738
- ------------------------------------------------------------------------------------------------------------------------------------
18,201,832 35,201,475 16,999,643 21,398,116
107,827,442 162,974,413
- ------------------------------------------------------------------------------------------------------------------------------------
10,882,841 25,538,020 14,655,179 39,819,038
76,986,772 141,735,838
- ------------------------------------------------------------------------------------------------------------------------------------
387,160 478,048 90,888 (1,318,753)
6,578,182 5,695,641
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-21
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insurance Management Series:
American Leaders Fund II: $7,998,351 ($1,792,801) $11,978,535 $7,178,957 $4,799,578
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II: 129,452 (351,981) 2,362,630 1,928,603 434,027
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 1,440,579 (346,704) 2,791,762 2,071,376 720,386
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 1,568,969 (734,892) 9,316,278 8,463,432 852,846
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 19,289 (235,997) 1,956,908 1,482,907 474,001
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II: 373,803 (110,555) 7,641,997 7,641,997 0
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 228,386 (196,668) 3,851,945 3,576,274 275,671
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Utility Fund II: 1,743,305 (392,083) 2,677,845 1,942,231 735,614
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (548,576) 107,425,514 96,362,874 11,062,640
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 2,261,301 (641,284) 6,017,873 4,527,218 1,490,655
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 1,033,461 (191,305) 3,727,543 3,410,925 316,618
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 3,293,173 (683,049) 26,018,237 18,985,226 7,033,011
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 8,111,689 (2,748,458) 78,479,604 56,933,615 21,545,989
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 161,811 (28,458) 724,351 1,074,950 (350,599)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 340,539 (62,444) 2,112,416 2,109,389 3,027
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series: 778,001 (405,501) 3,009,737 2,396,400 613,337
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Government Series: 17,379 (22,917) 739,420 740,555 (1,135)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund: 152,035 (112,671) 86,439,393 86,664,887 (225,494)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Global Securities Fund: 387,530 (69,872) 10,919,054 11,293,037 (373,983)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund: 1,054,695 (356,726) 4,266,733 4,140,441 126,292
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in in Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$30,111,589 $37,231,660 $7,120,071 ($524,859)
$16,800,911 $134,398,144
48,751 51,858
- ------------------------------------------------------------------------------------------------------------------------------------
911,406 3,973,133 3,061,727 5,452,240
19,938,571 28,656,460
0 7,576
- ------------------------------------------------------------------------------------------------------------------------------------
3,558,451 5,244,563 1,686,112 1,241,036
22,709,106 27,450,515
- ------------------------------------------------------------------------------------------------------------------------------------
3,763,082 2,714,767 (1,048,315) (3,963,730)
53,212,853 49,887,731
- ------------------------------------------------------------------------------------------------------------------------------------
938,501 3,819,534 2,881,033 437,110
13,946,028 17,521,464
- ------------------------------------------------------------------------------------------------------------------------------------
0 2,223 2,223 271,362
7,530,487 8,067,320
- ------------------------------------------------------------------------------------------------------------------------------------
513,199 1,013,377 500,178 2,050,473
13,196,784 16,054,824
- ------------------------------------------------------------------------------------------------------------------------------------
5,801,015 7,053,257 1,252,242 695,668
26,302,858 30,329,937
0 7,667
- ------------------------------------------------------------------------------------------------------------------------------------
4,594,517 8,106,849 3,512,332 4,958,453
38,383,925 57,368,774
- ------------------------------------------------------------------------------------------------------------------------------------
3,462,858 15,241,071 11,778,213 26,193,826
31,145,778 72,228,489
- ------------------------------------------------------------------------------------------------------------------------------------
367,565 255,193 (112,372) 9,052,449
10,534,588 20,633,439
- ------------------------------------------------------------------------------------------------------------------------------------
5,764,208 12,281,148 6,516,940 12,764,560
40,072,928 68,058,273
645,899 1,585,189
- ------------------------------------------------------------------------------------------------------------------------------------
18,210,266 37,241,442 19,031,176 39,032,925
160,658,096 243,902,115
1,995,445 3,724,747
- ------------------------------------------------------------------------------------------------------------------------------------
(709,548) (1,196,659) (487,111) (619,636)
2,833,416 1,509,423
-----------------------------------------------------------------------------------------------------------------------------------
177,872 (1,266,269) (1,444,141) (1,812,452)
6,930,364 3,954,893
- ------------------------------------------------------------------------------------------------------------------------------------
1,975,149 3,834,735 1,859,586 16,318,427
18,973,878 38,137,728
- ------------------------------------------------------------------------------------------------------------------------------------
(5,937) 102,292 108,229 588,288
1,324,295 2,014,138
- ------------------------------------------------------------------------------------------------------------------------------------
133,786 1,243,228 1,109,442 7,306,211
3,688,200 11,917,723
- ------------------------------------------------------------------------------------------------------------------------------------
(846) 786,005 786,851 4,241,638
2,680,937 7,653,101
- ------------------------------------------------------------------------------------------------------------------------------------
465,927 (435,824) (901,751) 22,581,792
12,688,907 35,193,209
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-23
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Strategic Bond Fund: $150,955 ($113,793) $1,981,154 $2,006,416 ($25,262)
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 321,152 (1,493,640) 87,290,554 78,385,480 8,905,074
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 18,247 (1,021,049) 37,548,653 34,203,994 3,344,659
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 34,159 (276,002) 13,051,497 11,621,475 1,430,022
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 29,626 (167,735) 136,940,032 134,230,073 2,709,959
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio: 576,750 (1,411,791) 16,657,996 15,110,779 1,547,217
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $325,794,651 ($42,285,760) $1,555,519,398 $1,412,108,865 $143,410,533
====================================================================================================================================
</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' name changed to 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's name changed to 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's name changed to 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-24
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in in Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
($21,173) $47,663 $68,836 $9,925,163
$3,092,701 $12,897,019
0 201,581
- ------------------------------------------------------------------------------------------------------------------------------------
(753,832) 19,423,983 20,177,815 8,869,734
94,796,247 131,150,274
496,447 922,555
- ------------------------------------------------------------------------------------------------------------------------------------
(1,162,926) 11,016,482 12,179,408 8,222,292
65,867,130 88,610,687
- ------------------------------------------------------------------------------------------------------------------------------------
220,662 3,770,053 3,549,391 7,801,278
15,049,606 27,062,849
378,075 903,680
- ------------------------------------------------------------------------------------------------------------------------------------
195,427 863,502 668,075 1,706,168
12,650,163 17,577,310
0 18,946
- ------------------------------------------------------------------------------------------------------------------------------------
1,797,922 24,891,619 23,093,697 4,872,245
90,170,258 118,791,854
0 56,523
- ------------------------------------------------------------------------------------------------------------------------------------
$255,524,506 $349,806,583 $94,282,077 $512,924,064 $2,922,442,857 $3,956,568,422
====================================================================================================================================
</TABLE>
S-25
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $206,171,606 ($9,508,053) $64,103,032 $51,274,099 $12,828,933
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 4,333,850 (737,718) 12,717,950 11,951,670 766,280
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 4,149,350 (1,373,114) 187,177,845 187,281,193 (103,348)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 20,983,218 (1,660,805) 12,262,658 9,696,803 2,565,855
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 3,422,687 (286,592) 1,109,194 713,521 395,673
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 169,021 (119,214) 963,591 833,090 130,501
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 1,293,085 (171,542) 2,422,808 2,093,544 329,264
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 1,366,067 (170,121) 1,119,794 921,119 198,675
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 1,122,530 (176,596) 1,280,095 1,125,823 154,272
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Portfolio, Inc.:
Capital Appreciation Portfolio: 621,617 (11,486) 125,792 110,176 15,616
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 848,691 (9,678) 592,546 560,620 31,926
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Index Plus Portfolio: 1,110,445 (154,416) 2,229,246 1,790,247 438,999
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Small Company Portfolio: 366,132 (19,387) 261,692 230,152 31,540
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 142,299 (73,798) 1,098,365 1,473,706 (375,341)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In Net Assets -----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$59,979,314 $67,675,837 $7,696,523 $71,233,894
$644,728,031 $892,006,381
89,732,216 130,876,769
- ------------------------------------------------------------------------------------------------------------------------------------
379,633 781,718 402,085 (1,964,060)
66,534,546 69,236,488
3,583,489 3,681,984
- ------------------------------------------------------------------------------------------------------------------------------------
(540,607) 1,429,868 1,970,475 13,513,776
106,781,998 124,939,137
- ------------------------------------------------------------------------------------------------------------------------------------
15,114,435 21,131,758 6,017,323 7,591,834
119,402,212 150,761,384
7,942,484 12,080,737
- ------------------------------------------------------------------------------------------------------------------------------------
4,487,610 6,194,743 1,707,133 (712,316)
16,333,339 20,859,924
- ------------------------------------------------------------------------------------------------------------------------------------
144,834 2,144,550 1,999,716 (532,193)
9,281,276 10,929,107
- ------------------------------------------------------------------------------------------------------------------------------------
276,453 1,034,430 757,977 12,596,284
5,638,668 20,443,736
- ------------------------------------------------------------------------------------------------------------------------------------
151,493 704,161 552,668 13,077,636
5,295,700 20,250,904
0 69,721
- ------------------------------------------------------------------------------------------------------------------------------------
46,576 556,022 509,446 12,197,969
6,186,987 18,710,015
0 1,284,593
- ------------------------------------------------------------------------------------------------------------------------------------
0 (545,082) (545,082) 3,831,929
0 3,912,594
- ------------------------------------------------------------------------------------------------------------------------------------
0 (945,071) (945,071) 3,293,042
0 3,210,344
0 8,566
- ------------------------------------------------------------------------------------------------------------------------------------
(4,046) 1,342,384 1,346,430 23,512,958
1,985,372 28,074,705
0 165,083
- ------------------------------------------------------------------------------------------------------------------------------------
0 (299,676) (299,676) 6,028,520
0 6,059,783
0 47,346
- ------------------------------------------------------------------------------------------------------------------------------------
(461,380) 691,602 1,152,982 1,032,718
3,777,291 5,656,151
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-27
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alger American Funds (continued):
Growth Portfolio: (1) $506,477 ($685,927) $ 78,591,434 $ 64,519,617 $ 14,071,817
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio: 401,543 (156,768) 2,602,037 3,401,714 (799,677)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 0 (196,601) 7,570,244 6,461,486 1,108,758
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
MidCap Growth Portfolio: (1) 350,028 (308,858) 49,795,194 45,404,313 4,390,881
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: (2) 2,260,717 (722,118) 118,175,863 114,437,088 3,738,775
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund: 199,265 (58,943) 704,536 619,119 85,417
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund: (3) 725,963 (365,809) 47,909,593 51,060,683 (3,151,090)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
International Fund: 176,899 (85,324) 4,226,767 3,417,937 808,830
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio: 67,562 (7,128) 212,241 199,799 12,442
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 7,870,976 (1,400,361) 17,887,517 15,251,625 2,635,892
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 2,159,319 (938,752) 10,659,015 9,711,716 947,299
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 1,270,071 (337,944) 4,857,948 4,277,783 580,165
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 863,493 (164,196) 5,725,552 5,116,905 608,647
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 761,827 (120,783) 1,009,159 904,890 104,269
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 1,931,363 (1,125,088) 13,933,668 10,543,199 3,390,469
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 1,159,193 (771,581) 17,678,295 13,392,232 4,286,063
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 277,920 (79,205) 1,100,211 1,085,995 14,216
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2,349,936 $0 ($2,349,936) ($55,087,434)
$43,545,003 $0
- ------------------------------------------------------------------------------------------------------------------------------------
(828,912) 2,709,055 3,537,967 4,693,808
6,471,587 14,148,460
- ------------------------------------------------------------------------------------------------------------------------------------
220,810 1,540,243 1,319,433 628,691
11,419,728 14,280,009
- ------------------------------------------------------------------------------------------------------------------------------------
682,424 0 (682,424) (23,592,354)
19,842,727 0
- ------------------------------------------------------------------------------------------------------------------------------------
(495,260) 0 495,260 (64,524,063)
58,751,429 0
- ------------------------------------------------------------------------------------------------------------------------------------
145,325 462,379 317,054 1,109,081
2,991,356 4,643,230
- ------------------------------------------------------------------------------------------------------------------------------------
(1,588,390) 0 1,588,390 (43,166,616)
44,369,162 0
- ------------------------------------------------------------------------------------------------------------------------------------
375,835 361,821 (14,014) 259,970
4,706,594 5,852,955
- ------------------------------------------------------------------------------------------------------------------------------------
(881) 59,286 60,167 241,657
596,637 971,337
- ------------------------------------------------------------------------------------------------------------------------------------
5,773,475 19,807,673 14,034,198 43,088,538
72,480,497 138,709,740
- ------------------------------------------------------------------------------------------------------------------------------------
3,258,300 14,584,513 11,326,213 8,978,986
57,928,484 80,401,549
- ------------------------------------------------------------------------------------------------------------------------------------
814,429 2,722,687 1,908,258 17,156,365
14,709,464 35,217,837
0 68,542
- ------------------------------------------------------------------------------------------------------------------------------------
743,689 460,930 (282,759) 2,276,187
9,703,271 13,004,643
- ------------------------------------------------------------------------------------------------------------------------------------
484,182 1,137,702 653,520 4,412,778
5,931,464 11,743,075
- ------------------------------------------------------------------------------------------------------------------------------------
6,210,754 18,201,832 11,991,078 35,101,002
56,538,618 107,827,442
- ------------------------------------------------------------------------------------------------------------------------------------
2,241,040 10,882,841 8,641,801 36,290,926
27,380,370 76,986,772
- ------------------------------------------------------------------------------------------------------------------------------------
175,829 387,160 211,331 1,392,243
4,761,677 6,578,182
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-29
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insurance Management Series:
American Leaders Fund II: $2,033,587 ($1,272,645) $2,239,581 $1,354,167 $885,414
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II: 52,763 (108,244) 188,614 167,057 21,557
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 63,162 (214,573) 650,403 461,919 188,484
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 2,232,254 (576,880) 5,856,816 5,388,542 468,274
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 8,680 (138,835) 787,960 678,156 109,804
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II: 365,689 (107,783) 7,931,948 7,931,971 (23)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 366,225 (147,271) 3,825,499 3,747,648 77,851
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Utility Fund II: 838,523 (291,277) 1,512,321 1,157,193 355,128
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (419,040) 19,586,639 19,136,007 450,632
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 786,909 (294,871) 2,053,281 1,687,149 366,132
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 528,359 (93,943) 1,111,581 1,079,357 32,224
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 967,832 (429,682) 2,254,366 1,752,378 501,988
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: (4) 62,602 (36,643) 13,023,397 12,927,175 96,222
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 2,077,847 (1,645,928) 21,615,276 15,329,845 6,285,431
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 2,717 (53,043) 4,235,697 4,177,632 58,065
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 209,099 (85,086) 3,246,699 2,653,024 593,675
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-30
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$8,810,467 $30,111,589 $21,301,122 $ 32,775,129
$61,127,055 $116,800,911
0 48,751
- ------------------------------------------------------------------------------------------------------------------------------------
0 911,406 911,406 19,061,089
0 19,938,571
- ------------------------------------------------------------------------------------------------------------------------------------
733,393 3,558,451 2,825,058 12,664,797
7,182,178 22,709,106
- ------------------------------------------------------------------------------------------------------------------------------------
1,022,582 3,763,082 2,740,500 21,197,568
27,151,137 53,212,853
- ------------------------------------------------------------------------------------------------------------------------------------
307,602 938,501 630,899 7,399,890
5,935,590 13,946,028
- ------------------------------------------------------------------------------------------------------------------------------------
0 0 0 (471,714)
7,744,318 7,530,487
- ------------------------------------------------------------------------------------------------------------------------------------
73,398 513,199 439,801 4,803,969
7,656,209 13,196,784
- ------------------------------------------------------------------------------------------------------------------------------------
1,730,892 5,801,015 4,070,123 4,555,867
16,774,494 26,302,858
- ------------------------------------------------------------------------------------------------------------------------------------
534,823 4,594,517 4,059,694 2,750,579
31,542,060 38,383,925
- ------------------------------------------------------------------------------------------------------------------------------------
373,883 3,462,858 3,088,975 15,424,389
11,774,244 31,145,778
- ------------------------------------------------------------------------------------------------------------------------------------
73,395 367,565 294,170 4,626,561
5,147,217 10,534,588
- ------------------------------------------------------------------------------------------------------------------------------------
1,093,423 5,764,208 4,670,785 14,123,750
20,884,154 40,072,928
0 645,899
- ------------------------------------------------------------------------------------------------------------------------------------
(27,376) 0 27,376 (2,070,168)
1,920,611 0
- ------------------------------------------------------------------------------------------------------------------------------------
5,151,123 18,210,266 13,059,143 76,404,357
66,472,691 160,658,096
0 1,995,445
- ------------------------------------------------------------------------------------------------------------------------------------
(66,591) (709,548) (642,957) 952,674
2,515,960 2,833,416
- ------------------------------------------------------------------------------------------------------------------------------------
538,139 177,872 (360,267) 1,821,159
4,751,784 6,930,364
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-31
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MFS Funds:
Emerging Growth Series: (2) $0 ($232,144) $37,594,997 $34,076,137 $3,518,860
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Research Series: (3) 0 (273,185) 37,686,630 34,109,865 3,576,765
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Series: 0 (154,993) 689,861 564,440 125,421
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Value Series: (5) 0 (19,996) 4,332,717 3,942,044 390,673
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Government Series: 15,502 (12,983) 124,845 123,607 1,238
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust -
Growth Portfolio: (5) 741,183 (92,357) 17,383,777 16,347,694 1,036,083
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Capital Appreciation Fund: 0 (13,374) 8,964,190 9,092,515 (128,325)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Global Securities Fund: 0 (12,451) 850,938 802,777 48,161
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund: 37,178 (35,759) 188,084 164,087 23,997
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund: 84,234 (10,842) 122,739 121,006 1,733
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. PPI:
PPI MFS Emerging Equities Portfolio: 0 (120,211) 43,880,815 44,111,392 (230,577)
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 0 (82,490) 37,923,531 37,983,794 (60,263)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 0 (16,913) 4,632,658 4,633,034 (376)
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 0 (12,760) 259,410 255,379 4,031
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Portfolio: 0 (115,952) 33,484,569 33,491,822 (7,253)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio: (6) 275,557 (123,791) 16,445,650 14,417,831 2,027,819
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In Net Assets ------------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
($85,796) $0 $85,796 ($12,370,520)
$8,998,008 $0
- ------------------------------------------------------------------------------------------------------------------------------------
204,764 0 (204,764) (9,875,328)
6,776,512 0
- ------------------------------------------------------------------------------------------------------------------------------------
72,010 1,975,149 1,903,139 12,883,941
4,216,370 18,973,878
- ------------------------------------------------------------------------------------------------------------------------------------
935 0 (935) (578,583)
208,841 0
- ------------------------------------------------------------------------------------------------------------------------------------
9,304 (5,937) (15,241) 927,866
407,913 1,324,295
- ------------------------------------------------------------------------------------------------------------------------------------
(6,666) 0 6,666 (9,934,149)
8,242,574 0
- ------------------------------------------------------------------------------------------------------------------------------------
0 133,786 133,786 3,696,113
0 3,688,200
- ------------------------------------------------------------------------------------------------------------------------------------
0 (846) (846) 2,646,073
0 2,680,937
- ------------------------------------------------------------------------------------------------------------------------------------
0 465,927 465,927 12,197,564
0 12,688,907
- ------------------------------------------------------------------------------------------------------------------------------------
0 (21,173) (21,173) 3,038,749
0 3,092,701
- ------------------------------------------------------------------------------------------------------------------------------------
0 (753,832) (753,832) 96,397,314
0 94,796,247
0 496,447
- ------------------------------------------------------------------------------------------------------------------------------------
0 (1,162,926) (1,162,926) 67,172,809
0 65,867,130
- ------------------------------------------------------------------------------------------------------------------------------------
0 220,662 220,662 15,224,308
0 15,049,606
0 378,075
- ------------------------------------------------------------------------------------------------------------------------------------
0 195,427 195,427 12,463,465
0 12,650,163
- ------------------------------------------------------------------------------------------------------------------------------------
0 1,797,922 1,797,922 88,495,541
0 90,170,258
- ------------------------------------------------------------------------------------------------------------------------------------
1,510,449 0 (1,510,449) (12,719,263)
12,050,127 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-33
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Variable Annuity Account B $278,833,116 ($29,243,851) $1,004,789,371 $933,728,508 $71,060,863
====================================================================================================================================
</TABLE>
(1) - Effective November 28, 1997, this funds assets were transferred to the PPI
T. Rowe Price Growth Equity Portfolio.
(2) - Effective November 28, 1997, this funds assets were transferred to the PPI
MFS Emerging Equities Portfolio.
(3) - Effective November 28, 1997, this funds assets were transferred to PPI MFS
Research Growth Fund.
(4) - Effective November 28, 1997, this funds assets were transferred to the
Aetna Variable Encore Fund.
(5) - Effective November 28, 1997, this funds assets were transferred to the PPI
MFS Value Equity Portfolio.
(6) - Effective November 28, 1997, this funds assets were transferred to the PPI
Scudder International Growth Portfolio.
S-34
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$122,191,053 $255,524,506 $133,333,453 $619,647,552 $1,848,811,724 $2,922,442,857
===================================================================================================================================
</TABLE>
S-35
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and Contract
Owners of Variable Annuity Account B:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account B (the "Account") as
of December 31, 1998, and the related statements of operations and changes in
net assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1998. These financial
statements and condensed financial information are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements and condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and condensed financial information. Our procedures
included confirmation of securities owned as of December 31, 1998, 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, 1998, the results of its operations and changes in its net
assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1998, in conformity with
generally accepted accounting principles.
KPMG LLP
Hartford, Connecticut
February 26, 1999
S-36
<PAGE>
Variable Annuity Account B
Index to Financials for the nine month period ended September 30, 1999
<TABLE>
<CAPTION>
Page
----
<S> <C>
Statement of Assets and Liabilities as of September 30, 1999 (unaudited) ............... S-38
Statements of Operations and Changes in Net Assets for the Nine Month Periods Ended
September 30, 1999 and September 30, 1998 (unaudited) ................................. S-44
Condensed Financial Information for the Nine Month Period Ended
September 30, 1999 (unaudited) ........................................................ S-45
Notes to Financial Statements (unaudited) .............................................. S-55
</TABLE>
S-37
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
ASSETS:
Investments, at net asset value: (Note 1)
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
Aetna Ascent VP: 1,322,915 $ 19,281,468 $ 19,089,664
Aetna Balanced VP: 12,763,844 191,427,597 191,968,218
Aetna Bond VP: 8,137,456 106,414,876 103,427,064
Aetna Crossroads VP: 1,820,946 24,442,381 24,710,235
Aetna Get Fund, Series C: 518,229 5,850,213 6,141,016
Aetna Get Fund, Series D: 17,865,133 179,788,235 179,365,940
Aetna Get Fund, Series E: 35,873,672 362,475,469 354,790,618
Aetna Get Fund, Series G: 547,412 5,480,689 5,485,016
Aetna Growth and Income VP: 33,179,489 1,093,339,467 1,068,711,350
Aetna Growth VP: 3,919,154 57,741,858 58,042,673
Aetna High Yield VP: 47,936 474,254 445,805
Aetna Index Plus Large Cap VP: 10,272,624 187,982,086 190,351,731
Aetna Index Plus Mid Cap VP: 55,529 690,894 650,804
Aetna Index Plus Small Cap VP: 99,418 958,172 976,283
Aetna International VP: 241,242 3,094,317 3,174,738
Aetna Legacy VP: 2,374,621 29,705,957 29,920,221
Aetna Money Market VP: 15,960,030 209,463,660 211,125,663
Aetna Real Estate Securities VP: 240,782 2,102,650 2,017,757
Aetna Small Company VP: 1,493,264 18,064,649 20,054,536
Aetna Value Opportunity VP: 1,036,492 13,819,940 15,423,003
AIM V.I. Funds:
Capital Appreciation Fund: 182,524 4,856,560 4,898,948
Growth and Income Fund: 531,755 13,753,461 13,751,194
Growth Fund: 416,041 11,189,009 11,387,038
Value Fund: 855,877 24,818,588 24,786,185
Alger American Funds:
Balanced Portfolio: 413,200 4,159,682 5,565,801
Income & Growth Portfolio: 1,137,492 11,309,140 14,707,774
Leveraged AllCap Portfolio: 454,172 10,468,727 18,784,562
American Century Investments:
Balanced Fund: 488,599 3,663,984 3,527,686
International Fund: 632,909 4,271,101 5,360,742
Calvert Social Balanced Portfolio: 1,078,850 2,322,062 2,355,129
Fidelity Investments Variable Insurance Products Funds:
Equity-Income Portfolio: 7,679,847 177,114,507 191,074,587
Growth Portfolio: 3,781,738 138,085,301 168,173,894
High Income Portfolio: 5,300,837 63,556,647 57,673,102
Overseas Portfolio: 768,774 15,416,093 16,905,349
Fidelity Investments Variable Insurance Products Funds II:
Asset Manager Portfolio: 1,185,257 20,092,020 20,339,005
Contrafund Portfolio: 7,979,192 171,349,233 198,203,134
Index 500 Portfolio: 1,029,798 134,523,187 150,185,695
Investment Grade Bond Portfolio: 373,059 4,447,910 4,540,132
Insurance Management Series:
American Leaders Fund II: 6,281,726 105,066,399 123,121,823
Equity Income Fund II: 1,947,587 24,314,427 27,792,067
Growth Strategies Fund II: 1,471,155 22,494,229 31,968,206
High Income Bond Fund II: 4,272,914 44,445,688 42,857,328
International Equity Fund II: 1,065,530 13,304,437 18,593,492
</TABLE>
S-38
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - September 30, 1999
(Unaudited & continued):
<TABLE>
<CAPTION>
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
Prime Money Fund II: 10,327,805 $ 10,325,583 $10,327,805
U.S. Government Securities II: 1,258,117 13,323,670 13,310,874
Utility Fund II: 1,926,858 23,414,010 26,744,795
Janus Aspen Series:
Aggressive Growth Portfolio: 3,674,363 127,321,795 137,641,654
Balanced Portfolio: 5,875,547 124,207,331 142,540,775
Flexible Income Portfolio: 1,695,733 20,435,709 19,619,632
Growth Portfolio: 5,518,734 130,495,958 150,440,699
Worldwide Growth Portfolio: 9,292,243 252,894,170 311,940,611
Lexington Emerging Markets Fund: 213,649 2,137,902 1,510,498
Lexington Natural Resources Trust Fund: 273,725 3,953,372 3,290,176
MFS Funds:
Total Return Series: 2,723,389 46,294,569 47,005,689
Worldwide Government Series: 172,930 1,798,767 1,751,778
Mitchell Hutchins Funds:
Growth & Income Portfolio: 38,178 564,280 553,585
Small Cap Portfolio: 8,080 118,602 109,645
Tactical Allocation Portfolio: 237,954 3,817,973 3,709,706
Oppenheimer Funds:
Aggressive Growth Fund: 325,790 17,559,813 18,387,591
Global Securities Fund: 285,819 5,983,418 6,973,995
Growth & Income Fund: 2,116,913 44,771,506 46,656,772
Strategic Bond Fund: 3,642,339 18,195,381 17,665,344
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 2,205,290 115,198,026 135,978,194
PPI MFS Research Growth Portfolio: 7,071,446 76,550,619 85,705,930
PPI MFS Value Equity Portfolio: 946,341 34,390,234 40,096,450
PPI Scudder International Growth Portfolio: 1,286,739 24,797,626 25,052,805
PPI T. Rowe Price Growth Equity Portfolio: 2,011,641 89,436,890 111,243,730
-------------- ----------------
NET ASSETS $4,725,608,428 $5,000,683,941
============== ================
</TABLE>
S-39
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - September 30, 1999
(Unaudited & continued):
<TABLE>
<S> <C>
Net assets represented by:
Reserves for annuity contracts in accumulation and payment period: (Notes 1 and 5)
Aetna Ascent VP:
Annuity contracts in accumulation .............................................. $ 19,089,664
Aetna Balanced VP:
Annuity contracts in accumulation .............................................. 168,641,263
Annuity contracts in payment period ............................................ 23,326,955
Aetna Bond VP:
Annuity contracts in accumulation .............................................. 97,224,002
Annuity contracts in payment period ............................................ 6,203,062
Aetna Crossroads VP:
Annuity contracts in accumulation .............................................. 23,236,593
Annuity contracts in payment period ............................................ 1,473,642
Aetna Get Fund, Series C:
Annuity contracts in accumulation .............................................. 6,141,016
Aetna Get Fund, Series D:
Annuity contracts in accumulation .............................................. 179,365,940
Aetna Get Fund, Series E:
Annuity contracts in accumulation .............................................. 354,790,618
Aetna Get Fund, Series G:
Annuity contracts in accumulation .............................................. 5,485,016
Aetna Growth and Income VP:
Annuity contracts in accumulation .............................................. 896,318,518
Annuity contracts in payment period ............................................ 172,392,832
Aetna Growth VP:
Annuity contracts in accumulation .............................................. 54,746,562
Annuity contracts in payment period ............................................ 3,296,111
Aetna High Yield VP:
Annuity contracts in accumulation .............................................. 445,805
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation .............................................. 158,805,514
Annuity contracts in payment period ............................................ 31,546,217
Aetna Index Plus Mid Cap VP:
Annuity contracts in accumulation .............................................. 650,804
Aetna Index Plus Small Cap VP:
Annuity contracts in accumulation .............................................. 976,283
Aetna International VP:
Annuity contracts in accumulation .............................................. 3,099,771
Annuity contracts in payment period ............................................ 74,967
Aetna Legacy VP:
Annuity contracts in accumulation .............................................. 26,971,984
Annuity contracts in payment period ............................................ 2,948,237
Aetna Money Market VP:
Annuity contracts in accumulation .............................................. 209,524,388
Annuity contracts in payment period ............................................ 1,601,275
Aetna Real Estate Securities VP:
Annuity contracts in accumulation .............................................. 2,002,608
Annuity contracts in payment period ............................................ 15,149
Aetna Small Company VP:
Annuity contracts in accumulation .............................................. 19,799,564
Annuity contracts in payment period ............................................ 254,972
</TABLE>
S-40
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - September 30, 1999
(Unaudited & continued):
<TABLE>
<S> <C>
Aetna Value Opportunity VP:
Annuity contracts in accumulation ...................... $ 15,423,003
AIM V.I. Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation ...................... 4,886,558
Annuity contracts in payment period .................... 12,390
Growth and Income Fund:
Annuity contracts in accumulation ...................... 13,071,706
Annuity contracts in payment period .................... 679,488
Growth Fund:
Annuity contracts in accumulation ...................... 11,288,879
Annuity contracts in payment period .................... 98,159
Value Fund:
Annuity contracts in accumulation ...................... 24,233,706
Annuity contracts in payment period .................... 552,479
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation ...................... 5,565,801
Income & Growth Portfolio:
Annuity contracts in accumulation ...................... 14,707,774
Leveraged AllCap Portfolio:
Annuity contracts in accumulation ...................... 18,784,562
American Century Investments:
Balanced Fund:
Annuity contracts in accumulation ...................... 3,527,686
International Fund:
Annuity contracts in accumulation ...................... 5,360,742
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation ...................... 2,355,129
Fidelity Investments Variable Insurance Products Funds:
Equity-Income Portfolio:
Annuity contracts in accumulation ...................... 191,074,587
Growth Portfolio:
Annuity contracts in accumulation ...................... 168,173,894
High Income Portfolio:
Annuity contracts in accumulation ...................... 57,013,053
Annuity contracts in payment period .................... 660,049
Overseas Portfolio:
Annuity contracts in accumulation ...................... 16,905,349
Fidelity Investments Variable Insurance Products Funds II:
Asset Manager Portfolio:
Annuity contracts in accumulation ...................... 20,339,005
Contrafund Portfolio:
Annuity contracts in accumulation ...................... 198,203,134
Index 500 Portfolio:
Annuity contracts in accumulation ...................... 150,185,695
Investment Grade Bond Portfolio:
Annuity contracts in accumulation ...................... 4,540,132
Insurance Management Series:
American Leaders Fund II:
Annuity contracts in accumulation ...................... 123,062,336
Annuity contracts in payment period .................... 59,487
</TABLE>
S-41
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - September 30, 1999
(Unaudited & continued):
<TABLE>
<S> <C>
Equity Income Fund II:
Annuity contracts in accumulation ........... $ 27,784,751
Annuity contracts in payment period ......... 7,316
Growth Strategies Fund II:
Annuity contracts in accumulation ........... 31,968,206
High Income Bond Fund II:
Annuity contracts in accumulation ........... 42,838,609
Annuity contracts in payment period ......... 18,719
International Equity Fund II:
Annuity contracts in accumulation ........... 18,593,492
Prime Money Fund II:
Annuity contracts in accumulation ........... 10,327,805
U.S. Government Securities II:
Annuity contracts in accumulation ........... 13,310,874
Utility Fund II:
Annuity contracts in accumulation ........... 26,682,924
Annuity contracts in payment period ......... 61,871
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation ........... 137,641,654
Balanced Portfolio:
Annuity contracts in accumulation ........... 142,540,775
Flexible Income Portfolio:
Annuity contracts in accumulation ........... 19,619,632
Growth Portfolio:
Annuity contracts in accumulation ........... 144,785,433
Annuity contracts in payment period ......... 5,655,266
Worldwide Growth Portfolio:
Annuity contracts in accumulation ........... 304,883,846
Annuity contracts in payment period ......... 7,056,765
Lexington Emerging Markets Fund:
Annuity contracts in accumulation ........... 1,510,498
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation ........... 3,290,176
MFS Funds:
Total Return Series:
Annuity contracts in accumulation ........... 47,005,689
Worldwide Government Series:
Annuity contracts in accumulation ........... 1,751,778
Mitchell Hutchins Funds:
Growth & Income Portfolio:
Annuity contracts in accumulation ........... 553,585
Small Cap Portfolio:
Annuity contracts in accumulation ........... 109,645
Tactical Allocation Portfolio:
Annuity contracts in accumulation ........... 3,709,706
Oppenheimer Funds:
Aggressive Growth Fund:
Annuity contracts in accumulation ........... 18,308,622
Annuity contracts in payment period ......... 78,969
Global Securities Fund:
Annuity contracts in accumulation ........... 6,973,995
</TABLE>
S-42
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - September 30, 1999
(Unaudited & continued):
<TABLE>
<S> <C>
Growth & Income Fund:
Annuity contracts in accumulation ........... $ 46,549,709
Annuity contracts in payment period ......... 107,063
Strategic Bond Fund:
Annuity contracts in accumulation ........... 17,311,934
Annuity contracts in payment period ......... 353,410
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation ........... 134,890,446
Annuity contracts in payment period ......... 1,087,748
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation ........... 85,705,930
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation ........... 38,797,379
Annuity contracts in payment period ......... 1,299,071
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation ........... 24,984,617
Annuity contracts in payment period ......... 68,188
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation ........... 110,564,336
Annuity contracts in payment period ......... 679,394
--------------
$5,000,683,941
==============
</TABLE>
See Notes to Financial Statements
S-43
<PAGE>
Variable Annuity Account B
Statements of Operations and Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Period Ended September 30,
1999 1998
-------------- --------------
Unaudited Unaudited
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ............................................................. $ 155,201,149 $ 134,568,725
Expenses: (Notes 2 and 5)
Valuation period deductions ........................................... (41,961,833) (31,107,243)
-------------- --------------
Net investment income .................................................. 113,239,316 103,461,482
-------------- --------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ................................................... 1,425,865,744 1,014,289,382
Cost of investments sold .............................................. 1,253,493,572 917,072,592
-------------- --------------
Net realized gain .................................................... 172,372,172 97,216,790
-------------- --------------
Net unrealized gain on investments: (Note 5)
Beginning of year ..................................................... 349,806,583 255,524,506
End of year ........................................................... 275,075,513 7,328,915
-------------- --------------
Net change in unrealized gain ........................................ (74,731,070) (248,195,591)
-------------- --------------
Net realized and unrealized gain on investments ........................ 97,641,102 (150,978,801)
-------------- --------------
Net increase in net assets resulting from operations ................... 210,880,418 (47,517,319)
-------------- --------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ............................ 511,046,261 377,613,292
Transfers from the Company for mortality guarantee adjustments ......... 2,163,712 (1,054,765)
Transfers from the Company's fixed account options ..................... 552,681,882 163,143,563
Transfer to the Company's other variable annuity accounts .............. 644,115 0
Redemptions by contract holders ........................................ (212,182,494) (121,371,506)
Annuity payments ....................................................... (21,900,510) (16,969,457)
Other .................................................................. 782,135 1,671,199
-------------- --------------
Net increase in net assets from unit transactions (Note 5) ............ 833,235,101 403,032,325
-------------- --------------
Change in net assets ................................................... 1,044,115,519 355,515,006
NET ASSETS:
Beginning of year ...................................................... 3,956,568,422 2,922,442,857
-------------- --------------
End of year ............................................................ $5,000,683,941 $3,277,957,863
============== ==============
</TABLE>
See Notes to Financial Statements
S-44
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
--------------------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP:
Non-Qualified V $ 15.855 $ 16.203 2.19% 105,868.3 $ 1,715,411
Non-Qualified V (0.75) 16.082 16.497 2.58% 142,353.2 2,348,465
Non-Qualified VII 15.769 16.096 2.07% 780,051.3 12,555,683
Non-Qualified VIII 14.012 14.319 2.19% 145,663.0 2,085,745
Non-Qualified IX 15.786 16.103 2.01% 1,406.2 22,645
Non-Qualified X 15.942 16.335 2.47% 21,775.7 355,710
Non-Qualified XII 9.180 9.881 7.64% (2) 607.7 6,005
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP:
Non-Qualified V 21.929 22.438 2.32% 2,434,340.1 54,621,131
Non-Qualified V (0.75) 22.244 22.845 2.70% 1,616,249.7 36,923,459
Non-Qualified VI 18.445 18.881 2.36% 38,237.3 721,957
Non-Qualified VII 21.507 21.979 2.19% 2,314,925.6 50,880,306
Non-Qualified VIII 15.212 15.564 2.31% 452,934.2 7,049,657
Non-Qualified IX 21.834 22.299 2.13% 30,357.9 676,955
Non-Qualified X 22.015 22.568 2.51% 405,218.8 9,145,013
Non-Qualified XI 18.517 18.991 2.56% 5,338.1 101,373
Non-Qualified XII 10.548 10.842 2.79% (2) 5,563.3 60,317
Non-Qualified XIII 10.337 10.600 2.54% 324,905.0 3,443,976
Non-Qualified XIV 10.323 10.562 2.32% 267,913.6 2,829,614
Non-Qualified XV 10.316 10.542 2.19% 207,494.0 2,187,505
Annuity contracts in payment period 23,326,955
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP:
Non-Qualified V 14.270 14.096 (1.22%) 1,044,979.9 14,729,783
Non-Qualified V (0.75) 14.475 14.352 (0.85%) 1,646,331.0 23,627,831
Non-Qualified VI 13.041 12.888 (1.17%) 50,105.9 645,757
Non-Qualified VII 13.998 13.811 (1.34%) 2,323,112.6 32,083,646
Non-Qualified VIII 11.910 11.764 (1.23%) 493,519.8 5,805,624
Non-Qualified IX 14.208 14.009 (1.40%) 21,951.8 307,515
Non-Qualified X 14.304 14.145 (1.11%) 395,510.6 5,594,436
Non-Qualified XI 13.072 12.933 (1.06%) 4,286.3 55,433
Non-Qualified XIII 10.319 10.215 (1.01%) 542,358.2 5,540,292
Non-Qualified XIV 10.305 10.178 (1.23%) 634,008.9 6,453,116
Non-Qualified XV 10.298 10.160 (1.34%) 234,312.5 2,380,569
Annuity contracts in payment period 6,203,062
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Non-Qualified V 15.095 15.255 1.06% 125,170.2 1,909,427
Non-Qualified V (0.75) 15.312 15.532 1.44% 133,222.6 2,069,165
Non-Qualified VII 15.013 15.154 0.94% 1,018,690.9 15,436,890
Non-Qualified VIII 13.588 13.730 1.05% 264,763.7 3,635,319
Non-Qualified IX 15.030 15.160 0.86% 469.9 7,124
Non-Qualified X 15.179 15.379 1.32% 9,945.5 152,950
Non-Qualified XVII 15.521 15.284 (1.53%) (8) 1,682.7 25,718
Annuity contracts in payment period 1,473,642
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Non-Qualified V 15.904 16.674 4.84% 51,635.5 860,978
Non-Qualified V (0.75) 16.087 16.929 5.23% 302,940.9 5,128,519
Non-Qualified IX 15.835 16.571 4.65% 9,143.5 151,519
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Non-Qualified V 10.062 9.939 (1.22%) 2,392,888.7 23,782,382
Non-Qualified V (0.75) 10.073 9.988 (0.84%) 2,033,884.6 20,313,431
Non-Qualified VII 10.058 9.923 (1.34%) 5,978,792.1 59,326,879
Non-Qualified VIII 10.067 9.952 (1.14%) 2,685,430.2 26,724,392
Non-Qualified IX 10.066 9.915 (1.50%) (1) 309.5 3,068
Non-Qualified X 10.062 9.939 (1.22%) 183,152.7 1,820,313
Non-Qualified XII 9.997 9.983 (0.14%) (2) 3,713.7 37,072
</TABLE>
S-45
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1999
(Unaudited & continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
----------------------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Get Fund, Series D (continued):
Non-Qualified XIII $ 10.072 $ 9.971 (1.00%) 2,017,376.2 $ 20,115,733
Non-Qualified XIV 10.066 9.943 (1.22%) 1,978,824.2 19,674,707
Non-Qualified XV 10.063 9.928 (1.34%) 762,260.0 7,567,963
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series E:
Non-Qualified V 10.001 9.852 (1.49%) (5) 1,958,516.2 19,295,689
Non-Qualified V (0.75) 10.015 9.867 (1.48%) (5) 222,060.4 2,190,992
Non-Qualified VII 10.012 9.847 (1.65%) (5) 4,111,440.1 40,487,645
Non-Qualified VIII 10.012 9.851 (1.61%) (5) 609,808.6 6,007,808
Non-Qualified X 10.013 9.858 (1.55%) (5) 149,637.7 1,475,099
Non-Qualified XIII 10.012 9.860 (1.52%) (5) 10,356,971.0 102,127,233
Non-Qualified XIV 10.012 9.851 (1.61%) (5) 9,739,164.7 95,949,822
Non-Qualified XV 10.012 9.847 (1.65%) (5) 8,860,707.4 87,256,330
Aetna Get Fund, Series G:
Non-Qualified V 9.999 10.013 0.14% (8) 5,910.1 59,176
Non-Qualified V (0.75) 10.006 10.016 0.10% (8) 94,325.5 944,725
Non-Qualified VII 9.998 10.012 0.14% (8) 84,177.0 842,762
Non-Qualified VIII 10.003 10.013 0.10% (8) 76,100.1 761,964
Non-Qualified XIII 9.998 10.014 0.16% (8) 91,005.8 911,369
Non-Qualified XIV 9.998 10.013 0.15% (8) 146,529.6 1,467,149
Non-Qualified XV 9.998 10.012 0.14% (8) 49,728.5 497,871
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Non-Qualified 1964 267.347 276.651 3.48% 958.7 265,217
Non-Qualified V 24.907 25.774 3.48% 7,481,438.1 192,826,376
Non-Qualified V (0.75) 25.265 26.242 3.87% 12,166,636.2 319,274,566
Non-Qualified VI 23.322 24.145 3.53% 1,717,145.2 41,460,484
Non-Qualified VII 24.839 25.673 3.36% 7,861,715.4 201,835,045
Non-Qualified VIII 16.604 17.181 3.48% 1,388,748.5 23,860,411
Non-Qualified IX 24.800 25.615 3.29% 138,166.7 3,539,116
Non-Qualified X 25.005 25.924 3.68% 3,376,564.3 87,532,878
Non-Qualified XI 23.414 24.285 3.72% 43,335.7 1,052,418
Non-Qualified XII 10.246 10.591 3.37% (2) 20,336.6 215,380
Non-Qualified XIII 9.886 10.252 3.70% 979,134.3 10,038,497
Non-Qualified XIV 9.872 10.215 3.47% 1,072,390.0 10,954,884
Non-Qualified XV 9.866 10.197 3.35% 331,130.4 3,376,493
Non-Qualified XVII 263.583 254.381 (3.49%) (8) 341.0 86,753
Annuity contracts in payment period 172,392,832
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP:
Non-Qualified V 17.912 19.424 8.44% 177,340.4 3,444,645
Non-Qualified V (0.75) 18.067 19.666 8.85% 639,405.2 12,574,510
Non-Qualified VII 17.862 19.347 8.31% 1,055,206.1 20,415,258
Non-Qualified VIII 17.909 19.420 8.44% 414,015.4 8,040,283
Non-Qualified IX 17.834 19.304 8.24% 5,386.7 103,985
Non-Qualified XII 11.536 12.266 6.33% (2) 2,789.4 34,216
Non-Qualified XIII 10.489 11.399 8.68% 383,863.2 4,375,832
Non-Qualified XIV 10.475 11.358 8.43% 417,649.6 4,743,783
Non-Qualified XV 10.468 11.338 8.31% 85,881.6 973,700
Non-Qualified XVII 15.198 14.749 (2.95%) (8) 2,735.8 40,350
Annuity contracts in payment period 3,296,111
- -----------------------------------------------------------------------------------------------------------------------------
Aetna High Yield VP:
Non-Qualified V 9.212 9.396 2.00% 2,550.9 23,970
Non-Qualified V (0.75) 9.244 9.464 2.38% 43,958.7 416,036
Non-Qualified IX 9.677 9.363 (3.24%) (3) 619.4 5,799
- -----------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Non-Qualified V 18.772 19.738 5.15% 346,758.3 6,844,180
</TABLE>
S-46
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1999
(Unaudited & continued):
<TABLE>
<CAPTION>
Value
Per Unit
---------------------
Beginning End of
of Period Period
- ------------------------------------------------------------------
<S> <C> <C>
Aetna Index Plus Large Cap VP (continued):
Non-Qualified V (0.75) $ 18.989 $ 20.040
Non-Qualified VII 18.704 19.642
Non-Qualified VIII 18.449 19.397
Non-Qualified IX 18.691 19.616
Non-Qualified XII 11.411 11.701
Non-Qualified XIII 10.716 11.292
Non-Qualified XIV 10.702 11.251
Non-Qualified XV 10.694 11.231
Annuity contracts in payment period
- ------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Non-Qualified V 10.891 10.459
Non-Qualified V (0.75) 10.928 10.535
Non-Qualified IX 10.872 10.422
- ------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Non-Qualified V 8.815 8.698
Non-Qualified V (0.75) 8.846 8.761
Non-Qualified IX 8.800 8.667
- ------------------------------------------------------------------
Aetna International VP:
Non-Qualified V 9.765 11.149
Non-Qualified V (0.75) 9.798 11.230
Non-Qualified VII 9.754 11.124
Non-Qualified VIII 9.764 11.148
Non-Qualified XIII 9.149 10.470
Non-Qualified XIV 9.137 10.432
Non-Qualified XV 9.131 10.413
Annuity contracts in payment period
- ------------------------------------------------------------------
Aetna Legacy VP:
Non-Qualified V 14.064 14.206
Non-Qualified V (0.75) 14.266 14.464
Non-Qualified VII 13.989 14.114
Non-Qualified VIII 13.037 13.168
Non-Qualified IX 14.003 14.118
Non-Qualified XII 9.846 10.220
Annuity contracts in payment period
- ------------------------------------------------------------------
Aetna Money Market VP:
Non-Qualified V 12.425 12.755
Non-Qualified V (0.75) 12.604 12.986
Non-Qualified VI 12.132 12.459
Non-Qualified VII 12.322 12.634
Non-Qualified VIII 11.141 11.436
Non-Qualified IX 12.372 12.676
Non-Qualified X 12.425 12.755
Non-Qualified XI 12.132 12.459
Non-Qualified XIII 10.199 10.493
Non-Qualified XIV 10.186 10.455
Non-Qualified XV 10.179 10.436
Annuity contracts in payment period
- ------------------------------------------------------------------
Aetna Real Estate Securities VP:
Non-Qualified V 8.873 8.638
Non-Qualified V (0.75) 8.903 8.700
Non-Qualified VII 8.863 8.618
Non-Qualified VIII 8.872 8.637
Non-Qualified XIII 8.903 8.686
Non-Qualified XIV 8.891 8.655
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Period of Period
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Index Plus Large Cap VP (continued):
Non-Qualified V (0.75) 5.53% 1,515,183.2 $ 30,364,504
Non-Qualified VII 5.01% 2,787,531.9 54,752,198
Non-Qualified VIII 5.14% 878,274.7 17,035,925
Non-Qualified IX 4.95% 31,010.8 608,301
Non-Qualified XII 2.54% (2) 13,285.6 155,455
Non-Qualified XIII 5.38% 1,711,164.7 19,322,467
Non-Qualified XIV 5.13% 1,964,214.5 22,099,811
Non-Qualified XV 5.02% 678,728.1 7,622,673
Annuity contracts in payment period 31,546,217
- -----------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Non-Qualified V (3.97%) 5,227.3 54,673
Non-Qualified V (0.75) (3.60%) 55,267.5 582,229
Non-Qualified IX (4.14%) 1,333.9 13,902
- -----------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Non-Qualified V (1.33%) 13,828.7 120,280
Non-Qualified V (0.75) (0.96%) 96,725.6 847,379
Non-Qualified IX (1.51%) 995.0 8,624
- -----------------------------------------------------------------------------------------------------------
Aetna International VP:
Non-Qualified V 14.17% 8,065.7 89,928
Non-Qualified V (0.75) 14.62% 52,318.7 587,531
Non-Qualified VII 14.05% 73,601.4 818,729
Non-Qualified VIII 14.17% 30,451.7 339,482
Non-Qualified XIII 14.44% 47,359.9 495,858
Non-Qualified XIV 14.17% 54,932.5 573,066
Non-Qualified XV 14.04% 18,743.1 195,177
Annuity contracts in payment period 74,967
- -----------------------------------------------------------------------------------------------------------
Aetna Legacy VP:
Non-Qualified V 1.01% 119,989.6 1,704,556
Non-Qualified V (0.75) 1.39% 76,705.3 1,109,455
Non-Qualified VII 0.89% 1,284,581.3 18,129,989
Non-Qualified VIII 1.00% 454,222.5 5,981,023
Non-Qualified IX 0.82% 1,200.7 16,951
Non-Qualified XII 3.80% (2) 2,936.4 30,010
Annuity contracts in payment period 2,948,237
- -----------------------------------------------------------------------------------------------------------
Aetna Money Market VP:
Non-Qualified V 2.66% 1,123,239.5 14,326,692
Non-Qualified V (0.75) 3.03% 2,546,831.0 33,074,344
Non-Qualified VI 2.70% 59,575.1 742,271
Non-Qualified VII 2.53% 8,208,373.6 103,701,177
Non-Qualified VIII 2.65% 1,383,599.6 15,822,834
Non-Qualified IX 2.46% 20,630.3 261,510
Non-Qualified X 2.66% 548,790.2 6,999,708
Non-Qualified XI 2.70% 3,247.1 40,457
Non-Qualified XIII 2.88% 1,723,253.0 18,081,943
Non-Qualified XIV 2.64% 1,048,453.2 10,961,555
Non-Qualified XV 2.52% 528,161.6 5,511,897
Annuity contracts in payment period 1,601,275
- -----------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Non-Qualified V (2.65%) 6,375.4 55,070
Non-Qualified V (0.75) (2.28%) 52,262.5 454,694
Non-Qualified VII (2.76%) 63,873.0 550,456
Non-Qualified VIII (2.65%) 29,711.7 256,616
Non-Qualified XIII (2.44%) 42,964.5 373,200
Non-Qualified XIV (2.65%) 30,453.5 263,570
</TABLE>
S-47
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1999
(Unaudited & continued):
<TABLE>
<CAPTION>
Value
Per Unit
--------------------
Beginning End of
of Period Period
--------- --------
<S> <C> <C>
Aetna Real Estate Securities VP (continued):
Non-Qualified XV $ 8.885 $ 8.639
Annuity contracts in payment period
- -------------------------------------------------------------------
Aetna Small Company VP:
Non-Qualified V 13.633 14.188
Non-Qualified V (0.75) 13.751 14.365
Non-Qualified VII 13.595 14.132
Non-Qualified VIII 13.631 14.186
Non-Qualified IX 13.574 14.101
Non-Qualified XII 8.741 9.937
Non-Qualified XIII 9.357 9.760
Non-Qualified XIV 9.345 9.725
Non-Qualified XV 9.338 9.707
Annuity contracts in payment period
- -------------------------------------------------------------------
Aetna Value Opportunity VP:
Non-Qualified V 16.030 16.400
Non-Qualified V (0.75) 16.169 16.604
Non-Qualified VII 15.985 16.335
Non-Qualified VIII 16.028 16.397
Non-Qualified IX 15.960 16.299
Non-Qualified XII 10.626 11.256
- -------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Non-Qualified V 10.008 10.161
Non-Qualified V (0.75) 9.979 10.183
Non-Qualified XIII 10.245 10.834
Non-Qualified XIV 10.231 10.795
Non-Qualified XV 10.224 10.776
Annuity contracts in payment period
- -------------------------------------------------------------------
Growth and Income Fund:
Non-Qualified V 9.568 9.532
Non-Qualified V (0.75) 10.215 9.553
Non-Qualified XIII 10.663 11.528
Non-Qualified XIV 10.649 11.486
Non-Qualified XV 10.641 11.465
Non-Qualified XVII 10.030 9.832
Annuity contracts in payment period
- -------------------------------------------------------------------
Growth Fund:
Non-Qualified V 9.663 9.880
Non-Qualified V (0.75) 9.722 9.902
Non-Qualified XIII 10.779 11.811
Non-Qualified XIV 10.764 11.768
Non-Qualified XV 10.757 11.747
Annuity contracts in payment period
- -------------------------------------------------------------------
Value Fund:
Non-Qualified V (0.75) 9.764 9.824
Non-Qualified XIII 10.616 11.628
Non-Qualified XIV 10.601 11.586
Non-Qualified XV 10.594 11.565
Non-Qualified XVII 10.093 10.050
Annuity contracts in payment period
- -------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Non-Qualified VII 20.946 23.169
- -------------------------------------------------------------------
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Period of Period
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Real Estate Securities VP (continued):
Non-Qualified XV (2.77%) 5,672.1 $ 49,002
Annuity contracts in payment period 15,149
- -----------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Non-Qualified V 4.07% 20,356.1 288,820
Non-Qualified V (0.75) 4.47% 163,111.2 2,343,141
Non-Qualified VII 3.95% 748,264.8 10,574,667
Non-Qualified VIII 4.07% 275,621.2 3,909,871
Non-Qualified IX 3.88% 1,627.2 22,944
Non-Qualified XII 13.68% (2) 16,822.3 167,159
Non-Qualified XIII 4.31% 132,877.2 1,296,900
Non-Qualified XIV 4.07% 90,305.7 878,209
Non-Qualified XV 3.95% 32,744.0 317,853
Annuity contracts in payment period 254,972
- -----------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Non-Qualified V 2.31% 21,219.0 347,994
Non-Qualified V (0.75) 2.69% 76,246.6 1,266,034
Non-Qualified VII 2.19% 665,920.1 10,877,998
Non-Qualified VIII 2.30% 172,407.2 2,826,957
Non-Qualified IX 2.12% 241.2 3,932
Non-Qualified XII 5.93% (2) 8,892.0 100,088
- -----------------------------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Non-Qualified V 1.53% (5) 2,656.4 26,991
Non-Qualified V (0.75) 2.04% (7) 13.5 137
Non-Qualified XIII 5.75% 129,569.0 1,403,785
Non-Qualified XIV 5.51% 217,487.6 2,347,803
Non-Qualified XV 5.40% 102,810.9 1,107,842
Annuity contracts in payment period 12,390
- -----------------------------------------------------------------------------------------------------------
Growth and Income Fund:
Non-Qualified V (0.38%) (5) 4,198.7 40,022
Non-Qualified V (0.75) (6.48%) (6) 9,149.7 87,409
Non-Qualified XIII 8.11% 247,509.0 2,853,256
Non-Qualified XIV 7.86% 699,720.8 8,037,172
Non-Qualified XV 7.74% 179,081.6 2,053,247
Non-Qualified XVII (1.97%) (8) 61.0 600
Annuity contracts in payment period 679,488
- -----------------------------------------------------------------------------------------------------------
Growth Fund:
Non-Qualified V 2.25% (5) 1,561.8 15,431
Non-Qualified V (0.75) 1.85% (7) 28,946.6 286,625
Non-Qualified XIII 9.57% 230,794.8 2,725,920
Non-Qualified XIV 9.33% 560,274.3 6,593,509
Non-Qualified XV 9.20% 141,941.7 1,667,394
Annuity contracts in payment period 98,159
- -----------------------------------------------------------------------------------------------------------
Value Fund:
Non-Qualified V (0.75) 0.61% (4) 55,587.3 546,117
Non-Qualified XIII 9.53% 628,650.8 7,310,240
Non-Qualified XIV 9.29% 1,091,275.6 12,644,026
Non-Qualified XV 9.17% 322,712.8 3,732,320
Non-Qualified XVII (0.43%) (8) 99.8 1,003
Annuity contracts in payment period 552,479
- -----------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Non-Qualified VII 10.61% 240,221.9 5,565,801
- -----------------------------------------------------------------------------------------------------------
</TABLE>
S-48
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1999
(Unaudited & continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
--------------------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income & Growth Portfolio:
Non-Qualified VII $ 22.064 $ 22.874 3.67% 642,985.0 $ 14,707,774
- ----------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Non-Qualified VII 24.881 31.278 25.71% 600,452.5 18,780,705
Non-Qualified VIII 18.206 22.913 25.85% 168.3 3,857
- ----------------------------------------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund:
Non-Qualified VII 17.479 17.642 0.93% 199,954.3 3,527,686
- ----------------------------------------------------------------------------------------------------------------------------
International Fund:
Non-Qualified VII 16.139 17.751 9.99% 301,829.7 5,357,797
Non-Qualified VIII 14.599 16.075 10.11% 183.2 2,945
- ----------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Non-Qualified V 20.415 20.660 1.20% 8,053.0 166,376
Non-Qualified V (0.75) 20.708 21.035 1.58% 38,014.7 799,649
Non-Qualified VII 11.437 11.561 1.08% 62,028.8 717,111
Non-Qualified VIII 11.456 11.593 1.20% 57,965.3 671,993
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Funds:
Equity-Income Portfolio:
Non-Qualified V 17.400 17.738 1.94% 249,298.4 4,421,935
Non-Qualified V (0.75) 17.650 18.060 2.32% 558,862.2 10,092,807
Non-Qualified VII 20.872 21.252 1.82% 6,475,769.6 137,619,908
Non-Qualified VIII 14.942 15.231 1.93% 1,043,594.8 15,894,903
Non-Qualified IX 17.325 17.628 1.75% 8,741.1 154,089
Non-Qualified X 17.400 17.738 1.94% 11,369.5 201,667
Non-Qualified XII 10.184 10.328 1.41% (2) 411.8 4,253
Non-Qualified XIII 9.911 10.125 2.16% 557,396.2 5,643,815
Non-Qualified XIV 9.897 10.089 1.94% 1,334,010.8 13,458,493
Non-Qualified XV 9.891 10.070 1.81% 354,772.9 3,572,718
Non-Qualified XVII 19.484 18.645 (4.31%) (8) 536.3 9,999
- ----------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V 19.155 21.114 10.23% 476,662.6 10,064,359
Non-Qualified V (0.75) 19.430 21.498 10.64% 871,383.3 18,732,577
Non-Qualified VII 26.348 29.009 10.10% 4,227,919.3 122,648,041
Non-Qualified VIII 17.420 19.201 10.22% 808,025.8 15,514,936
Non-Qualified IX 19.072 20.984 10.03% 24,777.4 519,926
Non-Qualified X 19.155 21.114 10.23% 28,741.7 606,858
Non-Qualified XII 12.390 12.999 4.92% (2) 2,420.3 31,461
Non-Qualified XIII 10.265 10.265 0.00% (8) 1,925.8 19,769
Non-Qualified XIV 10.231 10.256 0.24% (8) 1,346.9 13,814
Non-Qualified XVII 22.058 21.396 (3.00%) (8) 1,035.3 22,153
- ----------------------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Non-Qualified VII 13.168 13.556 2.95% 2,847,803.7 38,605,902
Non-Qualified VIII 11.798 12.160 3.07% 626,959.0 7,624,071
Non-Qualified XIII 8.949 9.244 3.30% 400,176.5 3,699,270
Non-Qualified XIV 8.936 9.211 3.08% 564,033.0 5,195,126
Non-Qualified XV 8.930 9.194 2.96% 205,426.4 1,888,684
Annuity contracts in payment period 660,049
- ----------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Non-Qualified V 13.786 15.611 13.24% 36,045.2 562,703
Non-Qualified V (0.75) 13.984 15.894 13.66% 181,192.4 2,879,954
Non-Qualified VII 15.210 17.203 13.10% 733,998.2 12,627,034
Non-Qualified VIII 12.879 14.583 13.23% 55,943.2 815,795
Non-Qualified IX 13.727 15.515 13.03% 1,280.3 19,863
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-49
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1999
(Unaudited & continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
------------------------ in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fidelity Investments Variable Insurance Products Funds II:
Asset Manager Portfolio:
Non-Qualified VII $ 17.786 $ 17.970 1.03% 980,548.5 $ 17,620,739
Non-Qualified VIII 14.783 14.953 1.15% 181,783.5 2,718,266
- ----------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Non-Qualified V 19.735 20.701 4.89% 454,251.9 9,403,514
Non-Qualified V (0.75) 20.018 21.077 5.29% 860,746.2 18,141,866
Non-Qualified VII 21.872 22.916 4.77% 5,481,361.6 125,611,155
Non-Qualified VIII 17.492 18.348 4.89% 808,941.9 14,842,064
Non-Qualified IX 19.649 20.573 4.70% 21,617.4 444,740
Non-Qualified X 19.735 20.701 4.89% 13,266.9 274,640
Non-Qualified XII 11.460 11.773 2.73% (2) 4,606.1 54,225
Non-Qualified XIII 10.535 11.076 5.14% 911,513.1 10,095,512
Non-Qualified XIV 10.521 11.036 4.89% 1,267,633.1 13,989,020
Non-Qualified XV 10.514 11.016 4.77% 475,849.6 5,241,733
Non-Qualified XVII 23.549 23.269 (1.19%) (8) 4,498.1 104,665
- ----------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Non-Qualified VII 22.727 23.609 3.88% 5,454,687.1 128,778,878
Non-Qualified VIII 18.925 19.682 4.00% 1,087,608.9 21,406,817
- ----------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Non-Qualified VII 12.446 12.196 (2.01%) 371,993.2 4,536,781
Non-Qualified VIII 11.918 11.881 (0.31%) (2) 282.1 3,351
- ----------------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II:
Non-Qualified VII 23.528 23.379 (0.63%) 5,256,960.6 122,902,197
Non-Qualified VIII 16.869 16.781 (0.52%) 9,542.9 160,139
Annuity contracts in payment period 59,487
- ----------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Non-Qualified VII 14.013 14.399 2.75% 1,929,660.8 27,784,751
Annuity contracts in payment period 7,316
- ----------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Non-Qualified VII 18.269 21.934 20.06% 1,457,475.6 31,968,206
- ----------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Non-Qualified VII 14.910 14.784 (0.85%) 2,897,343.8 42,834,838
Non-Qualified VIII 12.629 12.537 (0.73%) 300.8 3,771
Annuity contracts in payment period 18,719
- ----------------------------------------------------------------------------------------------------------------------------
International Equity Fund II:
Non-Qualified VII 14.719 17.000 15.50% 1,093,610.3 18,591,447
Non-Qualified VIII 13.523 15.637 15.63% 130.8 2,045
- ----------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Non-Qualified VII 11.503 11.762 2.25% 878,073.6 10,327,805
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Non-Qualified VII 12.614 12.430 (1.46%) 1,070,856.3 13,310,874
- ----------------------------------------------------------------------------------------------------------------------------
Utility Fund II:
Non-Qualified VII 18.663 18.165 (2.67%) 1,468,850.7 26,681,912
Non-Qualified VIII 15.472 15.076 (2.56%) 67.1 1,012
Annuity contracts in payment period 61,871
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Non-Qualified V 20.433 28.635 40.14% 683,134.8 19,561,747
Non-Qualified V (0.75) 20.726 29.155 40.67% 795,073.7 23,180,537
Non-Qualified VII 20.410 28.569 39.98% 2,152,290.6 61,489,206
Non-Qualified VIII 14.162 19.847 40.14% 415,054.5 8,237,433
Non-Qualified IX 20.345 28.459 39.88% 26,134.4 743,747
</TABLE>
S-50
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1999
(Unaudited & continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
------------------------ in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Portfolio (continued):
Non-Qualified X $ 20.433 $ 28.635 40.14% 28,013.3 $ 802,169
Non-Qualified XII 12.588 16.406 30.33% (2) 8,204.6 134,603
Non-Qualified XIII 11.042 15.509 40.45% 631,424.9 9,792,851
Non-Qualified XIV 11.027 15.453 40.14% 637,463.6 9,850,822
Non-Qualified XV 11.020 15.425 39.97% 243,523.1 3,756,380
Non-Qualified XVII 32.641 33.780 3.49% (8) 2,728.2 92,159
- --------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Non-Qualified V 19.880 21.461 7.95% 521,207.8 11,185,529
Non-Qual4ified V (0.75) 20.165 21.850 8.36% 521,606.6 11,397,296
Non-Qualified VII 22.101 23.830 7.82% 2,675,287.1 63,751,815
Non-Qualified VIII 17.569 18.965 7.95% 792,698.3 15,033,734
Non-Qualified IX 19.794 21.328 7.75% 5,644.9 120,395
Non-Qualified X 19.880 21.461 7.95% 11,429.8 245,292
Non-Qualified XII 12.137 12.472 2.76% (2) 379.3 4,730
Non-Qualified XIII 10.945 11.841 8.19% 1,260,293.8 14,923,351
Non-Qualified XIV 10.930 11.798 7.94% 1,615,844.9 19,064,403
Non-Qualified XV 10.923 11.777 7.82% 572,021.9 6,736,717
Non-Qualified XVII 21.430 21.503 0.34% (8) 3,604.8 77,513
- --------------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Non-Qualified V 15.509 15.280 (1.48%) 78,672.9 1,202,136
Non-Qualified V (0.75) 15.731 15.558 (1.10%) 168,535.8 2,622,036
Non-Qualified VII 15.405 15.160 (1.59%) 817,412.2 12,392,128
Non-Qualified VIII 12.873 12.683 (1.48%) 259,212.6 3,287,602
Non-Qualified IX 15.442 15.186 (1.66%) 3,260.1 49,507
Non-Qualified X 15.509 15.280 (1.48%) 3,876.4 59,232
Non-Qualified XII 10.355 10.204 (1.46%) (2) 685.1 6,991
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V 20.651 23.843 15.46% 372,143.6 8,872,911
Non-Qualified V (0.75) 20.948 24.275 15.88% 558,910.8 13,567,820
Non-Qualified VII 24.532 28.289 15.31% 2,444,628.8 69,156,188
Non-Qualified VIII 17.461 20.158 15.45% 492,318.4 9,924,394
Non-Qualified IX 20.562 23.696 15.24% 9,699.1 229,826
Non-Qualified X 20.651 23.843 15.46% 25,445.6 606,692
Non-Qualified XII 12.040 13.230 9.88% (2) 2,356.4 31,176
Non-Qualified XIII 10.938 12.656 15.71% 1,208,270.6 15,291,643
Non-Qualified XIV 10.923 12.610 15.44% 1,686,220.9 21,263,439
Non-Qualified XV 10.915 12.587 15.32% 461,934.8 5,814,498
Non-Qualified XVII 25.578 26.017 1.72% (8) 1,031.8 26,846
Annuity contracts in payment period 5,655,266
- --------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Non-Qualified V 21.320 24.420 14.54% 875,130.1 21,370,243
Non-Qualified V (0.75) 21.626 24.863 14.97% 1,399,423.6 34,793,380
Non-Qualified VII 24.039 27.501 14.40% 6,846,022.3 188,270,499
Non-Qualified VIII 17.358 19.880 14.53% 1,166,947.3 23,199,242
Non-Qualified IX 21.228 24.269 14.33% 29,441.0 714,496
Non-Qualified X 21.320 24.420 14.54% 45,402.3 1,108,701
Non-Qualified XII 10.532 11.703 11.12% (2) 11,954.5 139,904
Non-Qualified XIII 9.576 10.993 14.80% 1,297,387.1 14,261,814
Non-Qualified XIV 9.563 10.953 14.54% 1,489,511.1 16,314,687
Non-Qualified XV 9.557 10.933 14.40% 426,308.7 4,660,916
Non-Qualified XVII 26.861 27.263 1.50% (8) 1,832.7 49,964
Annuity contracts in payment period 7,056,765
- --------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Non-Qualified VII 6.068 7.555 24.51% 199,946.2 1,510,498
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-51
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1999
(Unaudited & continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
------------------------ in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lexington Natural Resources Trust Fund:
Non-Qualified V $ 11.030 $ 11.979 8.60% 59,392.6 $ 711,478
Non-Qualified V (0.75) 11.189 12.197 9.01% 69,729.7 850,488
Non-Qualified VII 10.932 11.858 8.47% 143,775.5 1,704,932
Non-Qualified IX 10.982 11.905 8.40% 191.3 2,277
Non-Qualified X 11.030 11.979 8.60% 1,753.1 21,001
- ---------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series:
Non-Qualified VII 14.432 14.315 (0.81%) 2,100,161.1 30,063,643
Non-Qualified VIII 14.491 14.389 (0.70%) 486,698.9 7,003,331
Non-Qualified XIII 10.171 10.123 (0.47%) 231,064.2 2,338,965
Non-Qualified XIV 10.157 10.086 (0.70%) 536,005.6 5,406,150
Non-Qualified XV 10.150 10.068 (0.81%) 217,884.9 2,193,600
- ---------------------------------------------------------------------------------------------------------------------------
Worldwide Government Series:
Non-Qualified VII 10.860 10.582 (2.56%) 146,292.6 1,547,996
Non-Qualified VIII 10.904 10.637 (2.45%) 19,158.5 203,782
- ---------------------------------------------------------------------------------------------------------------------------
Mitchell Hutchins Funds:
Growth & Income Portfolio:
Non-Qualified XIII 9.816 9.743 (0.74%) (4) 10,140.8 98,802
Non-Qualified XIV 10.189 9.730 (4.50%) (4) 45,384.7 441,596
Non-Qualified XV 10.056 9.724 (3.30%) (4) 1,356.2 13,187
- ---------------------------------------------------------------------------------------------------------------------------
Small Cap Portfolio:
Non-Qualified XIV 11.067 10.190 (7.92%) (6) 10,760.4 109,645
- ---------------------------------------------------------------------------------------------------------------------------
Tactical Allocation Portfolio:
Non-Qualified XIII 9.451 9.441 (0.11%) (4) 73,280.2 691,816
Non-Qualified XIV 9.852 9.428 (4.30%) (4) 292,310.7 2,755,925
Non-Qualified XV 9.567 9.422 (1.52%) (5) 27,804.3 261,965
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund:
Non-Qualified VII 13.520 16.843 24.58% 671,314.6 11,306,960
Non-Qualified VIII 13.556 16.907 24.72% 269,201.7 4,551,297
Non-Qualified XIII 9.362 11.703 25.01% 65,848.4 770,636
Non-Qualified XIV 9.350 11.661 24.72% 97,940.2 1,142,072
Non-Qualified XV 9.343 11.640 24.59% 46,191.3 537,657
Annuity contracts in payment period 78,969
- ---------------------------------------------------------------------------------------------------------------------------
Global Securities Fund:
Non-Qualified V 10.018 11.488 14.67% 7,097.3 81,533
Non-Qualified V (0.75) 10.053 11.571 15.10% 28,156.2 325,790
Non-Qualified VII 12.982 14.869 14.54% 359,010.9 5,338,010
Non-Qualified VIII 13.016 14.925 14.67% 82,230.8 1,227,279
Non-Qualified IX 10.001 11.447 14.46% 120.8 1,383
- ---------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund:
Non-Qualified VII 13.199 14.224 7.77% 1,928,640.6 27,433,489
Non-Qualified VIII 13.234 14.278 7.89% 677,723.4 9,676,546
Non-Qualified XIII 9.080 9.818 8.13% 243,319.3 2,388,988
Non-Qualified XIV 9.067 9.783 7.90% 544,526.3 5,327,020
Non-Qualified XV 9.061 9.765 7.77% 176,512.8 1,723,666
Annuity contracts in payment period 107,063
- ---------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund:
Non-Qualified V 9.895 9.836 (0.60%) 5,340.4 52,530
Non-Qualified V (0.75) 9.929 9.907 (0.22%) 3,294.5 32,640
Non-Qualified VII 10.921 10.843 (0.71%) 820,652.7 8,898,727
Non-Qualified VIII 10.950 10.884 (0.60%) 299,609.5 3,261,092
Non-Qualified IX 9.878 9.801 (0.78%) 114.5 1,122
</TABLE>
S-52
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1999
(Unaudited & continued):
<TABLE>
<CAPTION>
Value
Per Unit
--------------------
Beginning End of
of Period Period
- ------------------------------------------------------------------
<S> <C> <C>
Strategic Bond Fund (continued):
Non-Qualified XIII $ 9.823 $ 9.787
Non-Qualified XIV 9.810 9.751
Non-Qualified XV 9.803 9.734
Annuity contracts in payment period
- ------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Non-Qualified V 19.489 21.686
Non-Qualified V (0.75) 19.769 22.080
Non-Qualified VII 18.803 20.898
Non-Qualified VIII 12.761 14.198
Non-Qualified IX 19.405 21.552
Non-Qualified X 19.489 21.686
Non-Qualified XII 10.087 12.091
Non-Qualified XIII 10.371 11.565
Non-Qualified XIV 10.357 11.523
Non-Qualified XV 10.350 11.502
Non-Qualified XVII 21.207 21.445
Annuity contracts in payment period
- ------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Non-Qualified V 15.481 15.600
Non-Qualified V (0.75) 15.703 15.883
Non-Qualified VI 13.080 13.186
Non-Qualified VII 15.331 15.430
Non-Qualified VIII 10.532 10.612
Non-Qualified IX 15.414 15.503
Non-Qualified X 15.481 15.600
Non-Qualified XIII 10.113 10.213
Non-Qualified XIV 10.099 10.176
Non-Qualified XV 10.092 10.157
Non-Qualified XVII 15.059 14.643
- ------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Non-Qualified V 26.713 30.462
Non-Qualified V (0.75) 27.097 31.015
Non-Qualified VII 12.686 14.449
Non-Qualified VIII 12.708 14.490
Non-Qualified IX 26.598 30.274
Non-Qualified X 26.713 30.462
Non-Qualified XII 10.883 12.195
Non-Qualified XIII 10.193 11.650
Non-Qualified XIV 10.180 11.607
Non-Qualified XV 10.173 11.586
Non-Qualified XVII 33.592 33.464
Annuity contracts in payment period
- ------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Non-Qualified V 21.057 25.241
Non-Qualified V (0.75) 21.359 25.700
Non-Qualified VII 11.640 13.936
Non-Qualified VIII 11.659 13.975
Non-Qualified IX 20.966 25.086
Non-Qualified X 21.057 25.241
Non-Qualified XII 10.107 11.894
Non-Qualified XIII 9.248 11.111
Non-Qualified XIV 9.236 11.070
Non-Qualified XV 9.229 11.050
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Period of Period
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Strategic Bond Fund (continued):
Non-Qualified XIII (0.37%) 188,666.8 $ 1,846,450
Non-Qualified XIV (0.60%) 250,480.5 2,442,546
Non-Qualified XV (0.70%) 79,807.6 776,827
Annuity contracts in payment period 353,410
- ----------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Non-Qualified V 11.27% 500,980.8 10,864,194
Non-Qualified V (0.75) 11.69% 523,368.5 11,555,826
Non-Qualified VII 11.14% 4,605,873.7 96,251,681
Non-Qualified VIII 11.26% 553,437.9 7,857,659
Non-Qualified IX 11.06% 12,288.9 264,850
Non-Qualified X 11.27% 11,181.1 242,473
Non-Qualified XII 19.87% (2) 9,560.9 115,605
Non-Qualified XIII 11.51% 269,648.5 3,118,502
Non-Qualified XIV 11.26% 274,544.5 3,163,659
Non-Qualified XV 11.13% 125,570.4 1,444,362
Non-Qualified XVII 1.12% (8) 542.6 11,635
Annuity contracts in payment period 1,087,748
- ----------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Non-Qualified V 0.77% 432,225.2 6,742,503
Non-Qualified V (0.75) 1.15% 392,276.1 6,230,502
Non-Qualified VI 0.81% 8,196.9 108,083
Non-Qualified VII 0.65% 3,724,585.7 57,469,688
Non-Qualified VIII 0.76% 596,033.5 6,325,291
Non-Qualified IX 0.58% 21,349.5 330,984
Non-Qualified X 0.77% 132,727.5 2,070,485
Non-Qualified XIII 0.99% 171,373.5 1,750,179
Non-Qualified XIV 0.76% 340,379.1 3,463,614
Non-Qualified XV 0.64% 119,578.6 1,214,595
Non-Qualified XVII (2.76%) (8) 0.4 6
- ----------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Non-Qualified V 14.03% 275,788.3 8,401,135
Non-Qualified V (0.75) 14.46% 215,081.9 6,670,846
Non-Qualified VII 13.90% 936,202.0 13,527,593
Non-Qualified VIII 14.02% 275,229.5 3,988,111
Non-Qualified IX 13.82% 3,041.0 92,064
Non-Qualified X 14.03% 9,468.5 288,431
Non-Qualified XII 12.06% (2) 116.5 1,420
Non-Qualified XIII 14.29% 142,384.4 1,658,709
Non-Qualified XIV 14.02% 279,582.2 3,245,235
Non-Qualified XV 13.89% 75,343.6 872,960
Non-Qualified XVII (0.38%) (8) 1,520.3 50,875
Annuity contracts in payment period 1,299,071
- ----------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Non-Qualified V 19.87% 308,220.6 7,779,907
Non-Qualified V (0.75) 20.32% 336,304.6 8,642,876
Non-Qualified VII 19.73% 165,635.9 2,308,339
Non-Qualified VIII 19.86% 80,322.8 1,122,501
Non-Qualified IX 19.65% 5,395.0 135,335
Non-Qualified X 19.87% 4,515.1 113,967
Non-Qualified XII 17.68% (2) 220.7 2,625
Non-Qualified XIII 20.14% 233,214.0 2,591,151
Non-Qualified XIV 19.86% 124,223.8 1,375,218
Non-Qualified XV 19.73% 82,591.1 912,667
</TABLE>
S-53
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Period Ended September 30, 1999
(Unaudited & continued):
<TABLE>
<CAPTION>
Value
Per Unit
---------------------
Beginning End of
of Period Period
- ------------------------------------------------------------------
<S> <C> <C>
PPI Scudder International Growth Portfolio (continued):
Non-Qualified XVII $ 25.111 $ 24.974
Annuity contracts in payment period
- ------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Non-Qualified V 18.146 18.426
Non-Qualified V (0.75) 18.407 18.760
Non-Qualified VII 23.078 23.406
Non-Qualified VIII 16.682 16.937
Non-Qualified IX 18.068 18.312
Non-Qualified X 18.146 18.426
Non-Qualified XII 10.925 11.123
Non-Qualified XVII 21.843 21.256
Annuity contracts in payment period
- ------------------------------------------------------------------
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PPI Scudder International Growth Portfolio (continued):
Non-Qualified XVII (0.55%) (8) 1.2 $ 31
Annuity contracts in payment period 68,188
- ---------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Non-Qualified V 1.54% 200,915.8 3,702,040
Non-Qualified V (0.75) 1.92% 330,808.6 6,206,112
Non-Qualified VII 1.42% 4,057,676.5 94,972,176
Non-Qualified VIII 1.53% 316,236.4 5,356,231
Non-Qualified IX 1.35% 10,995.6 201,352
Non-Qualified X 1.54% 4,490.9 82,749
Non-Qualified XII 1.81% (2) 995.7 11,075
Non-Qualified XVII (2.69%) (8) 1,533.7 32,601
Annuity contracts in payment period 679,394
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Non-Qualified 1964 Individual contracts issued from December 1, 1964 to March 14, 1967.
Non-Qualified V Group Aetna Plus contracts issued in connection with Deferred Compensation Plans issued since August
28, 1992.
Non-Qualified VI Certain existing contracts that were converted to ACES, an 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 Aetna Plus contracts issued in connection with Deferred Compensation Plans having contract
modifications effective April 7, 1997.
Non-Qualified X Group Aetna Plus contracts issued in connection with Deferred Compensation Plans having contract
modifications effective May 29, 1997.
Non-Qualified XI Certain contracts previously valued under Non-Qualified VI having contract modifications effective May
29, 1997.
Non-Qualified XII Contracts issued in connection with certain Deferred Compensation Plans having contract modifications
effective March 23, 1999.
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 Contracts issued in connection with certain Deferred Compensation Plans having contract modifications
effective September 1, 1999.
</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.
See Notes to Financial Statements
S-54
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1999 (Unaudited)
1. Summary of Significant Accounting Policies
Variable Annuity Account B (the "Account") is a separate account
established by Aetna Life Insurance and Annuity Company (the "Company")
registered under the Investment Company Act of 1940 as a unit investment
trust. The Account is sold exclusively for use with variable annuity
contracts that may be entitled to tax-deferred treatment under specific
sections of the Internal Revenue Code of 1986, as amended.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Account.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset
value per share as determined by each Fund on September 30, 1999:
<TABLE>
<S> <C>
Aetna Ascent VP Fidelity Investments Variable Insurance Products Funds II:
Aetna Balanced VP o Asset Manager Portfolio
Aetna Crossroads VP o Index 500 Portfolio
Aetna GET Fund, Series C o Investment Grade Bond Portfolio
Aetna GET Fund, Series D Insurance Management Series:
Aetna GET Fund, Series E o American Leaders Fund II
Aetna GET Fund, Series G o Equity Income Fund II
Aetna Growth and Income VP o Growth Strategies Fund II
Aetna Growth VP o High Income Bond Fund II
Aetna High Yield VP o International Equity Fund II
Aetna Index Plus Large Cap VP o Prime Money Fund II
Aetna Index Plus Mid Cap VP o U.S. Government Securities Fund II
Aetna Index Plus Small Cap VP o Utility Fund II
Aetna International VP Janus Aspen Series:
Aetna Legacy VP o Aggressive Growth Portfolio
Aetna Money Market VP o Balanced Portfolio
Aetna Real Estate Securities VP o Flexible Income Portfolio
Aetna Small Company VP o Growth Portfolio
Aetna Value Opportunity VP o Worldwide Growth Portfolio
AIM V.I. Funds: Lexington Emerging Markets Fund
o Capital Appreciation Fund Lexington Natural Resources Trust Fund
o Growth and Income Fund MFS Funds:
o Growth Fund o Total Return Series
o Value Fund o Worldwide Government Series
Alger American Funds: Mitchell Hutchins Funds:
o Balanced Portfolio o Growth & Income Portfolio
o Income and Growth Portfolio o Small Cap Portfolio
o Leveraged AllCap Portfolio o Tactical Allocation Portfolio
American Century Investments: Oppenheimer Funds:
o Balanced Fund o Aggressive Growth Fund
o International Fund o Global Securities Fund
Calvert Social Balanced Portfolio o Growth & Income Fund
Fidelity Investments Variable Insurance Products Funds: o Strategic Bond Fund
o Equity-Income Portfolio Portfolio Partners, Inc. (PPI):
o Growth Portfolio o PPI MFS Emerging Equities Portfolio
o High Income Portfolio o PPI MFS Research Growth Portfolio
o Overseas Portfolio o PPI MFS Value Equity Portfolio
o PPI Scudder International Growth Portfolio
o PPI T. Rowe Price Growth Equity Portfolio
</TABLE>
S-55
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1999 (Unaudited & continued):
b. Other
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of the Company which is taxed as a life insurance company under
the Internal Revenue Code of 1986, as amended.
d. Annuity Reserves
Annuity reserves held in the Separate Accounts are computed for currently
payable contracts according to the Progressive Annuity, a49, 1971
Individual Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983
Group Annuity Mortality tables using various assumed interest rates not to
exceed seven percent. Mortality experience is monitored by the
Company. Charges to annuity reserves for mortality experience are
reimbursed to the Company if the reserves required are less than originally
estimated. If additional reserves are required, the Company reimburses the
Account.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made
in accordance with the terms of the contracts and are paid to the Company.
3. Dividend Income
On an annual basis, the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions to
the Account are automatically reinvested in shares of the Funds. The
Account's proportionate share of each Fund's undistributed net investment
income (distributions in excess of net investment income) and accumulated
net realized gain (loss) on investments is included in net unrealized gain
(loss) in the Statements of Operations and Changes in Net Assets.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended September 30, 1999 and September
30, 1998 aggregated $2,372,340,161 and $1,425,865,744; $1,520,783,191 and
$1,014,289,382, respectively.
S-56
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1999 (Unaudited)
5. Supplemental Information to Statements of Operations and Changes in
Net Assets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Period Ended September 30, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP: (1) $206,291 ($236,064) $4,551,003 $3,797,853 $753,150
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP: (2) 26,353,787 (1,556,330) 12,393,538 9,733,997 2,659,541
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
Aetna Bond VP: (3) 1,663,769 (637,338) 32,245,202 30,992,510 1,252,692
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) 114,539 (261,200) 1,903,460 1,680,880 222,580
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series B: 4,889,366 (243,727) 1,699,470 1,099,314 600,156
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C: 1,037,487 (96,765) 2,545,936 1,801,902 744,034
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) 21,698,016 (8,832,711) 78,225,231 61,199,366 17,025,865
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
Aetna Growth VP: (6) 0 (113,104) 8,790,286 8,974,418 (184,132)
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
Aetna High Yield VP: (7) 155 (444) 32,755 32,602 153
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (8) 294,180 (414,374) 11,054,850 8,784,682 2,270,168
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP: (9) 0 (645) 21,599 24,598 (2,999)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP: (10) 0 (898) 90,710 116,252 (25,542)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Aetna International VP: (11) 517 (2,644) 2,133,455 2,172,763 (39,308)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP: (12) 119,358 (287,284) 2,074,146 1,885,101 189,045
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP: (13) 6,326,910 (1,211,542) 265,982,031 267,031,017 (1,048,986)
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
S-57
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
--------------------------- Change in In Net Assets ----------------------------
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP: (1) $1,034,430 ($1,392,719) ($ 2,427,149) $4,356,970
Annuity contracts in accumulation $20,443,736 $23,096,934
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP: (2) 21,131,758 (2,508,444) (23,640,202) 10,459,250
Annuity contracts in accumulation 150,761,384 161,518,583
Annuity contracts in payment period 12,080,737 15,599,584
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP: (3) 781,718 3,067,358 2,285,640 7,687,623
Annuity contracts in accumulation 69,236,488 80,265,350
Annuity contracts in payment period 3,681,984 4,905,508
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) 704,161 (554,047) (1,258,208) 8,689,733
Annuity contracts in accumulation 20,250,904 26,752,161
Annuity contracts in payment period 69,721 1,075,908
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series B: 6,194,743 341,624 (5,853,119) (1,445,687)
Annuity contracts in accumulation 20,859,924 18,806,913
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C: 2,144,550 1,215,395 (929,155) (2,225,654)
Annuity contracts in accumulation 10,929,107 9,459,054
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) 67,675,837 (16,230,623) (83,906,460) (13,597,363)
Annuity contracts in accumulation 892,006,381 825,936,899
Annuity contracts in payment period 130,876,769 129,333,598
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP: (6) (945,071) (1,465,433) (520,362) 18,561,645
Annuity contracts in accumulation 3,210,344 20,368,827
Annuity contracts in payment period 8,566 594,130
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna High Yield VP: (7) 0 (19,552) (19,552) 238,353
Annuity contracts in accumulation 0 218,665
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (8) 1,342,384 (836,561) (2,178,945) 27,698,467
Annuity contracts in accumulation 28,074,705 55,047,666
Annuity contracts in payment period 165,083 861,618
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP: (9) 0 (28,986) (28,986) 227,383
Annuity contracts in accumulation 0 194,753
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP: (10) 0 (62,909) (62,909) 364,260
Annuity contracts in accumulation 0 274,911
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna International VP: (11) 0 (71,894) (71,894) 776,710
Annuity contracts in accumulation 0 663,381
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP: (12) 556,022 (65,384) (621,406) 14,854,168
Annuity contracts in accumulation 18,710,015 31,552,690
Annuity contracts in payment period 1,284,593 2,695,799
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP: (13) 1,429,868 1,377,586 (52,282) 28,426,940
Annuity contracts in accumulation 124,939,137 157,117,740
Annuity contracts in payment period 0 262,437
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-58
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1999 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and
Changes in Net Assets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Period Ended September 30, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Real Estate Securities VP: (14) $0 ($1,905) $55,944 $63,133 ($7,189)
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP: (15) 57,812 (126,396) 12,311,355 12,861,955 (550,600)
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (16) 105,659 (119,520) 4,951,547 5,057,370 (105,823)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 486,973 (62,082) 830,154 668,985 161,169
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio: 1,467,662 (156,081) 2,174,215 1,433,177 741,038
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 631,832 (152,406) 3,539,114 2,587,758 951,356
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund: 593,854 (49,710) 457,471 409,014 48,457
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
International Fund: 390,912 (66,774) 813,014 629,786 183,228
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio: 0 (10,066) 566,469 479,841 86,628
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance
Products Fund:
Equity-Income Portfolio: 8,906,937 (1,584,673) 18,755,004 15,056,132 3,698,872
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 11,278,163 (994,587) 17,529,097 13,282,505 4,246,592
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 4,692,207 (506,129) 8,295,312 8,305,493 (10,181)
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 1,031,834 (156,200) 23,106,700 22,442,525 664,175
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance
Products Fund II:
Asset Manager Portfolio: 1,595,388 (165,830) 1,682,975 1,544,166 138,809
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 6,614,609 (1,264,802) 31,041,889 22,310,801 8,731,088
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 3,204,277 (1,064,107) 19,258,700 13,738,289 5,520,411
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 342,576 (66,916) 1,120,808 1,075,718 45,090
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
S-59
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
-------------------------- Change in In Net Assets --------------------------
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Real Estate Securities VP: (14) $0 ($40,235) ($40,235) $768,245
Annuity contracts in accumulation $0 $701,706
Annuity contracts in payment period 0 17,210
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP: (15) (299,676) (2,594,052) (2,294,376) 11,567,354
Annuity contracts in accumulation 6,059,783 14,566,581
Annuity contracts in payment period 47,346 194,342
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (16) (545,082) (2,482,950) (1,937,868) 12,163,993
Annuity contracts in accumulation 3,912,594 14,019,035
- -----------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 691,602 735,924 44,322 (725,996)
Annuity contracts in accumulation 5,656,151 5,560,537
- -----------------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio: 2,709,055 1,818,838 (890,217) (1,758,937)
Annuity contracts in accumulation 14,148,460 13,551,925
- -----------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 1,540,243 2,599,504 1,059,261 (3,275,889)
Annuity contracts in accumulation 14,280,009 13,494,163
- -----------------------------------------------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund: 462,379 99,005 (363,374) (387,746)
Annuity contracts in accumulation 4,643,230 4,484,711
- -----------------------------------------------------------------------------------------------------------------------------------
International Fund: 361,821 (13,272) (375,093) (692,491)
Annuity contracts in accumulation 5,852,955 5,292,737
- -----------------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio: 59,286 (9,084) (68,370) 625,891
Annuity contracts in accumulation 971,337 1,605,420
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 19,807,673 425,170 (19,382,503) 23,018,773
Annuity contracts in accumulation 138,709,740 153,367,146
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 14,584,513 8,639,531 (5,944,982) 18,559,317
Annuity contracts in accumulation 80,401,549 107,546,052
- -----------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 2,722,687 (7,156,686) (9,879,373) 16,672,722
Annuity contracts in accumulation 35,217,837 45,911,675
Annuity contracts in payment period 68,542 343,950
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 460,930 (2,022,067) (2,482,997) 1,823,133
Annuity contracts in accumulation 13,004,643 13,884,588
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 1,137,702 (593,031) (1,730,733) 6,491,486
Annuity contracts in accumulation 11,743,075 18,072,195
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 18,201,832 7,987,945 (10,213,887) 18,240,289
Annuity contracts in accumulation 107,827,442 129,934,739
- -----------------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 10,882,841 5,011,136 (5,871,705) 30,623,249
Annuity contracts in accumulation 76,986,772 109,398,897
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 387,160 485,949 98,789 (734,879)
Annuity contracts in accumulation 6,578,182 6,262,842
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-60
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1999 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and Changes
in Net Assets
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Period Ended September 30, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insurance Management Series:
American Leaders Fund II: $7,998,351 ($1,339,967) $8,538,383 $5,132,086 $3,406,297
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------
Equity Income Fund II: 129,452 (256,618) 1,364,798 1,120,109 244,689
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 1,440,579 (263,718) 1,873,205 1,348,947 524,258
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 1,568,969 (560,762) 6,861,817 6,149,874 711,943
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------
International Equity Fund II: 19,289 (179,817) 1,369,445 1,008,537 360,908
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------
Prime Money Fund II: 276,356 (79,793) 4,895,051 4,895,051 0
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 228,386 (140,706) 2,797,329 2,624,699 172,630
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------
Utility Fund II: 1,743,305 (287,289) 2,000,845 1,472,945 527,900
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (398,316) 44,733,118 35,254,854 9,478,264
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 1,467,064 (439,170) 2,693,097 2,034,927 658,170
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 533,749 (128,196) 2,389,425 2,189,793 199,632
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------
Growth Portfolio: 3,263,715 (492,057) 12,887,405 9,361,140 3,526,265
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 7,771,561 (2,033,324) 48,740,455 33,987,079 14,753,376
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 161,811 (23,241) 627,366 874,547 (247,181)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 340,539 (50,145) 1,884,545 1,802,841 81,704
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series: 778,001 (281,268) 1,306,423 1,042,594 263,829
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------
Worldwide Government Series: 17,379 (16,111) 648,750 656,168 (7,418)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
S-61
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------------------------- Change in In Net Assets --------------------------
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insurance Management Series:
American Leaders Fund II: $30,111,589 $19,831,020 ($10,280,569) $ 775,998
Annuity contracts in accumulation $116,800,911 $117,364,848
Annuity contracts in payment period 48,751 44,924
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II: 911,406 143,397 (768,009) 5,730,537
Annuity contracts in accumulation 19,938,571 25,011,980
Annuity contracts in payment period 0 6,642
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 3,558,451 (566,777) (4,125,228) 1,844,693
Annuity contracts in accumulation 22,709,106 22,129,690
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 3,763,082 1,413,045 (2,350,037) (2,374,407)
Annuity contracts in accumulation 53,212,853 50,208,559
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 938,501 1,686,479 747,978 826,745
Annuity contracts in accumulation 13,946,028 15,721,131
- ------------------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II: 0 0 0 1,158,666
Annuity contracts in accumulation 7,530,487 8,885,716
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 513,199 1,061,285 548,086 1,125,210
Annuity contracts in accumulation 13,196,784 15,130,390
- ------------------------------------------------------------------------------------------------------------------------------------
Utility Fund II: 5,801,015 5,363,247 (437,768) 930,363
Annuity contracts in accumulation 26,302,858 28,772,040
Annuity contracts in payment period 0 7,329
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 4,594,517 (5,366,816) (9,961,333) 2,358,111
Annuity contracts in accumulation 38,383,925 39,860,651
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 3,462,858 4,981,527 1,518,669 19,206,491
Annuity contracts in accumulation 31,145,778 53,557,002
- ------------------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 367,565 698,964 331,399 6,915,233
Annuity contracts in accumulation 10,534,588 18,386,405
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 5,764,208 1,119,591 (4,644,617) 8,447,768
Annuity contracts in accumulation 40,072,928 49,754,019
Annuity contracts in payment period 645,899 1,065,882
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 18,210,266 2,753,600 (15,456,666) 37,336,923
Annuity contracts in accumulation 160,658,096 202,196,827
Annuity contracts in payment period 1,995,445 2,828,584
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: (709,548) (1,506,597) (797,049) (558,918)
Annuity contracts in accumulation 2,833,416 1,368,838
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 177,872 (1,244,038) (1,421,910) (1,601,945)
Annuity contracts in accumulation 6,930,364 4,278,607
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series: 1,975,149 1,444,825 (530,324) 14,352,049
Annuity contracts in accumulation $ 18,973,878 $ 33,556,165
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Government Series: (5,937) 78,218 84,155 346,862
Annuity contracts in accumulation 1,324,295 1,749,162
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-62
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1999 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and
Changes in Net Assets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Period Ended September 30, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oppenheimer Funds:
Aggressive Growth Fund: $152,035 ($ 79,214) $83,417,119 $83,112,198 $304,921
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Global Securities Fund: 387,530 (48,568) 4,665,085 4,907,789 (242,704)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund: 1,054,695 (251,097) 3,121,981 2,841,061 280,920
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund: 150,955 (71,977) 1,579,626 1,597,178 (17,552)
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 321,152 (1,118,027) 60,680,819 53,959,293 6,721,526
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 18,247 (759,798) 33,279,656 29,992,848 3,286,808
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 34,159 (196,523) 5,569,025 5,221,790 347,235
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 29,626 (122,476) 93,655,297 91,998,294 1,657,003
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio: 576,750 (1,045,811) 12,475,877 11,212,047 1,263,830
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $134,568,725 ($31,107,243) $1,014,289,382 $917,072,592 $97,216,790
=================================================================================================================================
</TABLE>
(1) - Effective May 1, 1998, Aetna Ascent Variable Portfolio name changed to
Aetna Ascent VP.
(2) - Effective May 1, 1998, Aetna Investment Advisors Fund name changed to
Aetna Balanced Fund VP.
(3) - Effective May 1, 1998, Aetna Income Shares began doing business under the
name Aetna Bond Fund VP.
(4) - Effective May 1, 1998, Aetna Crossroads Variable Portfolio 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 name changed to
Aetna Growth VP.
(7) - Effective May 1, 1998, Aetna High Yield Portfolio name changed to Aetna
High Yield VP.
(8) - Effective May 1, 1998, Aetna Variable Index Plus Portfolio name changed
to Aetna Index Plus Large Cap VP.
(9) - Effective May 1, 1998, Aetna Index Plus Mid Cap Portfolio name changed
to Aetna Index Plus Mid Cap VP.
(10) - Effective May 1, 1998, Aetna Index Plus Small Cap Portfolio name changed
to Aetna Index Plus Small Cap VP.
(11) - Effective May 1, 1998, Aetna International Portfolio name changed to
Aetna International VP.
(12) - Effective May 1, 1998, Aetna Legacy Variable Portfolio 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 name
changed to Aetna Real Estate Securities VP.
(15) - Effective May 1, 1998, Aetna Variable Small Company Portfolio name
changed to Aetna Small Company VP.
(16) - Effective May 1, 1998, Aetna Variable Capital Appreciation Portfolio
name changed to Aetna Value Opportunity VP.
S-63
<PAGE>
<TABLE>
<CAPTION>
Period Ended September 30, 1998
Net Unrealized Net
Gain (Loss) Net Increase (Decrease Net Assets
----------------------------- Change in In Net Assets -------------------------------
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Oppenheimer Funds:
Aggressive Growth Fund: $133,786 ($1,597,899) ($1,731,685) $6,266,697
Annuity contracts in accumulation $3,688,200 $8,600,954
- -----------------------------------------------------------------------------------------------------------------------------------
Global Securities Fund: (846) (640,129) (639,283) 2,806,808
Annuity contracts in accumulation 2,680,937 4,944,720
- -----------------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund: 465,927 (6,039,592) (6,505,519) 19,810,294
Annuity contracts in accumulation 12,688,907 27,078,200
- -----------------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund: (21,173) (198,216) (177,043) 7,802,078
Annuity contracts in accumulation 3,092,701 10,601,485
Annuity contracts in payment period 0 177,677
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: (753,832) (8,129,490) (7,375,658) 9,589,151
Annuity contracts in accumulation 94,796,247 102,789,354
Annuity contracts in payment period 496,447 641,484
- -----------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: (1,162,926) (5,085,450) (3,922,524) 8,051,033
Annuity contracts in accumulation 65,867,130 72,540,896
- -----------------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 220,662 (829,988) (1,050,650) 8,558,099
Annuity contracts in accumulation 15,049,606 22,387,937
Annuity contracts in payment period 378,075 732,064
- -----------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth
Portfolio: 195,427 (584,371) (779,798) (54,103)
Annuity contracts in accumulation 12,650,163 13,368,015
Annuity contracts in payment period 0 12,400
- -----------------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity
Portfolio: 1,797,922 2,886,044 1,088,122 5,330,577
Annuity contracts in accumulation 90,170,258 97,359,558
Annuity contracts in payment period 0 24,168
- -----------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $255,524,506 $7,328,915 ($248,195,591) $403,032,325 $2,922,442,857 $3,277,957,863
===================================================================================================================================
</TABLE>
S-64
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1999 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Period Ended September 30, 1999
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP: $46,410 ($208,286) $8,030,236 $7,428,443 $601,793
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP: 14,573,762 (1,706,673) 25,404,621 20,547,208 4,857,413
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------
Aetna Bond VP: 2,318,069 (825,868) 28,265,269 28,177,708 87,561
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: 32,330 (263,294) 7,120,789 6,407,891 712,898
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series B: 7,848,121 (128,073) 19,750,183 23,962,269 (4,212,086)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C: 1,446,424 (55,968) 3,637,085 2,439,999 1,197,086
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series D: 5,653 (2,059,537) 15,783,422 15,500,948 282,474
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series E: 0 (354,124) 470,845 477,409 (6,564)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series G: 0 (1,057) 0 0 0
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: 35,932,897 (9,147,224) 199,102,261 175,042,616 24,059,645
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------
Aetna Growth VP: 0 (406,112) 33,998,254 26,648,528 7,349,726
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------
Aetna High Yield VP: 339 (2,288) 33,600 38,920 (5,320)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: 1,114,421 (1,244,723) 48,781,405 39,472,763 9,308,642
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP: 9,568 (5,365) 3,496,275 3,484,110 12,165
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP: 0 (6,293) 885,433 900,089 (14,656)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------
Aetna International VP: 33,903 (18,320) 5,232,998 5,031,572 201,426
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP: 30,343 (318,846) 8,268,005 7,631,764 636,241
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
S-65
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
---------------------------- Change in In Net Assets -------------------------
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP: ($204,552) ($191,804) $12,748 ($6,261,191)
Annuity contracts in accumulation $24,898,190 $19,089,664
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP: 13,657,518 540,621 (13,116,897) (7,552,438)
Annuity contracts in accumulation 176,154,146 168,641,263
Annuity contracts in payment period 18,758,905 23,326,955
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP: (271,440) (2,987,812) (2,716,372) 14,249,729
Annuity contracts in accumulation 85,100,187 97,224,002
Annuity contracts in payment period 5,213,758 6,203,062
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: 455,992 267,854 (188,138) (5,190,763)
Annuity contracts in accumulation 28,289,880 23,236,593
Annuity contracts in payment period 1,317,322 1,473,642
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series B: 3,285,620 0 (3,285,620) (19,622,110)
Annuity contracts in accumulation 19,399,768 0
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C: 2,432,614 290,804 (2,141,810) (3,580,735)
Annuity contracts in accumulation 9,276,019 6,141,016
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series D: (64,824) (422,295) (357,471) 91,587,695
Annuity contracts in accumulation 89,907,126 179,365,940
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series E: 0 (7,684,851) (7,684,851) 362,836,157
Annuity contracts in accumulation 0 354,790,618
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series G: 0 4,327 4,327 5,481,746
Annuity contracts in accumulation 0 5,485,016
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (14,386,593) (24,628,120) (10,241,527) (82,676,422)
Annuity contracts in accumulation 955,586,320 896,318,518
Annuity contracts in payment period 155,197,661 172,392,832
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP: 4,054,739 300,816 (3,753,923) 25,185,938
Annuity contracts in accumulation 28,467,187 54,746,562
Annuity contracts in payment period 1,199,857 3,296,111
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna High Yield VP: (38,627) (28,449) 10,178 212,510
Annuity contracts in accumulation 230,386 445,805
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: 9,544,413 2,369,645 (7,174,768) 101,270,017
Annuity contracts in accumulation 85,248,495 158,805,514
Annuity contracts in payment period 1,829,647 31,546,217
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP: 25,068 (40,090) (65,158) 323,849
Annuity contracts in accumulation 375,745 650,804
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP: 8,264 18,112 9,848 17,584
Annuity contracts in accumulation 969,800 976,283
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna International VP: (4,447) 80,421 84,868 1,341,928
Annuity contracts in accumulation 1,528,847 3,099,771
Annuity contracts in payment period 2,086 74,967
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP: 230,393 214,264 (16,129) (5,566,136)
Annuity contracts in accumulation 32,331,905 26,971,984
Annuity contracts in payment period 2,822,843 2,948,237
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-66
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1999 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and
Changes in Net Assets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Period Ended September 30, 1999
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Money Market VP: $7,203,776 ($1,725,409) $410,753,576 $411,564,981 ($811,405)
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP: 475 (13,750) 903,061 948,306 (45,245)
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP: 8,875 (183,245) 7,622,051 7,571,324 50,727
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: 1,648 (170,735) 5,706,063 4,979,984 726,079
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund: 0 (21,342) 1,423,746 1,306,415 117,331
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Growth and Income Fund: 0 (56,612) 483,113 429,694 53,419
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Growth Fund: 0 (42,428) 443,238 397,240 45,998
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Value Fund: 0 (87,042) 1,263,853 1,155,177 108,676
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 454,912 (64,487) 1,314,380 900,235 414,145
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Income & Growth Portfolio: 914,221 (163,498) 1,507,966 867,674 640,292
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 1,249,119 (196,123) 2,582,488 1,250,017 1,332,471
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund: 683,536 (44,273) 1,292,490 1,264,941 27,549
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
International Fund: 0 (59,262) 1,036,487 786,741 249,746
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio: 0 (19,082) 286,091 263,476 22,615
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Funds:
Equity-Income Portfolio: 8,367,628 (1,926,422) 19,793,747 14,791,393 5,002,354
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 16,174,596 (1,605,202) 10,733,754 7,050,367 3,683,387
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
S-67
<PAGE>
<TABLE>
<CAPTION>
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
------------------------ Change in In Net Assets -----------------------------
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Money Market VP: $1,434,703 $1,661,998 $227,295 $56,229,026
Annuity contracts in accumulation $149,772,871 $209,524,388
Annuity contracts in payment period 229,509 1,601,275
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP: (78,505) (84,893) (6,388) 1,101,128
Annuity contracts in accumulation 965,259 2,002,608
Annuity contracts in payment period 16,278 15,149
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP: 1,188,423 1,989,888 801,465 883,974
Annuity contracts in accumulation 18,295,242 19,799,564
Annuity contracts in payment period 197,498 254,972
- ----------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: 1,733,031 1,603,064 (129,967) (3,693,234)
Annuity contracts in accumulation 18,689,212 15,423,003
- ----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund: 19,720 42,389 22,669 4,481,498
Annuity contracts in accumulation 298,792 4,886,558
Annuity contracts in payment period 0 12,390
- ----------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund: 17,765 (2,267) (20,032) 13,552,861
Annuity contracts in accumulation 221,558 13,071,706
Annuity contracts in payment period 0 679,488
- ----------------------------------------------------------------------------------------------------------------------------------
Growth Fund: 12,342 198,030 185,688 10,900,920
Annuity contracts in accumulation 296,860 11,288,879
Annuity contracts in payment period 0 98,159
- ----------------------------------------------------------------------------------------------------------------------------------
Value Fund: 22,553 (32,404) (54,957) 24,115,538
Annuity contracts in accumulation 703,970 24,233,706
Annuity contracts in payment period 0 552,479
- ----------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 1,582,996 1,406,119 (176,877) (1,247,510)
Annuity contracts in accumulation 6,185,618 5,565,801
- ----------------------------------------------------------------------------------------------------------------------------------
Income & Growth Portfolio: 4,215,812 3,398,634 (817,178) (1,329,800)
Annuity contracts in accumulation 15,463,737 14,707,774
- ----------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 6,533,437 8,315,834 1,782,397 (2,355,197)
Annuity contracts in accumulation 16,971,895 18,784,562
- ----------------------------------------------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund: 487,853 (136,298) (624,151) (1,247,273)
Annuity contracts in accumulation 4,732,298 3,527,686
- ----------------------------------------------------------------------------------------------------------------------------------
International Fund: 743,148 1,089,641 346,493 (967,462)
Annuity contracts in accumulation 5,791,227 5,360,742
- ----------------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio: 14,930 33,067 18,137 375,377
Annuity contracts in accumulation 1,958,082 2,355,129
- ----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Funds:
Equity-Income Portfolio: 22,859,546 13,960,080 (8,899,466) 12,421,772
Annuity contracts in accumulation 176,108,721 191,074,587
- ---------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 33,940,400 30,088,593 (3,851,807) 15,256,152
Annuity contracts in accumulation 138,516,768 168,173,894
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-68
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1999 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and
Changes in Net Assets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Period Ended September 30, 1999
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High Income Portfolio: $5,027,115 ($577,948) $11,344,636 $12,924,691 ($1,580,055)
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 639,927 (159,322) 12,949,926 12,117,778 832,148
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Funds II:
Asset Manager Portfolio: 1,521,294 (217,639) 3,111,680 2,812,744 298,936
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 6,677,923 (1,824,783) 29,139,726 18,558,580 10,581,146
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 2,351,381 (1,594,858) 43,805,302 29,218,136 14,587,166
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 278,742 (52,669) 1,111,282 1,056,206 55,076
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II: 13,552,341 (1,458,252) 15,313,888 8,497,218 6,816,670
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Equity Income Fund II: 830,081 (308,957) 3,406,096 2,599,151 806,945
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 0 (324,606) 3,567,842 2,019,688 1,548,154
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 4,081,257 (501,871) 7,797,458 7,325,022 472,436
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 503,745 (190,548) 2,412,260 1,587,312 824,948
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Prime Money Fund II: 291,437 (93,597) 5,563,542 5,563,541 1
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 733,040 (156,655) 3,495,877 3,280,397 215,480
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Utility Fund II: 2,100,934 (301,057) 3,846,002 2,740,534 1,105,468
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 4,328,088 (871,651) 165,752,691 141,072,978 24,679,713
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 1,321,862 (1,063,074) 5,640,597 3,340,687 2,299,910
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 740,435 (201,844) 7,664,484 7,459,951 204,533
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
S-69
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
---------------------------- Change in In Net Assets ---------------------------
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
High Income Portfolio: ($4,425,686) ($5,883,544) ($1,457,858) $6,430,389
Annuity contracts in accumulation $49,328,098 $57,013,053
Annuity contracts in payment period 503,361 660,049
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 669,980 1,489,257 819,277 (3,113,524)
Annuity contracts in accumulation 17,886,843 16,905,349
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Funds II:
Asset Manager Portfolio: 1,633,427 246,985 (1,386,442) (291,882)
Annuity contracts in accumulation 20,414,738 20,339,005
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 35,201,475 26,853,902 (8,347,573) 28,142,008
Annuity contracts in accumulation 162,974,413 198,203,134
- -----------------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 25,538,020 15,662,508 (9,875,512) 2,981,680
Annuity contracts in accumulation 141,735,838 150,185,695
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 478,048 92,222 (385,826) (1,050,832)
Annuity contracts in accumulation 5,695,641 4,540,132
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II: 37,231,660 18,055,424 (19,176,236) (11,062,702)
Annuity contracts in accumulation 134,398,144 123,062,336
Annuity contracts in payment period 51,858 59,487
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II: 3,973,133 3,477,640 (495,493) (1,704,545)
Annuity contracts in accumulation 28,656,460 27,784,751
Annuity contracts in payment period 7,576 7,316
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 5,244,563 9,473,977 4,229,414 (935,271)
Annuity contracts in accumulation 27,450,515 31,968,206
- -----------------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 2,714,767 (1,588,360) (4,303,127) (6,779,098)
Annuity contracts in accumulation 49,887,731 42,838,609
Annuity contracts in payment period 0 18,719
- -----------------------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 3,819,534 5,289,055 1,469,521 (1,535,638)
Annuity contracts in accumulation 17,521,464 18,593,492
- -----------------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II: 2,223 2,222 (1) 2,062,645
Annuity contracts in accumulation 8,067,320 10,327,805
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 1,013,377 (12,796) (1,026,173) (2,509,642)
Annuity contracts in accumulation 16,054,824 13,310,874
- -----------------------------------------------------------------------------------------------------------------------------------
Utility Fund II: 7,053,257 3,330,784 (3,722,473) (2,775,681)
Annuity contracts in accumulation 30,329,937 26,682,924
Annuity contracts in payment period 7,667 61,871
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 8,106,849 10,319,858 2,213,009 49,923,721
Annuity contracts in accumulation 57,368,774 137,641,654
- -----------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 15,241,071 18,333,444 3,092,373 64,661,215
Annuity contracts in accumulation 72,228,489 142,540,775
- -----------------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 255,193 (816,077) (1,071,270) (685,661)
Annuity contracts in accumulation 20,633,439 19,619,632
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-70
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1999 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and
Changes in Net Assets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Period Ended September 30, 1999
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth Portfolio: $ 792,992 ($1,059,449) $16,814,385 $10,892,004 $ 5,922,381
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 538,521 (2,702,160) 53,379,667 35,748,676 17,630,991
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 8,564 (16,249) 343,522 576,745 (233,223)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 20,628 (33,274) 1,094,485 1,363,642 (269,157)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series: 2,209,450 (446,178) 3,728,379 2,874,499 853,880
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Worldwide Government Series: 103,104 (19,025) 502,685 484,769 17,916
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Mitchell Hutchins Funds:
Growth & Income Portfolio: 3 (835) 132,378 129,906 2,472
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Small Cap Portfolio: 47 (290) 717 745 (28)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Tactical Allocation Portfolio: 2,048 (5,095) 44,700 42,240 2,460
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund: 0 (151,447) 20,258,745 16,439,531 3,819,214
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
Global Securities Fund: 280,254 (67,861) 2,632,103 2,127,855 504,248
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
Growth & Income Fund: 454,029 (417,876) 4,447,101 4,135,530 311,571
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund: 786,643 (151,671) 3,062,050 3,224,363 (162,313)
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 1,395,386 (1,307,630) 55,041,220 42,705,173 12,336,047
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 179,933 (884,019) 16,428,041 13,165,899 3,262,142
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 1,111,624 (306,341) 4,197,852 3,031,118 1,166,734
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
S-71
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
------------------------- Change in In Net Assets --------------------------
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio: $12,281,148 $19,944,742 $7,663,594 $67,477,719
Annuity contracts in accumulation $68,058,273 $144,785,433
Annuity contracts in payment period 1,585,189 5,655,266
- ----------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 37,241,442 59,046,441 21,804,999 27,041,398
Annuity contracts in accumulation 243,902,115 304,883,846
Annuity contracts in payment period 3,724,747 7,056,765
- ----------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: (1,196,659) (627,404) 569,255 (327,272)
Annuity contracts in accumulation 1,509,423 1,510,498
- ----------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust
Fund: (1,266,269) (663,195) 603,074 (985,988)
Annuity contracts in accumulation 3,954,893 3,290,176
- ----------------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series: 3,834,735 711,119 (3,123,616) 9,374,425
Annuity contracts in accumulation 38,137,728 47,005,689
- ----------------------------------------------------------------------------------------------------------------------------------
Worldwide Government Series: 102,292 (46,990) (149,282) (215,073)
Annuity contracts in accumulation 2,014,138 1,751,778
- ----------------------------------------------------------------------------------------------------------------------------------
Mitchell Hutchins Funds:
Growth & Income Portfolio: 0 (10,695) (10,695) 562,640
Annuity contracts in accumulation 0 553,585
- ----------------------------------------------------------------------------------------------------------------------------------
Small Cap Portfolio: 0 (8,957) (8,957) 118,873
Annuity contracts in accumulation 0 109,645
- ----------------------------------------------------------------------------------------------------------------------------------
Tactical Allocation Portfolio: 0 (108,266) (108,266) 3,818,559
Annuity contracts in accumulation 0 3,709,706
- ----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund: 1,243,228 827,779 (415,449) 3,217,550
Annuity contracts in accumulation 11,917,723 18,308,622
Annuity contracts in payment period 0 78,969
- ----------------------------------------------------------------------------------------------------------------------------------
Global Securities Fund: 786,005 990,578 204,573 (1,600,320)
Annuity contracts in accumulation 7,653,101 6,973,995
- ----------------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund: (435,824) 1,885,266 2,321,090 8,794,749
Annuity contracts in accumulation 35,193,209 46,549,709
Annuity contracts in payment period 0 107,063
- ----------------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund: 47,663 (530,037) (577,700) 4,671,785
Annuity contracts in accumulation 12,897,019 17,311,934
Annuity contracts in payment period 201,581 353,410
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 19,423,983 20,780,168 1,356,185 (9,874,623)
Annuity contracts in accumulation 131,150,274 134,890,446
Annuity contracts in payment period 922,555 1,087,748
- ----------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 11,016,482 9,155,311 (1,861,171) (3,601,642)
Annuity contracts in accumulation 88,610,687 85,705,930
- ----------------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 3,770,053 5,706,216 1,936,163 8,221,741
Annuity contracts in accumulation 27,062,849 38,797,379
Annuity contracts in payment period 903,680 1,299,071
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-72
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - September 30, 1999 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and
Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Period Ended September 30, 1999
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PPI Scudder International Growth Portfolio: $1,024,592 ($157,696) $29,337,985 $25,911,922 $3,426,063
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio: 2,862,703 (1,204,443) 13,089,655 9,744,139 3,345,516
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $155,201,149 ($41,961,833) $1,425,865,744 $1,253,493,572 $172,372,172
===================================================================================================================================
</TABLE>
S-73
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Period Ended September 30, 1999
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
-------------------------- Change in In Net Assets --------------------------------
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PPI Scudder International Growth
Portfolio: $863,502 $ 255,178 ($608,324) $3,771,914
Annuity contracts in accumulation $17,577,310 $ 24,984,617
Annuity contracts in payment period 18,946 68,188
- ------------------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity
Portfolio: 24,891,619 21,806,840 (3,084,779) (9,523,644)
Annuity contracts in accumulation 118,791,854 110,564,336
Annuity contracts in payment period 56,523 679,394
- ------------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $349,806,583 $275,075,513 ($74,731,070) $833,235,101 $3,956,568,422 $5,000,683,941
=========================================================================================================================--=========
</TABLE>
S-74
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
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, 1998,
1997 and 1996 F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-4
Consolidated Statements of Changes in Shareholder's Equity For the Years
Ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996 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 Subsidiary as of December 31, 1998 and 1997,
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, 1998. 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 Subsidiary at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
February 3, 1999
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Premiums $ 79.4 $ 69.1 $ 84.9
Charges assessed against policyholders 324.3 262.0 197.0
Net investment income 877.6 878.8 852.6
Net realized capital gains 10.4 29.7 17.0
Other income 29.6 38.3 43.6
---------- ---------- ----------
Total revenue 1,321.3 1,277.9 1,195.1
---------- ---------- ----------
Benefits and expenses:
Current and future benefits 714.4 720.4 728.3
Operating expenses 313.2 286.5 275.8
Amortization of deferred policy acquisition costs 106.7 82.8 28.0
Severance and facilities charges -- -- 47.1
---------- ---------- ----------
Total benefits and expenses 1,134.3 1,089.7 1,079.2
---------- ---------- ----------
Income from continuing operations before
income taxes 187.0 188.2 115.9
Income taxes 47.4 50.7 30.7
---------- ---------- ----------
Income from continuing operations 139.6 137.5 85.2
Discontinued Operations, net of tax
Income from operations 61.8 67.8 55.9
Gain on sale 59.0 -- --
---------- ---------- ----------
Net income $ 260.4 $ 205.3 $ 141.1
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Investments:
Debt securities available for sale, at fair value,
(amortized cost: $11,570.3 and $12,912.2) $12,067.2 $13,463.8
Equity securities, at fair value,
Nonredeemable preferred stock (cost: $202.6 and $131.7) 203.3 147.6
Investment in affiliated mutual funds (cost: $96.8 and$78.1) 100.1 83.0
Common stock (cost: $1.0 and $0.2) 2.0 .6
Short-term investments 47.9 95.6
Mortgage loans 12.7 12.8
Policy loans 292.2 469.6
------------ ------------
Total investments 12,725.4 14,273.0
Cash and cash equivalents 608.4 565.4
Short-term investments under securities loan agreement 277.3 --
Accrued investment income 151.6 163.0
Premiums due and other receivables 46.7 51.9
Reinsurance recoverable 2,959.8 11.8
Deferred policy acquisition costs 864.0 1,654.6
Reinsurance loan to affiliate -- 397.2
Deferred tax asset 120.6 --
Other assets 66.6 46.8
Separate accounts assets 29,458.4 22,982.7
------------ ------------
Total assets $47,278.8 $40,146.4
============ ============
Liabilities and Shareholder's Equity
Liabilities:
Future policy benefits $ 3,815.9 $ 3,763.7
Unpaid claims and claim expenses 18.8 38.0
Policyholders' funds left with the Company 11,305.6 11,143.5
------------ ------------
Total insurance reserve liabilities 15,140.3 14,945.2
Payables under securities loan agreement 277.3 --
Other liabilities 793.2 312.8
Income taxes:
Current 279.8 12.4
Deferred -- 72.0
Separate accounts liabilities 29,430.2 22,970.0
------------ ------------
Total liabilities 45,920.8 38,312.4
------------ ------------
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 427.3 418.0
Accumulated other comprehensive income 104.8 92.9
Retained earnings 823.1 1,320.3
------------ ------------
Total shareholder's equity 1,358.0 1,834.0
------------ ------------
Total liabilities and shareholder's equity $47,278.8 $40,146.4
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Shareholder's equity, beginning of year $1,834.0 $1,609.5 $1,583.0
Comprehensive income
Net income 260.4 205.3 141.1
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities
($18.2 million, $49.9 million and
$(110.6) million, pretax, respectively) 11.9 32.4 (72.0)
---------- ---------- ----------
Total comprehensive income 272.3 237.7 69.1
---------- ---------- ----------
Capital contributions 9.3 -- 10.4
Other changes 1.4 4.1 (49.5)
Common stock dividends (759.0) (17.3) (3.5)
---------- ---------- ----------
Shareholder's equity, end of year $1,358.0 $1,834.0 $1,609.5
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 260.4 $ 205.3 $ 141.1
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Net accretion of discount on investments (29.5) (66.4) (68.0)
Gain on sale of discontinued operations (88.3) -- --
--------- --------- ---------
Cash flows provided by operating activities and net realized capital
gains before changes in assets and liabilities 142.6 138.9 73.1
Net realized capital gains (11.1) (36.0) (19.7)
--------- --------- ---------
Cash flows provided by operating activities before changes in assets
and liabilities 131.5 102.9 53.4
Changes in assets and liabilities:
Decrease (increase) in accrued investment income 11.4 (4.0) 16.5
(Increase) decrease in premiums due and other receivables (16.3) (33.3) 1.6
Decrease (increase) in policy loans 177.4 (70.3) (60.7)
Increase in deferred policy acquisition costs (117.3) (139.3) (174.0)
Decrease in reinsurance loan to affiliate 397.2 231.1 27.2
Net increase in universal life account balances 122.9 157.1 146.6
Decrease in other insurance reserve liabilities (41.8) (120.3) (114.9)
Net (decrease) increase in other liabilities and other assets (50.8) (41.7) 3.1
Increase (decrease) in income taxes 100.4 (31.4) (26.7)
Other, net -- -- 1.1
--------- --------- ---------
Net cash provided by (used for) operating activities 714.6 50.8 (126.8)
--------- --------- ---------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 6,790.2 5,311.3 5,182.2
Equity securities 150.1 103.1 190.5
Mortgage loans 0.3 0.2 8.7
Life business 966.5 -- --
Investment maturities and collections of:
Debt securities available for sale 1,290.3 1,212.7 885.2
Short-term investments 129.9 89.3 35.0
Cost of investment purchases in:
Debt securities available for sale (6,701.4) (6,732.8) (6,534.3)
Equity securities (125.7) (113.3) (118.1)
Other investments (2,725.9) -- --
Short-term investments (81.9) (149.9) (54.7)
Other, net -- -- (17.6)
--------- --------- ---------
Net cash used for investing activities (307.6) (279.4) (423.1)
--------- --------- ---------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,571.1 1,621.2 1,579.5
Withdrawals of investment contracts (1,393.1) (1,256.3) (1,146.2)
Capital contribution to Separate Account -- (25.0) --
Return of capital from Separate Account 1.7 12.3 --
Capital contribution from HOLDCO 9.3 -- 10.4
Dividends paid to shareholder (553.0) (17.3) (3.5)
--------- --------- ---------
Net cash (used for) provided by financing activities (364.0) 334.9 440.2
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 43.0 106.3 (109.7)
Cash and cash equivalents, beginning of year 565.4 459.1 568.8
--------- --------- ---------
Cash and cash equivalents, end of year $ 608.4 $ 565.4 $ 459.1
========= ========= =========
Supplemental cash flow information:
Income taxes paid, net $ 48.4 $ 119.6 $ 85.5
========= ========== ==========
</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 and its wholly owned subsidiary
(collectively, the "Company") are providers of financial services in the
United States. Prior to the sale of the domestic individual life insurance
business on October 1, 1998, the Company had two business segments: financial
services and individual life insurance. On October 1, 1998, the Company sold
its domestic individual life insurance operations to Lincoln National
Corporation ("Lincoln") and accordingly they are now classified as
Discontinued Operations. (Refer to note 2)
Financial services products include annuity contracts that offer a variety of
funding and payout options for individual and employer-sponsored retirement
plans qualified under Internal Revenue Code Sections 401, 403, 408 and 457,
and non-qualified annuity contracts. These contracts may be deferred or
immediate ("payout annuities"). Financial services also include investment
advisory services and pension plan administrative services.
Discontinued Operations include universal life, variable universal life,
traditional whole life and term insurance.
Basis of Presentation
---------------------
The consolidated financial statements include Aetna Life Insurance and
Annuity Company and its wholly owned subsidiary, Aetna Insurance Company of
America. Aetna Life Insurance and Annuity Company is a wholly owned
subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly
owned subsidiary of Aetna Retirement Services, Inc. ("ARS"), whose ultimate
parent is Aetna Inc. ("Aetna").
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. Certain reclassifications have been
made to 1997 and 1996 financial information to conform to the 1998
presentation.
New Accounting Standards
------------------------
Disclosures about Segments of an Enterprise and Related Information
As of December 31, 1998, the Company adopted Financial Accounting Standard
("FAS") No. 131, Disclosures about Segments of an Enterprise and Related
Information. This statement establishes standards for the reporting of
information relating to operating segments. This statement supersedes FAS No.
14, Financial Reporting for Segments of a Business Enterprise, which requires
reporting segment information by industry and geographic area (industry
approach). Under FAS No. 131, operating segments are defined as components of
a company for which separate financial information is available and is used
by management to allocate resources and assess performance (management
approach). The adoption of this statement did not change the composition or
the results of operations of any of the operating segments of the Company,
which are consistent with the management approach.
F-7
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Accounting for the Costs of Computer Software Developed and Obtained for
Internal Use
On January 1, 1998, the Company adopted Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, issued by the American Institute of Certified Public
Accountants ("AICPA"). This statement requires that certain costs incurred in
developing internal use computer software (in process at, and subsequent to
the adoption date) be capitalized, and provides guidance for determining
whether computer software is considered to be for internal use. The Company
amortizes these costs over a period of 3 to 5 years. Previously, the Company
expensed the cost of internal-use computer software as incurred. The adoption
of this statement resulted in a net after-tax increase to the results of
operations of $6.5 million for the year ended December 31, 1998.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
In June 1996, the Financial Accounting Standards Board ("FASB") issued FAS
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, that provides accounting and reporting
standards for transfers of financial assets and extinguishments of
liabilities. FAS No. 125 was effective for 1997 financial statements;
however, certain provisions relating to accounting for repurchase agreements
and securities lending were not effective until January 1, 1998. The adoption
of those provisions effective in 1998 did not have a material effect on the
Company's financial position or results of operations.
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, with early adoption
permitted. The Company is currently evaluating the impact of the adoption of
this statement and the potential effect on its financial position and results
of operations.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued 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. This standard is effective for the Company's financial
statements beginning January 1, 2000, with early adoption permitted. The
Company is currently evaluating the impact of adoption of this statement and
the potential effect on its financial position and results of operations.
F-8
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments
In December 1997, the AICPA issued SOP 97-3, Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments, which provides guidance
for determining when an insurance or other enterprise should recognize a
liability for guaranty-fund and other insurance-related assessments and
guidance for measuring the liability. This statement is effective for 1999
financial statements with early adoption permitted. The Company does not
expect adoption of this statement to have a material effect on its financial
position or results of operations.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from reported results using those
estimates.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity of 90 days or less when purchased.
Investments
-----------
Debt and equity securities are classified as available for sale and carried
at fair value. These securities are written down (as realized capital losses)
for other than temporary declines in value. Unrealized capital gains and
losses related to available-for-sale investments, other than amounts
allocable to experience-rated contractholders, are reflected in shareholder's
equity, net of related taxes.
Fair values for debt and equity securities are based on quoted market prices
or dealer quotations. Where quoted market prices or dealer quotations are not
available, fair values are measured utilizing quoted market prices for
similar securities or by using discounted cash flow methods. Cost for
mortgage-backed securities is adjusted for unamortized premiums and
discounts, which are amortized using the interest method over the estimated
remaining term of the securities, adjusted for anticipated prepayments. 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.
F-9
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
At December 31, 1998 and 1997, the Company loaned securities (which are
reflected as invested assets) with a fair value of approximately $277.3
million and $385.1 million, respectively.
Purchases and sales of debt and equity securities are recorded on the trade
date.
The investment in affiliated mutual funds represents an investment in Aetna
managed mutual funds which have been seeded by the Company, and is carried at
fair value.
Mortgage loans and policy loans are carried at unpaid principal balances, net
of impairment reserves. Sales of mortgage loans are recorded on the closing
date.
Short-term investments, consisting primarily of money market instruments and
other debt issues purchased with 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 4.)
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.
Deferred Policy Acquisition Costs
---------------------------------
Certain costs of acquiring insurance business are deferred. These costs, all
of which vary with and are primarily related to the production of new and
renewal business, consist principally of commissions, certain expenses of
underwriting and issuing contracts, and certain agency expenses. For fixed
ordinary life contracts (prior to the sale of the domestic individual life
insurance business to Lincoln on October 1, 1998, refer to Note 2), such
costs are amortized over expected premium-paying periods (up to 20 years).
For universal life (prior to the sale of the domestic individual life
insurance business to Lincoln on October 1, 1998, refer to Note 2), and
certain annuity contracts,
F-10
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
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 50 years for universal life and up to 20 years for certain annuity
contracts). Deferred policy acquisition costs are written off to the extent
that it is determined that future policy premiums and investment income or
gross profits are not adequate to cover related losses and expenses.
Insurance Reserve Liabilities
-----------------------------
Future policy benefits include reserves for universal life, immediate
annuities with life contingent payouts and traditional life insurance
contracts. Prior to the sale of the domestic individual life insurance
business on October 1, 1998, (refer to note 2), reserves for universal life
products were equal to cumulative deposits less withdrawals and charges plus
credited interest thereon, plus (less) net realized capital gains (losses)
(which were reflected through credited interest rates). These reserves also
included unrealized capital gains (losses) related to FAS No. 115. As a
result of the sale and transfer of assets supporting the business, reserves
for universal life products will no longer include net realized capital gains
(losses) and unrealized gains (losses) related to FAS No. 115 for the years
ended December 31, 1998 and beyond.
Reserves for immediate annuities with life contingent payouts and traditional
life insurance contracts are for immediate annuities with life
contingent-payouts and traditional life insurance contracts are computed on
the basis of assumed investment yield, mortality, and expenses, including a
margin for adverse deviations. Such assumptions generally vary by plan, year
of issue and policy duration. Reserve interest rates range from 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
3.00% to 8.10% 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.
F-11
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Premiums, Charges Assessed Against Policyholders, Benefits and Expenses
-----------------------------------------------------------------------
For universal life (prior to the sale of the domestic individual life
insurance business to Lincoln on October 1, 1998, refer to Note 2) and
certain annuity contracts, charges assessed against policyholders' funds for
the cost of insurance, surrender charges, actuarial margin and other fees are
recorded as revenue in charges assessed against policyholders. Other amounts
received for these contracts are reflected as deposits and are not recorded
as revenue. Life insurance premiums, other than premiums for universal life
(prior to the sale of the domestic individual life insurance business to
Lincoln on October 1, 1998, refer to Note 2) and certain annuity contracts,
are recorded as premium revenue when due. Related policy benefits are
recorded in relation to the associated premiums or gross profit so that
profits are recognized over the expected lives of the contracts. When annuity
payments with life contingencies begin under contracts that were initially
investment contracts, the accumulated balance in the account is treated as a
single premium for the purchase of an annuity and reflected as an offsetting
amount in both premiums and current and future benefits in the Consolidated
Statements of Income.
Separate Accounts
-----------------
Assets held under variable universal life and variable annuity contracts are
segregated in Separate Accounts and are invested, as designated by the
contractholder or participant under a contract (who bears the investment risk
subject, in some cases, to minimum guaranteed rates) in shares of mutual
funds which are managed by an affiliate of the Company, or other selected
mutual funds not managed by the Company.
As of December 31, 1998, Separate Accounts assets are carried at fair value.
At December 31, 1998, unrealized gains of $10.0 million, after taxes, on
assets supporting a guaranteed interest option are reflected in shareholder's
equity. At December 31, 1997, Separate Account assets supporting the
guaranteed interest option were carried at an amortized cost of $658.6
million (fair value $668.7 million). 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 3.00% to 8.10%
in 1998 and 4.10% to 8.10% in 1997.
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.
F-12
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Reinsurance
-----------
The Company utilizes indemnity reinsurance agreements to reduce its exposure
to large losses in all aspects of its insurance business. Such reinsurance
permits recovery of a portion of losses from reinsurers, although it does not
discharge the primary liability of the Company as direct insurer of the risks
reinsured. The Company evaluates the financial strength of potential
reinsurers and continually monitors the financial condition of reinsurers.
Only those reinsurance recoverables deemed probable of recovery are reflected
as assets on the Company's Consolidated Balance Sheets. The majority of the
reinsurance recoverable on the Consolidated Balance Sheets at December 31,
1998 is related to the reinsurance recoverable from Lincoln arising from the
sale of the domestic life insurance business. (Refer to Note 2)
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. 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. Insurance reserves ceded as of December 31, 1998 were $2.9
billion. Deferred policy acquisition costs related to the life policies of
$907.9 million were written off against the gain on the sale. Certain
invested assets related to and supporting the life policies were sold to
consummate the life sale, 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 $58 million will be deferred and
amortized over approximately 15 years (as profits in the book of business
sold emerge). The remaining portion of the gain was recognized immediately in
net income and was largely attributed to the sale of the domestic life
insurance business for access to the agency sales force and brokerage
distribution channel. The unamortized portion of the 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, $620.4 million
and $445.7 million for 1998, 1997 and 1996, respectively. Premiums ceded and
reinsurance recoveries made in 1998 totaled $153.4 million and $57.7 million,
respectively.
F-13
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Investments
Debt securities available for sale as of December 31, 1998 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 2,259.2 94.6 5.6 2,348.2
Transportation/capital goods 580.8 33.0 1.1 612.7
Health care/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 5,299.6 239.9 25.3 5,514.2
--------------------------------------------------------------------------------------------------------------
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 $11,570.3 $580.8 $83.9 $12,067.2
==============================================================================================================
</TABLE>
F-14
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Debt securities available for sale as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1997 (Millions) Cost Gains Losses Value
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and government agencies
and authorities $ 1,219.7 $ 74.0 $ 0.1 $ 1,293.6
States, municipalities and political subdivisions 0.3 -- -- 0.3
U.S. corporate securities:
Utilities 521.3 23.5 0.9 543.9
Financial 2,370.7 84.6 1.3 2,454.0
Transportation & capital goods 528.2 33.2 0.1 561.3
Healthcare & consumer products 728.5 27.0 2.6 752.9
Natural resources 143.5 5.5 -- 149.0
Other corporate securities 545.2 27.2 0.1 572.3
--------------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 4,837.4 201.0 5.0 5,033.4
--------------------------------------------------------------------------------------------------------------
Foreign securities:
Government, including political subdivisions 612.5 36.7 23.6 625.6
Utilities 177.5 28.7 -- 206.2
Other 857.9 27.7 42.8 842.8
--------------------------------------------------------------------------------------------------------------
Total foreign securities 1,647.9 93.1 66.4 1,674.6
--------------------------------------------------------------------------------------------------------------
Residential mortgage-backed securities:
Pass-throughs 784.4 71.3 2.0 853.7
Collateralized mortgage obligations 2,280.5 137.4 2.0 2,415.9
--------------------------------------------------------------------------------------------------------------
Total residential mortgage-backed securities 3,064.9 208.7 4.0 3,269.6
--------------------------------------------------------------------------------------------------------------
Commercial/Multifamily mortgage-backed
securities 1,127.8 34.0 0.4 1,161.4
Other asset-backed securities 1,014.2 17.1 0.4 1,030.9
--------------------------------------------------------------------------------------------------------------
Total debt securities $12,912.2 $627.9 $76.3 $13,463.8
==============================================================================================================
</TABLE>
F-15
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
At December 31, 1998 and 1997, net unrealized appreciation of $496.9 million
and $551.6 million, respectively, on available-for-sale debt securities
included $355.8 million and $429.3 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, 1998 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 $ 553.5 $ 554.6
After one year through five years 2,619.7 2,692.4
After five years through ten years 1,754.0 1,801.7
After ten years 2,257.4 2,453.7
Mortgage-backed securities 3,666.4 3,832.3
Other asset-backed securities 719.3 732.5
---------------------------------------------------------------
Total $11,570.3 $12,067.2
===============================================================
</TABLE>
At December 31, 1998 and 1997, debt securities carried at $8.8 million and
$8.2 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, 1998.
Included in the Company's debt securities were residential collateralized
mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Fair Amortized Fair Amortized
(Millions) Value Cost Value Cost
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total residential CMOs (1) $ 1,988.9 $1,879.6 $ 2,415.9 $2,280.5
=======================================================================================================
Percentage of total:
Supporting experience rated products 81.7% 81.6%
Supporting remaining products 18.3% 18.4%
- -------------------------------------------------------------------------------------------------------
100.0% 100.0%
=======================================================================================================
</TABLE>
(1) At December 31, 1998 and 1997, approximately 66% and 73%, 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)
3. Investments (continued)
There are various categories of CMOs which are subject to different degrees
of risk from changes in interest rates and, for nonagency-backed CMOs,
defaults. The principal risks inherent in holding CMOs are prepayment and
extension risks related to dramatic decreases and increases in interest rates
resulting in the repayment of principal from the underlying mortgages either
earlier or later than originally anticipated. At December 31, 1998 and 1997,
approximately 2% and 4%, 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) 1998 1997
-------------------------------------------------------
<S> <C> <C>
Amortized Cost $300.4 $210.0
Gross unrealized gains 13.1 21.3
Gross unrealized losses 8.1 .1
-------------------------------------------------------
Fair Value $305.4 $231.2
=======================================================
</TABLE>
4. Financial Instruments
Estimated Fair Value
--------------------
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- -----------------------
Carrying Fair Carrying Fair
(Millions) Value Value Value Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Mortgage loans $ 12.7 $ 12.3 $ 12.8 $ 12.4
Liabilities:
Investment contract liabilities:
With a fixed maturity $ 1,063.9 $ 984.3 $ 1,030.3 $1,005.4
Without a fixed maturity 10,241.7 9,686.2 10,113.2 9,587.5
- -----------------------------------------------------------------------------------------
</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)
4. 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.
Without a fixed maturity: Fair value is estimated as the amount payable to
the contractholder upon demand. However, the Company has the right under such
contracts to delay payment of withdrawals which may ultimately result in
paying an amount different than that determined to be payable on demand.
Off-Balance-Sheet and Other Financial Instruments
-------------------------------------------------
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.
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, 1998
were $1.5 million, respectively. The carrying values and estimated fair
values as of December 31, 1997 were $.6 million, respectively.
F-18
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. 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, 1998 was as follows:
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
-----------------------------------------------------------------------------
<S> <C> <C>
Residential collateralized mortgage obligations $1,879.6 $1,988.9
Principal-only strips (included above) 20.2 24.0
Interest-only strips (included above) 17.3 18.0
Other structured securities with derivative
characteristics (1) 87.3 80.6
-----------------------------------------------------------------------------
</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.
5. Net Investment Income
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 798.8 $ 814.6 $ 805.3
Nonredeemable preferred stock 18.4 12.9 5.8
Investment in affiliated mutual funds 6.6 3.8 10.8
Mortgage loans 0.6 0.3 0.6
Policy loans 7.2 5.7 6.4
Reinsurance loan to affiliate 2.3 5.5 9.3
Cash equivalents 44.6 38.8 27.1
Other 16.7 9.5 1.8
-----------------------------------------------------------------------------
Gross investment income 895.2 891.1 867.1
Less: investment expenses (17.6) (12.3) (14.5)
-----------------------------------------------------------------------------
Net investment income $ 877.6 $ 878.8 $ 852.6
=============================================================================
</TABLE>
Net investment income includes amounts allocable to experience rated
contractholders of $655.6 million, $673.8 million and $649.5 million for the
years ended December 31, 1998, 1997 and 1996, respectively. Interest credited
to contractholders is included in current and future benefits.
F-19
<PAGE>
Notes to Consolidated Financial Statements (continued)
6. Dividend Restrictions and Shareholder's Equity
The Company paid $553.0 million and $17.3 million in cash dividends to HOLDCO
in 1998 and 1997, respectively. Additionally, at December 31, 1998, the
Company accrued $206.0 million in dividends. Of the $759.0 million dividends
paid and 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.
In January 1999, the accrued dividends of $206.0 million were paid by the
Company to HOLDCO. Further dividends to be paid by the Company to HOLDCO
during 1999 will need to be approved by the Insurance Department of the State
of Connecticut (the "Department") prior to payment.
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
$148.1 million, $80.5 million and $57.8 million for the years ended December
31, 1998, 1997 and 1996, respectively. Statutory capital and surplus was
$773.0 million and $778.7 million as of December 31, 1998 and 1997,
respectively.
As of December 31, 1998, 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.
7. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold.
Net realized capital gains on investments were as follows:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 7.4 $21.1 $ 9.5
Equity securities 3.0 8.6 7.5
----------------------------------------------------------------------------
Pretax realized capital gains $10.4 $29.7 $17.0
============================================================================
After-tax realized capital gains $ 7.3 $19.2 $11.1
============================================================================
</TABLE>
Net realized capital gains of $15.0 million, $83.7 million and $52.5 million
for 1998, 1997 and 1996, respectively, allocable to experience rated
contracts, were deducted from net realized capital gains and an offsetting
amount was reflected in Policyholders' funds left with the Company. Net
unamortized gains were $118.6 million and $120.1 million at December 31, 1998
and 1997, respectively.
F-20
<PAGE>
Notes to Consolidated Financial Statements (continued)
7. 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) 1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds on sales $6,790.2 $5,311.3 $5,182.2
Gross gains 98.8 23.8 22.1
Gross losses 91.4 2.7 12.6
----------------------------------------------------------------------------
</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) 1998 1997 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 18.9 $44.3 $(100.1)
Equity securities (16.1) 5.6 (10.5)
Other 15.4 -- --
-----------------------------------------------------------------------------------
Subtotal 18.2 49.9 (110.6)
Increase (decrease) in deferred income taxes
(Refer to note 8) 6.3 17.5 (38.6)
-----------------------------------------------------------------------------------
Net changes in accumulated other
comprehensive income $ 11.9 $32.4 $ (72.0)
===================================================================================
</TABLE>
Net unrealized capital gains allocable to experience-rated contracts of
$355.8 million at December 31, 1998 are reflected on the Consolidated Balance
Sheets in Policyholders' funds left with the Company and are not included in
shareholder's equity. At December 31, 1997, net unrealized capital gains of
$356.7 million and $72.6 million at December 31, 1997 are reflected on the
Consolidated Balance Sheets in policyholders' funds left with the Company and
future policy benefits, respectively, and are not included in shareholder's
equity.
F-21
<PAGE>
Notes to Consolidated Financial Statements (continued)
7. Capital Gains and Losses on Investment Operations (continued)
Shareholder's equity included the following accumulated other comprehensive
income, which are net of amounts allocable to experience-rated
contractholders, at December 31:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities:
Gross unrealized capital gains $157.3 $140.6 $101.7
Gross unrealized capital losses (16.2) (18.4) (23.8)
----------------------------------------------------------------------------------
141.1 122.2 77.9
----------------------------------------------------------------------------------
Equity securities:
Gross unrealized capital gains 13.1 21.2 16.3
Gross unrealized capital losses (8.1) (0.1) (0.8)
----------------------------------------------------------------------------------
5.0 21.1 15.5
----------------------------------------------------------------------------------
Other:
Gross unrealized capital gains 17.1 -- --
Gross unrealized capital losses (1.7) -- --
----------------------------------------------------------------------------------
15.4 -- --
----------------------------------------------------------------------------------
Deferred income taxes (Refer to note 8) 56.7 50.4 32.9
----------------------------------------------------------------------------------
Net accumulated other comprehensive income $104.8 $ 92.9 $ 60.5
==================================================================================
</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) 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized holding gains (losses) arising
during the year (1) $38.3 $98.8 $(14.8)
Less: reclassification adjustment for gains and
other items included in net income (2) 26.4 66.4 57.2
-----------------------------------------------------------------------------------
Net unrealized gains (losses) on securities $11.9 $32.4 $(72.0)
===================================================================================
</TABLE>
(1) Pretax unrealized holding gains (losses) arising during the year were
$58.8 million, $152.3 million and ($22.9) million for 1998, 1997 and
1996, respectively.
(2) Pretax reclassification adjustments for gains and other items included
in net income were $40.6 million, $102.4 million and $87.7 million for
1998, 1997 and 1996, respectively.
F-22
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Income Taxes
The Company is included in the consolidated federal income tax return, the
combined returns of Connecticut and New York, and the Illinois unitary state
income tax returns of Aetna. Aetna allocates to each member an amount
approximating the tax it would have incurred were it not a member of the
consolidated group, and credits the member for the use of its tax saving
attributes in the consolidated federal income tax return.
Income taxes from continuing operations consist of the following:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes (benefits):
Federal $ 246.4 $ 28.7 $ 30.0
State 1.3 2.0 2.3
Net realized capital gains 16.8 39.1 24.4
------------------------------------------------------------------------------
264.5 69.8 56.7
------------------------------------------------------------------------------
Deferred taxes (benefits):
Federal (203.2) 9.4 (7.6)
Net realized capital (losses) (13.9) (28.5) (18.4)
------------------------------------------------------------------------------
(217.1) (19.1) (26.0)
------------------------------------------------------------------------------
Total $ 47.4 $ 50.7 $ 30.7
==============================================================================
</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) 1998 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations before
income taxes $187.0 $188.2 $115.9
Tax rate 35% 35% 35%
------------------------------------------------------------------------------
Application of the tax rate 65.5 65.9 40.6
Tax effect of:
State income tax, net of federal benefit 0.9 1.3 1.5
Excludable dividends (17.1) (15.6) (10.8)
Other, net (1.9) (0.9) (0.6)
------------------------------------------------------------------------------
Income taxes $ 47.4 $ 50.7 $ 30.7
==============================================================================
</TABLE>
F-23
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
(Millions) 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 324.1 $415.8
Unrealized gains allocable to experience
rated contracts 124.5 150.1
Investment (gains) losses (0.3) 6.6
Postretirement benefits other than pensions 26.0 26.3
Deferred compensation 38.6 31.2
Restructuring charge 2.9 9.5
Depreciation 1.7 3.9
Sale of individual life 48.9 -
Other 16.0 8.8
------------------------------------------------------------------------
Total gross assets 582.4 652.2
------------------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs 272.7 515.6
Market discount 4.5 5.1
Net unrealized capital gains 181.2 200.5
Pension 3.9 3.6
Other (0.5) (0.6)
------------------------------------------------------------------------
Total gross liabilities 461.8 724.2
------------------------------------------------------------------------
Net deferred tax (asset) liability $(120.6) $ 72.0
========================================================================
</TABLE>
Net unrealized capital gains and losses are presented in shareholder's equity
net of deferred taxes. As of December 31, 1998 and 1997, no valuation
allowances were required for unrealized capital gains and losses.
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, 1998. This amount would be
taxed only under certain conditions.
F-24
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (Continued)
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 1990.
Discussions are being held with the Service with respect to proposed
adjustments. Management believes there are adequate defenses against, or
sufficient reserves to provide for, any such adjustments. The Service has
commenced its examinations for the years 1991 through 1994.
9. Benefit Plans
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 (i.e., September 30), the
accumulated plan assets exceeded accumulated plan benefits. Allocated pretax
charges to operations for the pension plan (based on the Company's total
salary cost as a percentage of Aetna's total salary cost) were $0.8 million,
$2.7 million and $4.3 million for the years ended December 31, 1998, 1997 and
1996, respectively.
In addition to providing pension benefits, Aetna currently provides certain
health care and life insurance benefits for retired employees. A
comprehensive medical and dental plan is offered to all full-time employees
retiring at age 50 with 15 years of service or at age 65 with 10 years of
service. There is a cap on the portion of the cost paid by the Company
relating to medical and dental benefits. Retirees are generally required to
contribute to the plans based on their years of service with Aetna. The costs
to the Company associated with the Aetna postretirement plans for 1998, 1997
and 1996 were $0.9 million, $2.7 million and $1.8 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately $77.7
million of accrued liabilities, primarily related to the pension and
postretirement benefit plans described above, that had been previously
recorded by Aetna. The after-tax amount of this transfer (approximately $50.5
million) is reported as a reduction in retained earnings.
The Company, in conjunction with Aetna, has a non-qualified pension plan
covering certain agents. The plan provides pension benefits based on annual
commission earnings. As of the measurement date (i.e., September 30), the
accumulated plan assets exceeded accumulated plan benefits.
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 1998, 1997 and
1996 were $1.4 million, $0.6 million and $0.7 million, respectively.
Effective January 1, 1999, the Company, in conjunction with Aetna, changed
the formula for providing pension benefits from the existing final average
pay formula to a cash balance formula,
F-25
<PAGE>
Notes to Consolidated Financial Statements (continued)
9. Benefit Plans (continued)
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 will not have a material
effect on the Company's results of operations, liquidity or financial
condition.
Incentive Savings Plan--Substantially all employees are eligible to
participate in a savings plan under which designated contributions, which
may be invested in common stock of Aetna or certain other investments, are
matched, up to 5% of compensation, by Aetna. Pretax charges to operations
for the incentive savings plan were $4.7 million, $4.4 million and $5.4
million in 1998, 1997 and 1996, respectively.
Stock Plans--Aetna has a stock incentive plan that provides for stock
options, deferred contingent common stock or equivalent cash awards or
restricted stock to certain key employees. Executive and middle management
employees may be granted options to purchase common stock of Aetna at or
above the market price on the date of grant. Options generally become 100%
vested three years after the grant is made, with one-third of the options
vesting each year. Aetna does not recognize compensation expense for stock
options granted at or above the market price on the date of grant under its
stock incentive plans. In addition, executives may be granted incentive
units which are rights to receive common stock or an equivalent value in
cash. The incentive units may vest within a range from 0% to 175% at the end
of a four year period based on the attainment of performance goals. The
costs to the Company associated with the Aetna stock plans for 1998, 1997
and 1996, were $4.1 million, $2.9 million and $8.1 million, respectively. As
of December 31, 1996, Aetna transferred to the Company approximately $1.1
million of deferred tax benefits related to stock options. This amount is
reported as an increase in retained earnings. In 1998, other changes in
shareholder's equity include an additional increase of $0.7 million
reflecting revisions to the allocation of the deferred tax benefit.
10. Related Party Transactions
Investment Advisory and Other Fees
----------------------------------
In February 1998 and May 1998, Aeltus Investment Management Inc. ("Aeltus"),
an affiliate of the Company, assumed investment advisory services for Aetna
managed mutual funds and variable funds (collectively, the Funds),
respectively. In connection with that assumption of duties, Aeltus entered
into participation agreements with the Company. Participation fees paid to
the Company, from Aeltus, included in charges assessed against policyholders
amounted to $26.9 million for 1998. Prior to assuming investment advisory
services, Aeltus served as subadvisor to the Funds. Since August 1996,
Aeltus has served as advisor for most of the Company's General Account
assets. Fees paid by the Company to Aeltus, included in both charges
assessed against policyholders and net investment income, on an annual
basis, range from 0.06% to 0.55% of the average daily net assets under
management. For the years ended December 31, 1998, 1997 and 1996, the
Company paid $21.7 million, $45.5 million and $16.0 million, respectively,
in such fees.
Prior to February 1998 and May 1998, the Company served as investment
advisor to the Funds. Under the advisory agreements, the funds paid the
Company a daily fee which, on an annual basis, ranged,
F-26
<PAGE>
Notes to Consolidated Financial Statements (continued)
10. Related Party Transactions (continued)
depending on the fund, from 0.25% to 0.85% 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, amounted to
$287.0 million, $271.2 million and $186.6 million in 1998, 1997 and 1996,
respectively.
Reinsurance Transactions
------------------------
Since 1981, all domestic individual non-participating life insurance of
Aetna and its subsidiaries has been issued by the Company. Effective
December 31, 1988, the Company entered into a reinsurance agreement with
Aetna Life Insurance Company ("Aetna Life") in which substantially all of
the non-participating individual life and annuity business written by Aetna
Life prior to 1981 was assumed by the Company. A $6.1 million and a $108.0
million commission, paid by the Company to Aetna Life in 1996 and 1988,
respectively, was capitalized as deferred policy acquisition costs. In
consideration for the assumption of this business, a loan was established
relating to the assets held by Aetna Life which support the insurance
reserves. Effective January 1, 1997, this agreement was amended to
transition (based on underlying investment rollover in Aetna Life) from a
modified coinsurance to a coinsurance arrangement. As a result of this
change, reserves were ceded to the Company from Aetna Life as investment
rollover occurred and the loan previously established was reduced. The
Company maintained insurance reserves of $574.5 million ($397.2 million
relating to the modified coinsurance agreement and $177.3 million relating
to the coinsurance agreement) as of December 31, 1997 relating to the
business assumed. The fair value of the loan relating to assets held by
Aetna Life was $412.3 million as of December 31, 1997 and was based upon the
fair value of the underlying assets.
Effective October 1, 1998, this agreement was fully transitioned to a
coinsurance arrangement and this business along with the Company's direct
domestic individual non-participating life insurance business was sold to
Lincoln. (Refer to note 2).
The operating results of the domestic individual life business are presented
as Discontinued Operations. Premiums of $336.3 million, $176.7 million and
$25.3 million and current and future benefits of $341.1 million, $183.9
million and $39.5 million, were assumed in 1998, 1997 and 1996,
respectively. Investment income of $17.0 million, $37.5 million and $44.1
million was generated from the reinsurance loan to affiliate for the years
ended December 31, 1998, 1997 and 1996, 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 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, $5.9 million and $5.2 million for 1998, 1997
and 1996, 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
F-27
<PAGE>
Notes to Consolidated Financial Statements (continued)
10. Related Party Transactions (continued)
renewable term basis. Premium amounts related to this agreement were $4.4
million and $0.7 million in 1998 and 1997, respectively. 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 $87.8 million and $32.5
million were maintained for this contract as of December 31, 1998 and 1997,
respectively.
Capital Transactions
--------------------
The Company received a capital contribution of $9.3 million and $10.4
million in cash from HOLDCO in 1998 and 1996, respectively. The Company
received no capital contributions in 1997.
The Company paid $553.0 million, $17.3 million and 3.5 million in cash
dividends to HOLDCO in 1998, 1997 and 1996, respectively. Additionally, in
1998, the Company accrued $206.0 million in dividends. (Refer to Note 6)
Other
-----
Premiums due and other receivables include $1.6 million and $37.0 million
due from affiliates in 1998 and 1997, respectively. Other liabilities
include $2.2 million and $1.2 million due to affiliates for 1998 and 1997,
respectively.
As of December 31, 1998, Aetna transferred to the Company $0.7 million based
on its decision not to settle state tax liabilities for the years 1998 and
1997. The amount transferred as of December 31, 1997 was $2.5 million. This
amount has been reported as an other change in retained earnings.
Substantially all of the administrative and support functions of the Company
are provided by Aetna and its affiliates. The financial statements reflect
allocated charges for these services based upon measures appropriate for the
type and nature of service provided.
11. Reinsurance
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 2)
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.
F-28
<PAGE>
Notes to Consolidated Financial Statements (continued)
11. Reinsurance (continued)
The following table includes premium amounts ceded/assumed to/from
affiliated companies as discussed in Note 10 above.
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
(Millions) Amount Companies Companies Amount
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
====================================================================================
1996
----
Premiums:
Discontinued Operations $ 34.6 $ 11.2 $ 25.3 $ 48.7
Accident and Health Insurance 6.3 6.3 -- --
Annuities 84.3 -- 0.6 84.9
------------------------------------------------------------------------------------
Total earned premiums $125.2 $ 17.5 $ 25.9 $133.6
====================================================================================
</TABLE>
F-29
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Segment Information
Prior to October 1, 1998, the Company's operations were reported through two
major business segments: Financial Services and Individual Life Insurance
(now Discontinued Operations). Summarized financial information for the
Company's principal operations was as follows:
<TABLE>
<CAPTION>
(4) (4)
Financial Discontinued
1998 (Millions) Services Operations Other Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers $ 433.3 -- -- $ 433.3
Net investment income 877.6 -- -- 877.6
----------------------------------------------------------------------------------------------------
Total revenue excluding realized
capital gains $ 1,310.9 -- -- $ 1,310.9
====================================================================================================
Amortization of deferred policy
acquisition costs $ 106.7 -- -- $ 106.7
----------------------------------------------------------------------------------------------------
Income taxes $ 57.7 $ (10.3) $ 47.4
----------------------------------------------------------------------------------------------------
Operating earnings (1) $ 151.5 -- -- $ 151.5
Unusual items (2) -- -- $ (19.2) (19.2)
Realized capital gains, net of tax 7.3 -- -- 7.3
----------------------------------------------------------------------------------------------------
Income from continuing operations $ 158.8 -- $ (19.2) $ 139.6
Discontinued operations, net of tax:
Income from operations -- $ 61.8 -- 61.8
Gain on sale -- 59.0 -- 59.0
----------------------------------------------------------------------------------------------------
Net income $ 158.8 $ 120.8 $ (19.2) $ 260.4
====================================================================================================
Segment assets $43,458.6 $3,820.2 -- $47,278.8
----------------------------------------------------------------------------------------------------
Expenditures for long-lived assets (3) -- -- $ 5.3 $ 5.3
----------------------------------------------------------------------------------------------------
</TABLE>
(1) Operating earnings are comprised of net income excluding net realized
capital gains and any unusual items.
(2) Unusual items excluded from operating earnings include an after-tax
severance benefit of $1.6 million and after-tax Year 2000 costs of
$20.8 million.
(3) Expenditures of long-lived assets represents additions to property and
equipment not allocable to business segments.
(4) Financial Services products include annuity contracts and Discontinued
Operations include life insurance products. (Refer to Note 1)
F-30
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Segment Information (Continued)
<TABLE>
<CAPTION>
(3) (3)
Financial Discontinued
1997 (Millions) Services Operations Other Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers $ 369.4 -- -- $ 369.4
Net investment income 878.8 -- -- 878.8
----------------------------------------------------------------------------------------------
Total revenue excluding realized
capital gains $ 1,248.2 -- -- $ 1,248.2
==============================================================================================
Amortization of deferred policy
acquisition costs $ 82.8 -- -- $ 82.8
----------------------------------------------------------------------------------------------
Income taxes $ 50.7 -- -- $ 50.7
----------------------------------------------------------------------------------------------
Operating earnings (1) $ 118.3 -- -- $ 118.3
Realized capital gains, net of tax 19.2 -- -- 19.2
----------------------------------------------------------------------------------------------
Income from continuing operations $ 137.5 -- -- $ 137.5
Discontinued Operations, net of tax:
Income from operations -- $ 67.8 -- 67.8
----------------------------------------------------------------------------------------------
Net Income $ 137.5 $ 67.8 -- $ 205.3
==============================================================================================
Segment assets $36,638.8 $3,507.6 -- $40,146.4
----------------------------------------------------------------------------------------------
Expenditures for long-lived assets (2) -- -- $9.6 $ 9.6
----------------------------------------------------------------------------------------------
</TABLE>
(1) Operating earnings are comprised of net income excluding net realized
capital gains and any unusual items.
(2) Expenditures for long-lived assets represents additions to property and
equipment not allocable to business segments.
(3) Financial Services products include annuity contracts and Discontinued
Operations include life insurance products. (Refer to Note 1)
F-31
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Segment Information (Continued)
<TABLE>
<CAPTION>
(3) (3)
Financial Discontinued
1996 (Millions) Services Operations Other Total
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers $ 325.5 -- -- $ 325.5
Net investment income 852.6 -- -- 852.6
-----------------------------------------------------------------------------------------------------
Total revenue excluding realized capital
gains $1,178.1 -- -- $1,178.1
=====================================================================================================
Amortization of deferred policy acquisition
costs $ 28.0 -- -- $ 28.0
-----------------------------------------------------------------------------------------------------
Income taxes $ 35.6 -- $ (4.9) $ 30.7
-----------------------------------------------------------------------------------------------------
Operating earnings (losses) (1) $ 83.2 -- -- $ 83.2
Unusual items (2) -- -- (9.1) (9.1)
Realized capital gains, net of tax: 11.1 -- -- 11.1
-----------------------------------------------------------------------------------------------------
Income from continuing operations $ 94.3 $ (9.1) $ 85.2
Discontinued operations, net of tax
Income from operations -- $55.9 -- 55.9
-----------------------------------------------------------------------------------------------------
Net income (loss) $ 94.3 $55.9 $ (9.1) $ 141.1
=====================================================================================================
</TABLE>
(1) Operating earnings are comprised of net income excluding net realized
capital gains and any unusual items.
(2) Unusual items excluded from operating earnings represent $9.1 million
after-tax corporate facilities and severance charges not directly
allocable to the business segments.
(3) Financial Services products include annuity contracts and Discontinued
Operations include life insurance products. (Refer to Note 1)
13. 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 and 1997,
the Company had commitments to purchase investments of $68.7 million and
$38.7 million, respectively. The fair value of the investments at December
31, 1998 and 1997 approximated $68.9 million and $39.0 million,
respectively.
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>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
Index to Quarterly Consolidated Financial Statements
<TABLE>
Page
----
<S> <C>
Consolidated Financial Statements:
Consolidated Statements of Income for the Three-Month and Nine-Month
Periods Ended September 30, 1999 and 1998 (unaudited) F-34
Consolidated Balance Sheets as of September 30, 1999 (unaudited) and
December 31, 1998 F-35
Consolidated Statements of Changes in Shareholder's Equity for the Nine
Month Periods Ended September 30, 1999 and 1998 (unaudited) F-36
Consolidated Statements of Cash Flows for the Nine Month Periods
Ended September 30, 1999 and 1998 (unaudited) F-37
Condensed Notes to Consolidated Financial Statements (unaudited) F-38
</TABLE>
F-33
<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>
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Premiums $ 44.2 $ 20.1 $ 86.6 $ 54.5
Charges assessed against policyholders 98.6 81.3 283.1 243.3
Net investment income 223.2 218.8 668.8 649.9
Net realized capital (losses) gains (11.1) 2.7 (5.4) 9.3
Other income 27.9 23.6 82.5 66.5
------- ------ -------- --------
Total revenue 382.8 346.5 1,115.6 1,023.5
Benefits and expenses:
Current and future benefits 201.8 181.7 564.0 529.7
Operating expenses:
Salaries and related benefits 36.1 32.0 107.7 100.9
Other 53.3 51.5 156.0 147.5
Amortization of deferred policy
acquisition costs 25.9 23.2 77.6 69.5
------- ------ -------- --------
Total benefits and expenses 317.1 288.4 905.3 847.6
------- ------ -------- --------
Income from continuing operations before
income taxes 65.7 58.1 210.3 175.9
Income taxes 21.7 15.2 69.2 51.6
------- ------ -------- --------
Income from continuing operations 44.0 42.9 141.1 124.3
Discontinued operations, net of tax:
Income from operations -- 24.5 -- 61.8
Deferred gain on sale 1.4 -- 4.1 --
------- ------ -------- --------
Net income $ 45.4 $ 67.4 $ 145.2 $ 186.1
======= ====== ======== ========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-34
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
Assets
Investments:
Debt securities available for sale, at fair value
(amortized cost: $11,467.3 and $11,570.3) $11,335.2 $12,068.2
Equity securities, available for sale, at fair value:
Nonredeemable preferred stock (cost: $142.9 and $202.6) 140.5 203.3
Investment in affiliated mutual funds (cost: $72.8 and $96.8) 73.3 100.1
Common stock (cost: $6.4 and $1.0) 8.5 2.0
Short-term investments 56.5 48.9
Mortgage loans 10.4 12.7
Policy loans 308.9 292.2
--------- ---------
Total investments 11,933.3 12,727.4
Cash and cash equivalents 797.2 628.3
Short-term investments under securities loan agreement 771.5 277.3
Accrued investment income 163.0 151.6
Premiums due and other receivables 95.0 61.1
Reinsurance recoverable 2,957.5 2,959.8
Deferred income taxes 148.6 114.3
Deferred policy acquisition costs 1,007.8 893.1
Other assets 77.7 70.4
Separate Accounts assets 32,807.7 29,458.4
--------- ---------
Total assets $50,759.3 $47,341.7
========= =========
Liabilities and Shareholder's Equity
Liabilities:
Future policy benefits $ 3,842.6 $ 3,815.9
Unpaid claims and claim expenses 35.3 18.8
Policyholders' funds left with the Company 11,117.2 11,305.6
--------- ---------
Total insurance reserve liabilities 14,995.1 15,140.3
Payables under securities loan agreement 771.5 277.3
Current income taxes 0.5 279.6
Other liabilities 809.8 821.0
Separate Accounts liabilities 32,803.5 29,430.2
--------- ---------
Total liabilities 49,380.4 45,948.4
--------- ---------
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 (25.5) 104.8
Retained earnings 969.8 853.9
--------- ---------
Total shareholder's equity 1,378.9 1,393.3
--------- ---------
Total liabilities and shareholder's equity $50,759.3 $47,341.7
========= =========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-35
<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>
Nine Months Ended September 30,
-------------------------------
1999 1998
------------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Shareholder's equity, beginning of period $1,393.3 $1,852.7
Comprehensive income (loss):
Net income 145.2 186.1
Other comprehensive loss, net of tax:
Unrealized losses on securities
($(200.5), $(10.5), pretax) (1) (130.3) (6.8)
-------- --------
Total comprehensive income 14.9 179.3
-------- --------
Other changes 0.5 1.6
Common stock dividends (29.8) (9.0)
-------- --------
Shareholder's equity, end of period $1,378.9 $2,024.7
======== ========
</TABLE>
(1) Net of reclassification adjustments.
See Condensed Notes to Consolidated Financial Statements.
F-36
<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>
Nine Months Ended September 30,
-------------------------------
1999 1998
------------- ------------
(unaudited) (unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 145.2 $ 186.1
Adjustments to reconcile net income to net cash (used for)
provided by operating activities:
Net accretion of discount on investments (20.6) (24.3)
Deferred gain on sale (4.1) --
Net realized capital losses (gains) 5.4 (10.0)
Changes in assets and liabilities:
Increase in accrued investment income (11.4) (2.3)
Decrease in premiums due and other receivables 31.6 22.8
Increase in policy loans (16.7) (51.9)
Increase in deferred policy acquisition costs (114.7) (89.5)
Decrease in reinsurance loan to affiliate -- 135.7
Net (decrease) increase in universal life account balances (220.5) 176.9
Increase (decrease) in other insurance reserve liabilities 232.1 (148.7)
Decrease in other liabilities and other assets (68.0) (191.3)
(Decrease) increase in income taxes (280.1) 18.7
-------- --------
Net cash (used for) provided by operating activities (321.8) 22.2
-------- --------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 4,017.1 5,680.9
Equity securities 89.9 120.7
Mortgage loans 2.3 0.2
Investment maturities and collections of:
Debt securities available for sale 995.2 1,105.3
Short-term investments 60.6 170.5
Cost of investment purchases in:
Debt securities available for sale (4,805.5) (5,421.9)
Equity securities (9.4) (93.7)
Short-term investments (68.4) (94.4)
Other, net 6.2 88.8
-------- --------
Net cash provided by investing activities 288.0 1,556.4
-------- --------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,576.5 1,144.6
Withdrawals of investment contracts (1,308.4) (1,061.0)
Return of capital from Separate Account -- 1.3
Dividends paid to shareholder (235.8) (9.0)
Other, net 170.4 4.4
-------- --------
Net cash provided by financing activities 202.7 80.3
-------- --------
Net increase in cash and cash equivalents 168.9 1,658.9
Cash and cash equivalents, beginning of period 628.3 577.5
-------- --------
Cash and cash equivalents, end of period $ 797.2 $ 2,236.4
========= =========
Supplemental cash flow information:
Income taxes paid, net $ 315.3 $ 69.3
========= =========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-37
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements
(unaudited)
1) Basis of Presentation
The consolidated financial statements include Aetna Life Insurance and Annuity
Company ("ALIAC") and its wholly owned subsidiaries, Aetna Insurance Company of
America ("AICA") and Aetna Investment Adviser Holding Company, Inc.
(collectively, the "Company"). 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 Aetna Investment Adviser Holding Company,
Inc., and its subsidiaries (collectively, "IA Holdco") to the Company (refer to
Note 2). As a result, 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).
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and are unaudited. 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
financial information to conform to the 1999 presentation. These interim
statements necessarily rely heavily on estimates, including assumptions as to
annualized tax rates. In the opinion of management, all adjustments necessary
for a fair statement of results for the interim periods have been made. All
such adjustments are of a normal, recurring nature. The accompanying condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes as presented in ALIAC's
1998 Annual Report on Form 10-K. Certain financial information that is normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles, but that is not required for interim reporting
purposes, has been condensed or omitted.
2) 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 adviser 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.
F-38
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements (continued)
(unaudited)
3) Discontinued Operations -- Individual Life Insurance
On October 1, 1998, the Company sold its 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. Insurance reserves ceded
as of December 31, 1998 were $2.9 billion. Deferred policy acquisition costs
related to the life policies of $907.9 million were written off against the
gain on the sale. Certain invested assets related to and supporting the life
policies were sold to consummate the life sale and the Company recorded a
reinsurance receivable from Lincoln. The transaction resulted in an after-tax
gain on the sale of approximately $117 million, of which $58 million was
deferred and is being recognized over approximately 15 years (as profits in the
book of business sold emerge). The remaining portion of the gain was recognized
immediately in net income and was largely attributed to the sale of the life
insurance business for access to the agency sales force and brokerage
distribution channel. The unamortized portion of the gain is presented in other
liabilities and deferred taxes on the consolidated balance sheets. Premiums
ceded and reinsurance recoveries made in 1999 totaled $373 million and $304
million, respectively.
4) New Accounting Standard
On 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 statement.
F-39
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements (continued)
(unaudited)
5) Future Accounting Standards
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, with early adoption permitted. The
Company does not expect the adoption of this standard to have a material effect
on its financial position and results of operations.
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
Company is currently evaluating the impact of the adoption of this standard and
the potential effect on its financial position and results of operations.
6) Additional Information -- Accumulated Other Comprehensive (Loss) Income
Changes in accumulated other comprehensive income (loss) related to changes in
unrealized (losses) gains on securities (excluding those related to
experience-rated contractholders) were as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(Millions) 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized holding (losses) gains arising during the period (1) $(120.4) $15.5
Less: reclassification adjustments for amortization of net
investment discounts and gains included in net income (2) 9.9 22.3
- --------------------------------------------------------------------------------------------------
Net unrealized losses on securities $(130.3) $(6.8)
==================================================================================================
</TABLE>
(1) Pretax unrealized holding (losses) gains arising during the period were
$(185.3) million and $23.8 million for 1999 and 1998, respectively.
(2) Pretax reclassification adjustments for amortization of net investment
discounts and gains included in net income were $15.2 million and $34.3
million for 1999 and 1998, respectively.
F-40
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements (continued)
(unaudited)
7) Segment Information
Summarized financial information for the Company's principal operations for the
three and nine months ended September 30, was as follows:
<TABLE>
<CAPTION>
Investment
Three months ended September 30, Financial Management Discontinued
(Millions) Products (1) Services (1) Operations (1) Other (1) Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Revenues from external customers $151.9 $29.8 $ -- $(11.0) $170.7
Net investment income 221.9 .4 -- .9 223.2
- --------------------------------------------------------------------------------------------------------------
Total revenue excluding realized
capital losses $373.8 $30.2 $ -- $(10.1) $393.9
==============================================================================================================
Operating earnings (2) $ 48.0 $ 7.5 $ -- $ (1.7) $ 53.8
Other item (3) -- -- -- (2.6) (2.6)
Realized capital losses, net of tax (7.2) -- -- -- (7.2)
- --------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations 40.8 7.5 -- (4.3) 44.0
Discontinued operations, net of tax:
Deferred gain on sale -- -- 1.4 -- 1.4
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ 40.8 $ 7.5 $ 1.4 $ (4.3) $ 45.4
==============================================================================================================
1998
Revenues from external customers $109.6 $24.5 $ -- $ (9.1) $125.0
Net investment income 217.2 .4 -- 1.2 218.8
- --------------------------------------------------------------------------------------------------------------
Total revenue excluding realized
capital gains $326.8 $24.9 $ -- $ (7.9) $343.8
==============================================================================================================
Operating earnings (2) $ 42.3 $ 6.8 $ -- $ (1.9) $ 47.2
Other item (3) -- -- -- (6.0) (6.0)
Realized capital gains, net of tax 1.7 -- -- -- 1.7
- --------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations 44.0 6.8 -- (7.9) 42.9
Discontinued operations, net of tax:
Income from operations -- -- 24.5 -- 24.5
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ 44.0 $ 6.8 $24.5 $ (7.9) $ 67.4
==============================================================================================================
</TABLE>
(1) Financial Products include deferred and immediate annuity contracts.
Investment Management Services include the following services: investment
advisory, 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 are comprised of net income excluding net realized
capital (losses) gains and any other items.
(3) Other item excluded from operating earnings includes after-tax Year 2000
costs of $2.6 million and $6.0 million in 1999 and 1998, respectively.
F-41
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements (continued)
(unaudited)
7) Segment Information (continued)
<TABLE>
<CAPTION>
Investment
Nine months ended September 30, Financial Management Discontinued
(Millions) Products (1) Services (1) Operations (1) Other (1) Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Revenues from external customers $ 399.1 $86.4 $ -- $ (33.3) $ 452.2
Net investment income 665.2 1.1 -- 2.5 668.8
- -------------------------------------------------------------------------------------------------------------
Total revenue excluding realized
capital losses $1,064.3 $87.5 $ -- $ (30.8) $1,121.0
=============================================================================================================
Operating earnings (2) $ 142.1 $21.1 $ -- $ (5.6) $ 157.6
Other item (3) -- -- -- (13.0) (13.0)
Realized capital losses, net of tax (3.5) -- -- -- (3.5)
- -------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations 138.6 21.1 -- (18.6) 141.1
Discontinued operations, net of tax:
Deferred gain on sale -- -- 4.1 -- 4.1
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $ 138.6 $21.1 $ 4.1 $ (18.6) $ 145.2
=============================================================================================================
1998
Revenues from external customers $ 320.0 $71.1 $ -- $ (26.8) $ 364.3
Net investment income 645.4 1.1 -- 3.4 649.9
- -------------------------------------------------------------------------------------------------------------
Total revenue excluding realized
capital gains $ 965.4 $72.2 $ -- $ (23.4) $1,014.2
=============================================================================================================
Operating earnings (2) $ 120.9 $18.1 $ -- $ (5.2) $ 133.8
Other item (3) -- -- -- (15.6) (15.6)
Realized capital gains, net of tax 6.1 -- -- -- 6.1
- -------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations 127.0 18.1 -- (20.8) 124.3
Discontinued operations, net of tax:
Income from operations -- -- 61.8 -- 61.8
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $ 127.0 $18.1 $61.8 $ (20.8) $ 186.1
=============================================================================================================
</TABLE>
(1) Financial Products include deferred and immediate annuity contracts.
Investment Management Services include the following services: investment
advisory, 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 are comprised of net income excluding net realized
capital (losses) gains and any other items.
(3) Other item excluded from operating earnings includes after-tax Year 2000
costs of $13.0 million and $15.6 million in 1999 and 1998, respectively.
F-42
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements (continued)
(unaudited)
8) 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. As of September 30, 1999, the Company had
commitments to purchase investments of $307.8 million. The fair value at
September 30, 1999 of the investments to be purchased approximated $308.3
million.
Litigation
The Company is involved in numerous lawsuits arising, for the most part, in the
ordinary course of its business operations. While the ultimate outcome of
litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related reserves
established, and after consultation with counsel, 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.
9) Dividends
During 1999, the Company paid $235.8 million in dividends to HOLDCO, of which
$206.0 million was accrued for in 1998.
On October 12, 1999, a distribution was declared in an amount up to $20.2
million, payable by no later than December 31, 1999 to HOLDCO.
F-43
<PAGE>
Form No. SAI. 87305-99-1 ALIAC Ed. February 2000
<PAGE>
VARIABLE ANNUITY ACCOUNT B
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A:
Condensed Financial Information
(2) Included in Part B:
Financial Statements of Variable Annuity Account B:
- Statement of Assets and Liabilities as of
December 31, 1998
- Statements of Operations and Changes in Net Assets for the
years ended December 31, 1998 and 1997
- Condensed Financial Information for the year ended
December 31, 1998
- Notes to Financial Statements
- Independent Auditors' Report
- Statement of Assets and Liabilities as of
September 30, 1999 (unaudited)
- Statements of Operations and Changes in Net Assets for the
Nine Month Periods Ended September 30, 1999 and
September 30, 1998 (unaudited)
- Condensed Financial Information for the Nine Month Period
Ended September 30, 1999 (unaudited)
- Notes to Financial Statements (unaudited)
Financial Statements of the Depositor:
- Independent Auditors' Report
- Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996
- Consolidated Balance Sheets as of December 31, 1998 and
1997
- Consolidated Statements of Changes in Shareholder's Equity
for the years ended December 31, 1998, 1997 and 1996
- Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
- Notes to Consolidated Financial Statements
- Consolidated Statements of Income for the Three-Month and
Nine-Month Periods Ended September 30, 1999 and 1998
(unaudited)
- Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998
- Consolidated Statements of Changes in Shareholder's Equity
for the Nine Month Periods Ended September 30, 1999 and
1998 (unaudited)
- Consolidated Statements of Cash Flows for the Nine Month
Periods Ended September 30, 1999 and 1998 (unaudited)
- Condensed Notes to Consolidated Financial Statements
(unaudited)
(b) Exhibits
(1) Resolution of the Board of Directors of Aetna Life
Insurance and Annuity Company establishing Variable
Annuity Account B(1)
(2) Not applicable
(3.1) Broker-Dealer Agreement(2)
<PAGE>
(3.2) Alternative Form of Wholesaling Agreement and Related
Selling Agreement(3)
(4.1) Variable Annuity Contract GM-VA-99(PB)(4)
(4.2) Variable Annuity Contract Certificate GMC-VA-99(PB)(4)
(4.3) Endorsement EM-ROTH-99(PB) to Contract GM-VA-99(PB) and
Certificate GMC-VA-99(PB)(4)
(4.4) Endorsement EM-IRA-99(PB) to Contract GM-VA-99(PB) and
Certificate GMC-VA-99(PB)(4)
(4.5) Endorsement EM-TDA-99(PB) to Contract GM-VA-99 and
Certificate GMC-VA-99(PB)(4)
(4.6) Endorsement EGET-00 to Contract GM-VA-99 and Certificate
GMC-VA-99(PB)(4)
(5) Not applicable
(6.1) Certificate of Incorporation of Aetna Life Insurance and
Annuity Company(5)
(6.2) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(6)
(6.3) By-Laws as amended September 17, 1997 of Aetna Life
Insurance and Annuity Company(7)
(7) Not applicable
(8.1) Fund Participation Agreement between Aetna Life
Insurance and Annuity Company and AIM dated June 30,
1998(8)
(8.2) Service Agreement between Aetna Life Insurance and
Annuity Company and AIM effective June 30, 1998(8)
(8.3) Fund Participation Agreement by and among Aetna Life
Insurance and Annuity Company and Aetna Variable Fund,
Aetna Variable Encore Fund, Aetna Income Shares, Aetna
Balanced VP, Inc., Aetna GET Fund on behalf of each of
its series, Aetna Generation Portfolios, Inc. on behalf
of each of its series, Aetna Variable Portfolios, Inc.
on behalf of each of its series, and Aeltus Investment
Management, Inc. dated as of May 1, 1998(2)
(8.4) Amendment dated November 9, 1998 to Fund Participation
Agreement by and among Aetna Life Insurance and Annuity
Company and Aetna Variable Fund, Aetna Variable Encore
Fund, Aetna Income Shares, Aetna Balanced VP, Inc.,
Aetna GET Fund on behalf of each of its series, Aetna
Generation Portfolios, Inc. on behalf of each of its
series, Aetna Variable Portfolios, Inc. on behalf of
each of its series, and Aeltus Investment Management,
Inc. dated as of May 1, 1998(9)
(8.5) Service Agreement between Aeltus Investment Management,
Inc. and Aetna Life Insurance and Annuity Company in
connection with the sale of shares of Aetna Variable
Fund, Aetna Variable Encore Fund, Aetna Income Shares,
Aetna Balanced VP, Inc., Aetna GET Fund on behalf of
<PAGE>
each of its series, Aetna Generation Portfolios, Inc. on
behalf of each of its series, and Aetna Variable
Portfolios, Inc. on behalf of each of its series dated
as of May 1, 1998(2)
(8.6) Amendment dated November 4, 1998 to Service Agreement
between Aeltus Investment Management, Inc. and Aetna
Life Insurance and Annuity Company in connection with
the sale of shares of Aetna Variable Fund, Aetna
Variable Encore Fund, Aetna Income Shares, Aetna
Balanced VP, Inc., Aetna GET Fund on behalf of each of
its series, Aetna Generation Portfolios, Inc. on behalf
of each of its series and Aetna Variable Portfolios,
Inc. on behalf of each of its series dated as of May 1,
1998(9)
(8.7) Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance
Products Fund and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15, 1994,
February 1, 1995, May 1, 1995, January 1, 1996 and March
1, 1996(6)
(8.8) Fifth Amendment dated as of May 1, 1997 to the Fund
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund and
Fidelity Distributors Corporation dated February 1, 1994
and amended on December 15, 1994, February 1, 1995, May
1, 1995, January 1, 1996 and March 1, 1996(10)
(8.9) Sixth Amendment dated November 6, 1997 to the Fund
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund and
Fidelity Distributors Corporation dated February 1, 1994
and amended on December 15, 1994, February 1, 1995, May
1, 1995, January 1, 1996, March 1, 1996 and May 1,
1997(11)
(8.10) Seventh Amendment dated as of May 1, 1998 to the Fund
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund and
Fidelity Distributors Corporation dated February 1, 1994
and amended on December 15, 1994, February 1, 1995, May
1, 1995, January 1, 1996, March 1, 1996, May 1, 1997 and
November 6, 1997(2)
(8.11) Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance
Products Fund II and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15, 1994,
February 1, 1995, May 1, 1995, January 1, 1996 and March
1, 1996(6)
(8.12) Fifth Amendment, dated as of May 1, 1997, to the Fund
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund II and
Fidelity Distributors Corporation dated February 1, 1994
and amended on December 15, 1994, February 1, 1995, May
1, 1995, January 1, 1996 and March 1, 1996(10)
(8.13) Sixth Amendment dated as of January 20, 1998 to the Fund
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund II and
Fidelity Distributors Corporation
<PAGE>
dated February 1, 1994 and amended on December 15, 1994,
February 1, 1995, May 1, 1995, January 1, 1996, March 1,
1996 and May 1, 1997(12)
(8.14) Seventh Amendment dated as of May 1, 1998 to the Fund
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund II and
Fidelity Distributors Corporation dated February 1, 1994
and amended on December 15, 1994, February 1, 1995, May
1, 1995, January 1, 1996, March 1, 1996, May 1, 1997 and
January 20, 1998(2)
(8.15) Service Agreement between Aetna Life Insurance and
Annuity Company and Fidelity Investments Institutional
Operations Company dated as of November 1, 1995(13)
(8.16) Amendment dated January 1, 1997 to Service Agreement
between Aetna Life Insurance and Annuity Company and
Fidelity Investments Institutional Operations Company
dated as of November 1, 1995(10)
(8.17) Service Contract between Fidelity Distributors
Corporation and Aetna Life Insurance and Annuity Company
dated May 2, 1997(9)
(8.18) Fund Participation Agreement among Janus Aspen Series
and Aetna Life Insurance and Annuity Company and Janus
Capital Corporation dated December 8, 1997(14)
(8.19) Amendment dated October 12, 1998 to Fund Participation
Agreement among Janus Aspen Series and Aetna Life
Insurance and Annuity Company and Janus Capital
Corporation dated December 8, 1997(9)
(8.20) Service Agreement between Janus Capital Corporation and
Aetna Life Insurance and Annuity Company dated December
8, 1997(14)
(8.21) Fund Participation Agreement among MFS Variable
Insurance Trust, Aetna Life Insurance and Annuity
Company and Massachusetts Financial Services Company
dated April 30, 1996, and amended on September 3, 1996,
March 14, 1997 and November 28, 1997(2)
(8.22) Fourth Amendment dated May 1, 1998 to the Fund
Participation Agreement by and among MFS Variable
Insurance Trust, Aetna Life Insurance and Annuity
Company and Massachusetts Financial Services Company
dated April 30, 1996, and amended on September 3, 1996,
March 14, 1997 and November 28, 1997(8)
(8.23) Fifth Amendment dated May 1, 1998 to Fund Participation
Agreement by and among MFS Variable Insurance Trust,
Aetna Life Insurance and Annuity Company and
Massachusetts Financial Services Company dated April 30,
1996, and amended on September 3, 1996, March 14, 1997
and November 28, 1997(15)
(8.24) Fifth Amendment dated July 1, 1999 to Fund Participation
Agreement by and among MFS Variable Insurance Trust,
Aetna Life Insurance and Annuity Company and
Massachusetts Financial Services Company dated
<PAGE>
April 30, 1996, and amended on September 3, 1996, March
14, 1997, November 28, 1997 and May 1, 1998(16)
(8.25) Fund Participation Agreement dated May 1, 1999 between
Aetna Life Insurance and Annuity Company, Mitchell
Hutchins Series Trust, and Mitchell Hutchins Asset
Management, Inc.(17)
(8.26) Service Agreement dated May 1, 1999 between Mitchell
Hutchins Asset Management, Inc. and Aetna Life Insurance
and Annuity Company(17)
(8.27) Fund Participation Agreement dated March 11, 1997
between Aetna Life Insurance and Annuity Company and
Oppenheimer Variable Annuity Account Funds and
Oppenheimer Funds, Inc.(18)
(8.28) Service Agreement effective as of March 11, 1997 between
Oppenheimer Funds, Inc. and Aetna Life Insurance and
Annuity Company(18)
(9) Opinion and Consent of Counsel
(10) Consent of Independent Auditors
(11) Not applicable
(12) Not applicable
(13) Schedule for Computation of Performance Data(14)
(14.1) Powers of Attorney(19)
(14.2) Authorization for Signatures(3)
1. Incorporated by reference to Post-Effective Amendment No. 6 to Registration
Statement on Form N-4 (File No. 33-75986), as filed on April 22, 1996.
2. Incorporated by reference to Registration Statement on Form N-4 (File No.
333-56297), as filed on June 8, 1998.
3. Incorporated by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-4 (File No. 33-75986), as filed on April 12, 1996.
4. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 333-87305), as filed on December 13, 1999.
5. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-60477), as filed on April 15, 1996.
6. Incorporated by reference to Post-Effective Amendment No. 12 to Registration
Statement on Form N-4 (File No. 33-75964), as filed on February 11, 1997.
7. Incorporated by reference to Post-Effective Amendment No. 12 to Registration
Statement on Form N-4 (File No. 33-91846), as filed on October 30, 1997.
8. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 333-56297), as filed on August 4, 1998.
9. Incorporated by reference to Post-Effective Amendment No. 2 to Registration
Statement on Form N-4 (File No. 333-56297), as filed on December 14, 1998.
10. Incorporated by reference to Post-Effective Amendment No. 30 to Registration
Statement on Form N-4 (File No. 33-34370), as filed on September 29, 1997.
11. Incorporated by reference to Post-Effective Amendment No. 16 to Registration
Statement on Form N-4 (File No. 33-75964), as filed on February 9, 1998.
<PAGE>
12. Incorporated by Reference to Post-Effective Amendment No. 7 to Registration
Statement on Form S-6 (File No. 33-75248), as filed on February 24, 1998.
13. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-88720), as filed on June 28, 1996.
14. Incorporated by reference to Post-Effective Amendment No. 10 to Registration
Statement on Form N-4 (File No. 33-75992), as filed on December 31, 1997.
15. Incorporated by reference to Post-Effective Amendment No. 4 to Registration
Statement on Form N-4 (File No. 333-56297), as filed on February 16, 1999.
16. Incorporated by reference to Post Effective Amendment No. 11 to Registration
Statement on Form N-4 (File No. 333-56297), as filed on November 23, 1999.
17. Incorporated by reference to Post-Effective Amendment No. 8 to Registration
Statement on Form N-4 (File No. 333-56297), as filed on June 25, 1999.
18. Incorporated by reference to Post-Effective Amendment No. 27 to Registration
Statement on Form N-4 (File No. 33-34370), as filed on April 16, 1997.
19. Incorporated by reference to Registration Statement on Form N-4 (File No.
333-87305), as filed on September 17, 1999.
<PAGE>
Item 25. Directors and Officers of the Depositor
- ------------------------------------------------
<TABLE>
<CAPTION>
Name and Principal
Business Address* Positions and Offices with Depositor
- ------------------ ------------------------------------
<S> <C>
Thomas J. McInerney Director and President
Shaun P. Mathews Director and Senior Vice President
Catherine H. Smith Director, Chief Financial Officer and Senior Vice
President
Deborah Koltenuk Vice President, Corporate Controller, and Assistant
Treasurer
Therese M. Squillacote Vice President and Chief Compliance Officer
Kirk P. Wickman Senior Vice President, General Counsel and Corporate
Secretary
</TABLE>
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
Item 26. Persons Controlled by or Under Common Control with the
Depositor or Registrant
- ---------------------------------------------------------------
Incorporated herein by reference to Item 26 of Registration Statement on
Form N-4 (File No. 333-56297), as filed on November 23, 1999.
Item 27. Number of Contract Owners
- ----------------------------------
As of December 31, 1999, there were 96,223 individuals holding interests in
variable annuity contracts funded through Variable Annuity Account B.
Item 28. Indemnification
- ------------------------
Section 21 of Public Act No. 97-246 of the Connecticut General Assembly (the
"Act") provides that a corporation may provide indemnification of or advance
expenses to a director, officer, employee or agent only as permitted by Sections
33-770 to 33-778, inclusive, of the Connecticut General Statutes, as amended by
Sections 12 to 20, inclusive, of this Act. Reference is hereby made to Section
33-771(e) of the Connecticut General Statutes ("CGS") regarding indemnification
of directors and Section 33-776(d) of CGS regarding indemnification of officers,
employees and agents of Connecticut corporations. These statutes provide in
general that Connecticut corporations incorporated prior to January 1, 1997
shall, except to the extent that their certificate of incorporation expressly
provides otherwise, indemnify their directors, officers, employees and agents
against "liability" (defined as the obligation to pay a judgment, settlement,
penalty, fine, including an excise tax assessed with respect to an employee
benefit plan, or
<PAGE>
reasonable expenses incurred with respect to a proceeding) when (1) a
determination is made pursuant to Section 33-775 that the party seeking
indemnification has met the standard of conduct set forth in Section 33-771 or
(2) a court has determined that indemnification is appropriate pursuant to
Section 33-774. Under Section 33-775, the determination of and the authorization
for indemnification are made (a) by the disinterested directors, as defined in
Section 33-770(3); (b) by special counsel; (c) by the shareholders; or (d) in
the case of indemnification of an officer, agent or employee of the corporation,
by the general counsel of the corporation or such other officer(s) as the board
of directors may specify. Also, Section 33-772 provides that a corporation shall
indemnify an individual who was wholly successful on the merits or otherwise
against reasonable expenses incurred by him in connection with a proceeding to
which he was a party because he was a director of the corporation. Pursuant to
Section 33-771(d), in the case of a proceeding by or in the right of the
corporation or with respect to conduct for which the director, officer, agent or
employee was adjudged liable on the basis that he received a financial benefit
to which he was not entitled, indemnification is limited to reasonable expenses
incurred in connection with the proceeding against the corporation to which the
individual was named a party.
The statute does specifically authorize a corporation to procure indemnification
insurance on behalf of an individual who was a director, officer, employer or
agent of the corporation. Consistent with the statute, Aetna Inc. has procured
insurance from Lloyd's of London and several major United States and
international excess insurers for its directors and officers and the directors
and officers of its subsidiaries, including the Depositor.
Item 29. Principal Underwriter
- ------------------------------
(a) In addition to serving as the principal underwriter and depositor for
the Registrant, Aetna Life Insurance and Annuity Company (Aetna) also
acts as the principal underwriter, only, for Aetna Variable Encore
Fund, Aetna Variable Fund, Aetna Generation Portfolios, Inc., Aetna
Income Shares, Aetna Balanced VP, Inc. (formerly Aetna Investment
Advisers Fund, Inc.), Aetna GET Fund, and Aetna Variable Portfolios,
Inc. and as the principal underwriter and investment adviser for
Portfolio Partners, Inc. (all management investment companies
registered under the Investment Company Act of 1940 (1940 Act)).
Additionally, Aetna acts as the principal underwriter and depositor for
Variable Life Account B of Aetna, Variable Annuity Account C of Aetna
and Variable Annuity Account G of Aetna (separate accounts of Aetna
registered as unit investment trusts under the 1940 Act). Aetna is also
the principal underwriter for Variable Annuity Account I of Aetna
Insurance Company of America (AICA) (a separate account of ALIAC
registered as a unit investment trust under the 1940 Act).
(b) See Item 25 regarding the Depositor.
<PAGE>
(c) Compensation as of December 31, 1998:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation
Principal Discounts and on Redemption Brokerage
Underwriter Commissions or Annuitization Commissions Compensation*
- ----------- ----------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Aetna Life $684,000 $42,930,000
Insurance and
Annuity Company
</TABLE>
* Compensation shown in column 5 includes deductions for mortality and
expense risk guarantees and contract charges assessed to cover costs
incurred in the sales and administration of the contracts issued under
Variable Annuity Account B.
Item 30. Location of Accounts and Records
- -----------------------------------------
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules under it relating to the securities
described in and issued under this Registration Statement are located at the
home office of the Depositor as follows:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Item 31. Management Services
- ----------------------------
Not applicable
Item 32. Undertakings
- ---------------------
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement on
Form N-4 as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than
sixteen months old for as long as payments under the variable annuity
contracts may be accepted;
(b) to include as part of any application to purchase a contract offered by
a prospectus which is part of this registration statement on Form N-4,
a space that an applicant can check to request a Statement of
Additional Information; and
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
<PAGE>
(d) The Company hereby represents that it is relying upon and will comply
with the provisions of Paragraphs (1) through (4) of the SEC Staff's
No-Action Letter dated November 28, 1988 with respect to language
concerning withdrawal restrictions applicable to plans established
pursuant to Section 403(b) of the Internal Revenue Code. See American
Counsel of Life Insurance; SEC No-Action Letter, [1988 WL 235221, *13
(S.E.C.)].
(e) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(f) Aetna Life Insurance and Annuity Company represents that the fees and
charges deducted under the contracts covered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed
by the insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Variable Annuity Account B of Aetna Life Insurance and
Annuity Company, certifies that it meets the requirements of Securities Act Rule
485(b) for effectiveness of this Post-Effective Amendment to its Registration
Statement on Form N-4 (File No. 333-87305 ) and has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hartford, State of Connecticut, on the
7th day of February, 2000.
VARIABLE ANNUITY ACCOUNT B OF AETNA
LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)
By: AETNA LIFE INSURANCE AND ANNUITY
COMPANY
(Depositor)
By: Thomas J. McInerney*
------------------------------------
Thomas J. McInerney
President
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 2 to the Registration Statement on Form N-4 (File No. 333-87305 ) has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ---- ----
<S> <C> <C>>
Thomas J. McInerney* Director and President )
- ------------------------------------- (principal executive officer) )
Thomas J. McInerney )
)
Shaun P. Mathews* Director ) February
- ------------------------------------- ) 7, 2000
Shaun P. Mathews )
)
Catherine H. Smith* Director and Chief Financial Officer )
- ------------------------------------- )
Catherine H. Smith )
)
Deborah Koltenuk* Vice President, Corporate Controller, and )
- ------------------------------------- Assistant Treasurer )
Deborah Koltenuk )
</TABLE>
By: /s/ J. Neil McMurdie
----------------------------
J. Neil McMurdie
*Attorney-in-Fact
<PAGE>
VARIABLE ANNUITY ACCOUNT B
Exhibit Index
Exhibit No. Exhibit
99-B.9 Opinion and Consent of Counsel ____________
99-B.10 Consent of Independent Auditors ____________
[Aetna Letterhead]
[Aetna Logo]
Aetna, Inc.
151 Farmington Avenue
Hartford, CT 06156-8975
Julie E. Rockmore
Counsel
AFS Law, TS31
(860) 273-4686
February 7, 2000 Fax: (860) 273-0385
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Filing Desk
Re: Aetna Life Insurance and Annuity Company and its Variable Annuity Account B
Post-Effective Amendment No. 2 to Registration Statement on Form N-4
File Nos.: 333-87305 and 811-02512
Gentlemen:
The undersigned serves as counsel to Aetna Life Insurance and Annuity Company, a
Connecticut life insurance company (the "Company"). It is my understanding that
the Company, as depositor, has registered an indefinite amount of securities
(the "Securities") under the Securities Act of 1933 (the "Securities Act") as
provided in Rule 24f-2 under the Investment Company Act of 1940 (the "Investment
Company Act").
In connection with this opinion, I or those for whom I have supervisory
responsibility, have reviewed the N-4 Registration Statement, as amended to the
date hereof, and this Post-Effective Amendment No. 2. I have also examined
originals or copies, certified or otherwise identified to my satisfaction, of
such documents, trust records and other instruments I have deemed necessary or
appropriate for the purpose of rendering this opinion. For purposes of such
examination, I have assumed the genuineness of all signatures on original
documents and the conformity to the original of all copies.
I am admitted to practice law in Connecticut, and do not purport to be an expert
on the laws of any other state. My opinion herein as to any other law is based
upon a limited inquiry thereof which I have deemed appropriate under the
circumstances.
Based upon the foregoing, and, assuming the Securities are sold in accordance
with the provisions of the prospectus, I am of the opinion that the Securities
being registered will be legally issued and will represent binding obligations
of the Company.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Julie E. Rockmore
- ---------------------
Julie E. Rockmore
Exhibit 99-B.10
Consent of Independent Auditors
The Board of Directors of Aetna Life Insurance and Annuity Company
and Contractholders of Aetna Variable Annuity Account B:
We consent to the use of our report dated February 26, 1999, relating to the
financial statements of the Aetna Variable Annuity Account B and our report
dated February 3, 1999, relating to the consolidated financial statements of
Aetna Life Insurance and Annuity Company, which are included in this
Registration Statement on Form N-4 (File No. 333-87305) and to the references to
our firm under the headings "Independent Auditors" in the Statement of
Additional Information and "Condensed Financial Information" in the Prospectus.
/s/ KPMG LLP
Hartford, Connecticut
February 7, 2000
