As filed with the Securities and Exchange Registration No. 33-75998
Commission on April 12, 2000 Registration No. 811-2512
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
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POST-EFFECTIVE AMENDMENT NO. 14 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment to
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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Variable Annuity Account B of Aetna Life Insurance and Annuity Company
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, 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)
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It is proposed that this filing will become effective:
------ immediately upon filing pursuant to paragraph (b) of Rule 485
X
------ on May 1, 2000 pursuant to paragraph (b) of Rule 485
<PAGE>
VARIABLE ANNUITY ACCOUNT B
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-4 LOCATION - PROSPECTUS
ITEM NO. PART A (PROSPECTUS) DATED MAY 1, 2000
<S> <C> <C>
1 Cover Page.......................... Cover Page
2 Definitions......................... Not Applicable
3 Synopsis............................ Contract Overview; Fee Table
4 Condensed Financial Information..... Condensed Financial
Information; Appendix III -
Condensed Financial Information
General Description of Registrant,
5 Depositor, and Portfolio Companies.. Other Topics - The Company;
Variable Annuity Account B;
Appendix II - Description of
Underlying Funds
6 Deductions.......................... Fees
General Description of Variable
7 Annuity Contracts................... Contract Overview; Other Topics
8 Annuity Period...................... The Income Phase
9 Death Benefit....................... Death Benefit
10 Purchases and Contract Value........ Purchase and Rights; Your
Account Value
11 Redemptions......................... Right to Cancel
12 Taxes............................... Taxation
13 Legal Proceedings................... Other Topics - Legal Matters
and Proceedings
Table of Contents of the Statement of
14 Additional Information.............. Contents of the Statement of
Additional Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION - STATEMENT OF
FORM N-4 PART B (STATEMENT OF ADDITIONAL ADDITIONAL INFORMATION DATED
ITEM NO. INFORMATION) MAY 1, 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
Contracts
20 Underwriters........................ Offering and Purchase of
Contracts
21 Calculation of Performance Data..... Performance Data; Average
Annual Total Return Quotations
22 Annuity Payments.................... Income Phase Payments
23 Financial Statements................ Financial Statements of the
Separate Account
</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>
Prospectus - May 1, 2000
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The Funds
Aetna Ascent VP
Aetna Balanced VP, Inc.
Aetna Income Shares d/b/a Aetna Bond VP
Aetna Crossroads VP
Aetna Variable Fund d/b/a Aetna Growth and Income VP
Aetna Legacy VP
Aetna Variable Encore Fund d/b/a Aetna Money Market VP
Aetna Technology VP
Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio
Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio
Fidelity Variable Insurance Products Fund (VIP) Overseas Portfolio
Fidelity Variable Insurance Products Fund II (VIP II) Contrafund[RegTM]
Portfolio
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Flexible Income Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (formerly
PPI MFS Value Equity Portfolio)
Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio
Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio
Portfolio Partners, Inc. (PPI) Scudder International Growth Portfolio
Portfolio Partners, Inc. (PPI) T. Rowe Price Growth Equity Portfolio
The Contract. The contracts described in this prospectus are individual non-
qualified deferred variable annuity contracts issued by Aetna Life Insurance
and Annuity Company (the Company, we, us, our). They are intended to provide
retirement benefits to individuals who either are not participating in a formal
retirement plan or are participating in a formal retirement plan but want to
supplement their benefits.
- --------------------------------------------------------------------------------
Why Reading this Prospectus Is Important. This prospectus contains facts about
the contracts and their investment options you should know before purchasing.
This information will help you decide if the contracts are right for you.
Please read this prospectus carefully.
Table of Contents . . . page 3
- --------------------------------------------------------------------------------
Investment Options. The contracts offer variable investment options and a fixed
interest option. When we establish your account, you instruct us to direct your
account dollars to any of the available investment options.
Variable Investment Options. These options are called subaccounts. The
subaccounts are within Variable Annuity Account B (the separate account), a
separate account of the Company. Each subaccount invests in one of the mutual
funds listed on this page. Earnings on amounts invested in a subaccount will
vary depending upon the performance of its underlying mutual fund. You do not
invest directly in or hold shares of the funds.
Risks Associated with Investing in the Funds. The funds in which the
subaccounts invest have various risks. Information about the risks of investing
in the funds is located in the "Investment Options" section on page 10, in
Appendix II--Description of Underlying Funds, and in each fund prospectus.
Read this prospectus in conjunction with the fund prospectuses, and retain the
prospectuses for future reference.
Getting Additional Information. You may obtain the May 1, 2000 Statement of
Additional Information (SAI) by indicating your request on your application or
calling us at 1-800-262-3862. You may also obtain an SAI for any of the funds
by calling that number. The Securities and Exchange Commission (SEC) also makes
available to the public reports and information about the separate account and
the funds. Certain reports and information, including this prospectus and SAI,
are available on the EDGAR Database on the SEC's web site, www.sec.gov, or at
the SEC's Public Reference Room in Washington, D.C. You may call 1-202-942-8090
to get information about the operations of the public reference room. You may
obtain copies of reports and other information about the separate account and
the funds, after paying a duplicating fee, by sending an e-mail request to:
[email protected], or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102. The SAI table of contents is listed on page 36 of
this prospectus. The SAI is incorporated into this prospectus by reference.
Additional Disclosure Information. Neither the SEC nor any state securities
commission has approved or disapproved the securities offered through this
prospectus or passed on the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense. We do not intend for this
prospectus to be an offer to sell or a solicitation of an offer to buy these
securities in any state that does not permit their sale. We have not authorized
anyone to provide you with information that is different from that contained in
this prospectus.
<PAGE>
Prospectus - May 1, 2000 (continued)
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Fixed Interest Option.
> Fixed Account
Except as specifically mentioned, this prospectus describes only the variable
investment options. However, we describe the Fixed Account in Appendix I of
this prospectus.
These contracts are not deposits with, obligations of or guaranteed or endorsed
by any bank, nor are they insured by the FDIC. The contracts are subject to
investment risk, including the possible loss of the principal amount invested.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Contract Overview ....................................................... 4
Contract Design
Contract Facts
Questions: Contacting the Company (sidebar)
Sending Forms and Written Requests in Good Order (sidebar)
Contract Phases: The Accumulation Phase, The Income Phase
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Fee Table .......................................................... 6
Condensed Financial Information .................................... 10
Investment Options ................................................. 10
Transfers Among Investment Options ................................. 12
Purchase and Rights ................................................ 13
Right to Cancel .................................................... 13
Fees ............................................................... 15
Your Account Value ................................................. 17
Withdrawals ........................................................ 20
Systematic Distribution Options .................................... 21
Death Benefit ...................................................... 22
The Income Phase ................................................... 24
Taxation ........................................................... 28
Other Topics ....................................................... 32
</TABLE>
The Company -- Variable Annuity Account B -- Contract Distribution -- Payment
Delay or Suspension -- Performance Reporting -- Voting Rights -- Contract
Modification -- Transfer of Ownership: Assignment -- Legal Matters and
Proceedings
<TABLE>
<S> <C>
Contents of the Statement of Additional Information ......... 36
Appendix I -- Fixed Account ................................. 37
Appendix II -- Description of Underlying Funds .............. 38
Appendix III -- Condensed Financial Information ............. 52
</TABLE>
3
<PAGE>
Questions: Contacting the Company. To answer your questions, contact your sales
representative or write or call our Home Office:
Aetna Financial Services
Annuity Services
151 Farmington Avenue
Hartford, CT 06156-1258
1-800-262-3862
Sending Forms and Written Requests in Good Order.
If you are writing to change your beneficiary, request a withdrawal, or for any
other purpose, contact us or your sales representative to learn what
information is required for the request to be in "good order." We can only act
upon requests that are received in good order.
Contract Overview
- --------------------------------------------------------------------------------
The following summarizes contract information. Read each section of this
prospectus for additional information.
- --------------------------------------------------------------------------------
Contract Design
- --------------------------------------------------------------------------------
The contracts described in this prospectus are individual variable annuity
contracts. They are intended as a retirement savings vehicle that defers taxes
on investment earnings and offers a variety of investment options to help meet
long-term financial goals.
- --------------------------------------------------------------------------------
Contract Facts
- --------------------------------------------------------------------------------
Free Look/Right to Cancel: You may cancel your contract within ten days (some
states may require more than ten days) of receipt. See "Right to Cancel."
Death Benefit: Your beneficiary may receive a financial benefit in the event of
your death prior to the income phase. Any death benefit during the income phase
will depend on the income phase payment option selected. See "Death Benefit"
and "The Income Phase."
Withdrawals: During the accumulation phase you may withdraw all or part of your
account value. Certain fees, taxes and early withdrawal penalties may apply.
See "Withdrawals."
Systematic Distribution Options: These are made available for you to receive
periodic withdrawals from your account, while retaining the account in the
accumulation phase. See "Systematic Distribution Options."
Fees and Expenses: Certain fees and expenses are deducted from the value of
your contract. See "Fee Table" and "Fees."
Taxation: You will generally not pay taxes on any earnings from the annuity
contract described in this prospectus until they are withdrawn. Taxes will
generally be due when you receive a distribution. Tax penalties may apply in
some circumstances. See "Taxation."
4
<PAGE>
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Contract Phases
I. The Accumulation Phase (accumulating dollars under your contract)
------------------
Payments to
Your Account
------------------
Step 1
---------------------------------------------------
Aetna Life Insurance and Annuity Company
---------------------------------------------------
(a) Step 2 (b)
- --------- ---------------------------------------------------
Variable Annuity
Fixed Account B
Interest
Options Variable Investment Options
- ---------
---------------------------------------------------
The Subaccounts
---------------------------------------------------
A B Etc.
---------------------------------------------------
Step 3
---------------------
Mutual Mutual
Fund A Fund B
---------------------
STEP 1: You provide us with your completed application and initial purchase
payment. We establish an account for you and credit that account with your
initial purchase payment.
STEP 2: You direct us to invest your purchase payment in one or more of the
following investment options:
(a) Fixed Interest Option
(b) Variable Investment Options. (The variable investment options are the
subaccounts of Variable Annuity Account B. Each one invests in a specific
mutual fund.)
STEP 3: Each subaccount you select purchases shares of its assigned fund.
II. The Income Phase (receiving income phase payments from your contract). When
you want to begin receiving payments from your contract, you may select
from the options available. The contract offers several income phase
payment options (see "The Income Phase"). In general, you may:
> Receive income phase payments for a specified period of time or for life;
> Receive income phase payments monthly, quarterly, semi-annually or annually;
> Select an income phase payment option that provides for payments to your
beneficiary; or
> Select income phase payments that are fixed or that vary depending on the
performance of the variable investment options you select.
5
<PAGE>
In This Section:
> Maximum Transaction Fees
> Maximum Fees Deducted from Investments in the Separate Account
> Fees Deducted by the Funds
> Hypothetical Examples
Also See "Fees" for:
> How, When and Why Fees are Deducted
> Reduction, Waiver and/or Elimination of Certain Fees
> Premium and Other Taxes
Fee Table
- --------------------------------------------------------------------------------
The tables and examples in this section show the fees that may affect your
account value during the accumulation phase. See "The Income Phase" for fees
that may apply after you begin receiving income phase payments under the
contract. The fees shown below do not reflect any premium tax that may apply.
Maximum Transaction Fees
Early Withdrawal Charge. (As a percentage of the amount withdrawn.)(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Schedule A -- Installment Purchase Payment Contracts
- --------------------------------------------------------------------------------
Completed Payment Periods Early Withdrawal Charge
- ----------------------------- ------------------------
<S> <C>
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
10 or more 0%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Schedule B -- Single Purchase Payment Contracts (2)
- --------------------------------------------------------------------------------
Completed Contract Years Early Withdrawal Charge
- ---------------------------- ------------------------
<S> <C>
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
- --------------------------------------------------------------------------------
</TABLE>
Annual Maintenance Fee................................................$20.003
Maximum Fees Deducted from Investments in the Separate Account
(Daily deductions equal to the given percentage on an annual basis.)
Mortality and Expense Risk Charge.................................... 1.25%
Administrative Expense Charge.................................. 0.00%-0.25%(4)
----------
Total Separate Account Expenses................................ 1.25%-1.50%
==========
(1) The total early withdrawal charge deducted will not exceed 8.5% of the total
purchase payments made to a contract.
(2) Schedule B also may apply to certain older contracts that accept more than
one purchase payment. Check your contract to determine which early
withdrawal charge schedule applies to you.
(3) The annual maintenance fee is generally deducted only from installment
purchase payment contracts. Under certain contracts, the annual maintenance
fee may also be deducted upon full withdrawals. See "Fees--Annual
Maintenance Fee."
(4) We currently do not impose this charge, however, if allowed by your
contract, we reserve the right to charge up to 0.25% annually. See "Fees--
Administrative Expense Charge."
6
<PAGE>
Fees Deducted by the Funds
Using this Information. The following table shows the investment advisory fees
and other expenses charged annually by each fund. Fund fees are one factor that
impacts the value of a fund share. To learn about additional factors impacting
the share value, refer to the fund prospectus.
How Fees are Deducted. Fund fees are not deducted from account values. Instead,
they are deducted from the value of the fund shares on a daily basis, which in
turn affects the value of each subaccount that purchases fund shares. Except as
noted below, the following figures are a percentage of the average net assets
of each fund, and are based on figures for the year ended December 31, 1999.
Fund Expense Table
<TABLE>
<CAPTION>
Total Fund Net Fund
Annual Annual
Expenses Expenses
Investment Without Total After
Advisory Other Waivers or Waivers and Waivers or
Fund Name Fees(1) Expenses Reductions Reductions Reductions
- ------------------------------------------------ ------------ ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP(2) 0.60% 0.14% 0.74% 0.00% 0.74%
Aetna Balanced VP, Inc. 0.50% 0.09% 0.59% -- 0.59%
Aetna Bond VP 0.40% 0.09% 0.49% -- 0.49%
Aetna Crossroads VP(2) 0.60% 0.14% 0.74% 0.04% 0.70%
Aetna Growth and Income VP 0.50% 0.08% 0.58% -- 0.58%
Aetna Legacy VP(2) 0.60% 0.15% 0.75% 0.10% 0.65%
Aetna Money Market VP 0.25% 0.09% 0.34% -- 0.34%
Aetna Technology VP(2)(3) 0.95% 0.25% 1.20% 0.05% 1.15%
Fidelity VIP Equity-Income Portfolio(4) 0.48% 0.09% 0.57% -- 0.57%
Fidelity VIP Growth Portfolio(4) 0.58% 0.08% 0.66% -- 0.66%
Fidelity VIP Overseas Portfolio(4) 0.73% 0.18% 0.91% -- 0.91%
Fidelity VIP II Contrafund[RegTM] Portfolio(4) 0.58% 0.09% 0.67% -- 0.67%
Janus Aspen Aggressive Growth Portfolio(5) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Balanced Portfolio(5) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Flexible Income Portfolio(5) 0.65% 0.07% 0.72% 0.00% 0.72%
Janus Aspen Growth Portfolio(5) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Worldwide Growth Portfolio(5) 0.65% 0.05% 0.70% 0.00% 0.70%
PPI MFS Capital Opportunities Portfolio(6) 0.65% 0.25% 0.90% 0.00% 0.90%
PPI MFS Emerging Equities Portfolio(6) 0.67% 0.13% 0.80% 0.00% 0.80%
PPI MFS Research Growth Portfolio(6) 0.70% 0.15% 0.85% 0.00% 0.85%
PPI Scudder International Growth Portfolio(6) 0.80% 0.20% 1.00% 0.00% 1.00%
PPI T. Rowe Price Growth Equity Portfolio(6) 0.60% 0.15% 0.75% 0.00% 0.75%
</TABLE>
7
<PAGE>
Footnotes to the "Fund Expense Table"
(1) Certain of the fund advisers reimburse the company for administrative
costs incurred in connection with administering the funds as variable
funding options under the contract. These reimbursements are generally
paid out of the Investment Advisory Fees and are not charged to
investors.
(2) The investment adviser is contractually obligated through December 31,
2000 to waive all or a portion of its investment advisory fee and/or its
administrative services fee and/or to reimburse a portion of other
expenses in order to ensure that the fund's "Total Fund Annual Expenses
Without Waivers or Reductions" do not exceed the percentage reflected
under "Net Fund Annual Expenses After Waivers or Reductions."
(3) Aetna Technology VP commenced operations on May 1, 2000. Amounts
reflected in "Other Expenses" and "Total Fund Annual Expenses Without
Waivers or Reductions" are estimated amounts for the current fiscal year
based on expenses for comparable funds. Actual expenses may vary from
those shown.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain
funds', or the investment adviser on behalf of certain funds' custodian,
credits realized as a result of uninvested cash balances were used to
reduce a portion of each applicable fund's expenses. These credits are
not included under Total Waivers and Reductions. If these credits had
been included, the amounts shown under Net Fund Annual Expenses After
Waivers or Reductions presented in the table would have been 0.56% for
Fidelity VIP Equity-Income Portfolio; 0.65% for Fidelity VIP Growth
Portfolio; 0.87% for Fidelity VIP Overseas Portfolio; and 0.65% for
Fidelity VIP II Contrafund[RegTM] Portfolio.
(5) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for
Aggressive Growth, Balanced, Growth and Worldwide Growth Portfolios. All
expenses are shown without the effect of expense offset arrangements.
(6) The investment adviser has agreed to reimburse the portfolios for
expenses and/or waive its fees, so that, through at least April 30, 2001,
the aggregate of each portfolio's expenses will not exceed the combined
investment advisory fees and other expenses shown under the Net Fund
Annual Expenses After Waivers or Reductions column above.
8
<PAGE>
Hypothetical Examples
Account Fees You May Incur Over Time. The following hypothetical examples show
the fees and expenses paid over time if you invest $1,000 in the contract, and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses and the maximum charges under the
contract (i.e. a mortality and expense risk charge of 1.25% annually, an
administrative expense charge of 0.25% annually and an annual maintenance fee
of $20 (converted to a percentage of assets equal to 0.013%)). The total annual
fund expenses used are those shown in the column "Total Annual Expenses Without
Waivers or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- ---------------------------------------------
> These examples are purely hypothetical.
> They should not be considered a
representation of past or future expenses
or expected returns.
> Actual expenses and/or returns may be
more or less than those shown in these
examples.
- ---------------------------------------------
EXAMPLE A EXAMPLE B
--------------------------------------- ----------------------------------------
If at the end of the periods shown
If you withdraw your entire account you (1) leave your entire account
value at the end of the periods shown, value invested or (2) select an
you would pay the following expenses, income phase payment option, you
including any applicable early would pay the following expenses (no
withdrawal charge:* early withdrawal charge is reflected):**
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP $68 $115 $165 $258 $23 $70 $120 $258
Aetna Balanced VP, Inc. $66 $110 $157 $243 $21 $66 $113 $243
Aetna Bond VP $65 $107 $152 $233 $20 $63 $108 $233
Aetna Crossroads VP $68 $115 $165 $258 $23 $70 $120 $258
Aetna Growth and Income VP $66 $110 $157 $242 $21 $65 $112 $242
Aetna Legacy VP $68 $115 $165 $260 $23 $71 $121 $260
Aetna Money Market VP $64 $103 $144 $217 $19 $58 $100 $217
Aetna Technology VP $72 $129 $188 $304 $27 $84 $143 $304
Fidelity VIP Equity-Income Portfolio $66 $110 $156 $241 $21 $65 $112 $241
Fidelity VIP Growth Portfolio $67 $112 $161 $250 $22 $68 $116 $250
Fidelity VIP Overseas Portfolio $69 $120 $173 $276 $25 $75 $129 $276
Fidelity VIP II Contrafund[RegTM] Portfolio $67 $113 $161 $251 $22 $68 $117 $251
Janus Aspen Aggressive Growth Portfolio $67 $113 $161 $251 $22 $68 $117 $251
Janus Aspen Balanced Portfolio $67 $113 $161 $251 $22 $68 $117 $251
Janus Aspen Flexible Income Portfolio $67 $114 $164 $256 $23 $70 $119 $256
Janus Aspen Growth Portfolio $67 $113 $161 $251 $22 $68 $117 $251
Janus Aspen Worldwide Growth Portfolio $67 $114 $163 $254 $22 $69 $118 $254
PPI MFS Capital Opportunities Portfolio $69 $120 $173 $275 $24 $75 $129 $275
PPI MFS Emerging Equities Portfolio $68 $117 $168 $265 $23 $72 $124 $265
PPI MFS Research Growth Portfolio $69 $118 $170 $270 $24 $74 $126 $270
PPI Scudder International Growth Portfolio $70 $123 $178 $285 $25 $78 $134 $285
PPI T. Rowe Price Growth Equity Portfolio $68 $115 $165 $260 $23 $71 $121 $260
</TABLE>
- -----------------
* This example reflects deductions of an early withdrawal charge calculated
using the schedule applicable to Installment Purchase Payment Contracts.
Under that schedule, if only one $1,000 payment was made as described
above, fewer than five purchase payment periods would have been completed
at the end of years one, three, and five, and the 5% charge would apply. At
the end of year ten (regardless of the number of purchase payment periods
completed) the early withdrawal charge is waived and no early withdrawal
charge would apply.
** Example B will not apply during the income phase if you elect to receive
income phase payments under a nonlifetime variable payment option and
subsequently request a lump-sum withdrawal after the income phase payments
start. In this circumstance, the lump-sum payment is treated as a
withdrawal during the accumulation phase and may be subject to an early
withdrawal charge. (Refer to Example A.)
9
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
Understanding Condensed Financial Information. In Appendix III of this
prospectus, we provide condensed financial information about Variable Annuity
Account B (the separate account) subaccounts you may invest in through the
contract. The numbers show the year-end unit values of each subaccount from the
time purchase payments were first received in the subaccounts under the
contract.
Investment Options
- --------------------------------------------------------------------------------
The contract offers variable investment options and a fixed interest option.
Variable Interest Options. These options are called subaccounts. The
subaccounts are within Variable Annuity Account B (the separate account), a
separate account of the Company. Each subaccount invests in a specific mutual
fund. You do not invest directly in or hold shares of the funds.
Mutual Fund (fund) Descriptions. We provide brief descriptions of the funds in
Appendix II. Investment results of the funds are likely to differ significantly
and there is no assurance that any of the funds will achieve their respective
investment objectives. Shares of the funds will rise and fall in value and you
could lose money by investing in the funds. Shares of the funds are not bank
deposits and are not guaranteed, endorsed or insured by any financial
institution, the Federal Deposit Insurance Corporation or any other government
agency. Unless otherwise noted, all funds are diversified as defined under the
Investment Company Act of 1940. Refer to the fund prospectuses for additional
information. Fund prospectuses may be obtained, free of charge, from our Home
Office at the address and phone number listed in "Contract Overview--Questions:
Contacting the Company" or by contacting the SEC Public Reference Room.
Fixed Interest Option. The Fixed Account guarantees payment of the minimum
interest rate specified in the contract. For a description of the Fixed
Account, see Appendix I.
10
<PAGE>
- --------------------------------------------------------------------------------
Selecting Investment Options
o Choose options appropriate for you. Your sales representative can help you
evaluate which investment options may be appropriate for your financial
goals.
o Understand the risks associated with the options you choose. Some subaccounts
invest in funds that are considered riskier than others. Funds with
additional risks are expected to have values rise and fall more rapidly and
to a greater degree than other funds. For example, funds investing in
foreign or international securities are subject to risks not associated with
domestic investments, and their investment performance may vary accordingly.
Also, funds using derivatives in their investment strategy may be subject to
additional risks.
o Be informed. Read this prospectus, the fund prospectuses and Fixed Account
appendix (Appendix I).
- --------------------------------------------------------------------------------
Limits on Availability of Options. Some funds or the fixed interest option may
be unavailable through your contract or in your state. We may add, withdraw or
substitute funds, subject to conditions in your contract and compliance with
regulatory requirements.
Limits on How Many Investment Options You May Select. You may select no more
than 18 investment options during the accumulation phase. Each subaccount you
select and the Fixed Account counts as one option once you have made an
allocation to it, even if you no longer have amounts allocated to that option.
Limits Imposed by the Underlying Funds. Orders for the purchase of fund shares
may be subject to acceptance by the fund. We reserve the right to reject,
without prior notice, any allocation of a purchase payment to a subaccount if
the subaccount's investment in the corresponding fund is not accepted by the
fund for any reason.
Additional Risks of Investing in the Funds. (Mixed and Shared Funding)
"Shared funding" occurs when shares of a fund, which the subaccounts buy for
variable annuity contracts, are also bought by other insurance companies for
their variable annuity contracts.
"Mixed funding" occurs when shares of a fund, which the subaccounts buy for
variable annuity contracts, is bought for variable life insurance contracts
issued by us or other insurance companies.
> Shared--bought by more than one company
> Mixed--bought for annuities and life insurance
It is possible that a conflict of interest may arise due to mixed and/or shared
funding, which could adversely impact the value of a fund. For example, if a
conflict of interest occurred and one of the subaccounts withdrew its
investment in a fund, the fund may be forced to sell its securities at
disadvantageous prices, causing its share value to decrease. Each fund's Board
of Directors or Trustees will monitor events to identify any conflicts which
may arise and to determine what action, if any, should be taken to address such
conflicts.
11
<PAGE>
Transfers Among Investment Options
- --------------------------------------------------------------------------------
During the accumulation phase, you may transfer amounts among the available
subaccounts. Transfers from the Fixed Account may be restricted as outlined in
Appendix I, and the total number of investment options that you may select
during the accumulation period is limited. See "Investment Options -- Limits on
How Many Investment Options You May Select." The minimum transfer amount is
$500. You may establish automated transfers of account value. See "Dollar Cost
Averaging." Transfers must be made in accordance with the terms of your
contract. You may not make transfers once you enter the income phase. See "The
Income Phase."
Transfer Requests. Requests may be made in writing, by telephone or, where
applicable, electronically.
Limits on Frequent Transfers. The contract is not designed to serve as a
vehicle for frequent trading in response to short-term fluctuations in the
market. Such frequent trading can disrupt management of a fund and raise its
expenses. This in turn can have an adverse effect on fund performance.
Accordingly, individuals who use market-timing investment strategies and make
frequent transfers should not purchase the contract.
We reserve the right to restrict, in our sole discretion and without prior
notice, transfers initiated by a market-timing organization or individual or
other party authorized to give transfer instructions on behalf of multiple
contract holders. Such restrictions could include: (1) not accepting transfer
instructions from an agent acting on behalf of more than one contract holder;
and (2) not accepting preauthorized transfer forms from market timers or other
entities acting on behalf of more than one contract holder at a time.
We further reserve the right to impose, without prior notice, restrictions on
transfers that we determine, in our sole discretion, will disadvantage or
potentially hurt the rights or interests of other contract holders.
Additionally, orders for the purchase of fund shares may be subject to
acceptance by the fund. We reserve the right to reject, without prior notice,
any transfer request to a subaccount if the subaccount's investment in the
corresponding fund is not accepted for any reason.
Charges for Transfers. We currently do not charge for transfers.
Value of Your Transferred Dollars. The value of amounts transferred into or out
of subaccounts will be based on the subaccount unit values next determined
after we receive your transfer request in good order at our Home Office, or, if
you are participating in the dollar cost averaging program, after your
scheduled transfer.
Telephone and Electronic Transactions: Security Measures. To prevent fraudulent
use of telephone and electronic transactions (including, but not limited to,
internet transactions), we have established security procedures. These include
recording calls on our toll-free telephone lines and requiring use of a
personal identification number (PIN) to execute transactions. You are
responsible for keeping your PIN and account information confidential. If we
fail to follow reasonable security procedures, we may be liable for losses due
to unauthorized or fraudulent telephone or other electronic transactions. We
are not liable for losses resulting from following telephone or electronic
instructions we believe to be genuine. If a loss occurs when we rely on such
instructions, you will bear the loss.
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The Dollar Cost Averaging Program. Dollar cost averaging is an investment
strategy whereby you purchase fixed dollar amounts of an investment at regular
intervals, regardless of price. Under this program a fixed dollar amount is
automatically transferred from one of your investment options to one or more of
the subaccounts. Transfers from the Fixed Account under the dollar cost
averaging program may be restricted. See Appendix I. Dollar cost averaging
neither ensures a profit nor guarantees against loss in a declining market. You
should consider your financial ability to continue purchases through periods of
low price levels. There is no additional charge for this program. For
additional information about this program, contact your sales representative or
call us at the number listed in "Contract Overview -- Questions: Contacting the
Company".
Purchase and Rights
- --------------------------------------------------------------------------------
How to Purchase
>Complete the application and deliver it along with your initial purchase
payment to us. Upon our approval, we will issue you a contract and set up an
account for you.
>Two types of contracts are available.
o Installment Purchase Payment contracts. Under these contracts, you make
continuing periodic payments.
o Single Purchase Payment contracts. Under these contracts you make a
single payment to the contract or a lump-sum transfer of amounts
accumulated under a pre-existing annuity or retirement arrangement.
Payment Amounts
> The minimum payment for a single purchase payment contract is $5,000.
> Installment purchase payments must be at least $100 per month ($1,200
annually) and may not be less than $25 per payment.
Acceptance or Rejection of Your Application. We must accept or reject your
application within two business days of receipt. If the application is
incomplete, we may hold any forms and accompanying purchase payment(s) for five
business days. We may hold purchase payments for longer periods, pending
acceptance of the application, only with your permission. If the application is
rejected, the application and any purchase payments will be returned to you.
Allocating Purchase Payments to the Investment Options. We will allocate your
purchase payments among the investment options you select. Allocations must be
in whole percentages and there may be a limit on the number of investment
options you may select. When selecting investment options, you may find it
helpful to review the "Investment Options" section.
Right to Cancel
- --------------------------------------------------------------------------------
When and How to Cancel. You may cancel the contract within ten days of receipt
(some states require more than ten days) by returning it to our Home Office
along with a written notice of cancellation.
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Refunds. We will issue you a refund within seven days of our receipt of your
contract and written notice of cancellation. Unless your state requires
otherwise, your refund will equal the purchase payments made plus any earnings
or minus any losses attributable to those amounts allocated to the subaccounts.
In other words, you will bear the entire investment risk for amounts allocated
among the subaccounts during this period and the amount refunded could be less
than the amount paid. If your state requires, we will refund all purchase
payments made.
If the purchase payments for your cancelled contract came from a rollover from
another contract issued by us or one of our affiliates where an early
withdrawal charge was reduced or eliminated, the purchase payments will be
restored to your prior contract.
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Types of Fees
There are four types of fees or deductions that may affect your account:
> Transaction Fees
o Early Withdrawal Charge
o Annual Maintenance Fee
> Fees Deducted from Investments in the Separate Account
o Mortality and Expense Risk Charge
o Administrative Expense Charge
> Fees Deducted by the Funds
o Investment Advisory Fees
o Other Expenses
> Premium and Other Taxes
Terms to Understand
> installment purchase payment contracts)--The period of time it takes to
complete the number of installment payments expected to be made to your
account over a year. For example, if your payment frequency is monthly, a
payment period is completed after 12 payments are made. If only 11 payments
are made, the payment period is not completed until the twelfth payment is
made. The number of payment periods completed cannot exceed the number of
account years completed, regardless of the number of payments made.
> "Contract Year" (for single purchase payment contracts)--A 12 month period
measured from the date we establish your account, or
measured from any anniversary of that date.
Fees
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The following repeats and adds to information provided under "Fee Table."
Please review both sections for information on fees.
Transaction Fees
Early Withdrawal Charge
Withdrawals of all or a portion of your account value may be subject to a
charge.
Amount. The charge is a percentage of the amount that you withdraw. The
percentage will be determined by the early withdrawal charge schedule that
applies to your contract. The schedules are listed below and appear on your
contract schedule page. The charge will never be more than 8.5% of your total
payments to the contract.
Early Withdrawal Charge Schedules
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Schedule A--Installment Purchase Payment Contracts
- --------------------------------------------------------------------------------
Completed Payment Periods Early Withdrawal Charge
- ----------------------------- ------------------------
<S> <C>
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
10 or more 0%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Schedule B--Single Purchase Payment Contracts*
- -------------------------------------------------------
Completed Contract Years Early Withdrawal Charge
- ---------------------------- ------------------------
<S> <C>
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
</TABLE>
* Schedule B also may apply to certain older contracts that accept more
than one purchase payment. Check your contract to determine which early
withdrawal charge schedule applies to you.
Purpose. This is a deferred sales charge. It reimburses us for some of the
sales and administrative expenses associated with the contract. If our expenses
are greater than the amount we collect for the early withdrawal charge, we may
use any of our corporate assets, including potential profit that may arise from
the mortality and expense risk charge, to make up any difference.
Waiver. The early withdrawal charge is waived if the withdrawal is:
> Used to provide income phase payments to you;
> Paid because of your death;
> Taken under a systematic distribution option (See "Systematic Distribution
Options");
> Taken on or after the tenth anniversary of the effective date of an
installment purchase payment contract;
> Paid when your account value is $2,500 or less and no withdrawal has been
taken from the account within the prior 12 months;
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> Taken in part or in full from an installment purchase payment contract
provided you are at least 59-1/2 and nine purchase payment periods have been
completed; or
> Taken in an amount of ten percent or less of your account value. This applies
only to the first partial withdrawal in each calendar year and does not apply
to full withdrawals or withdrawals under a systematic distribution option. The
ten percent amount will be calculated using your account value as of the next
valuation after your withdrawal request is received in good order at our Home
Office. This also does not apply for contracts issued in the state of
Washington.
Annual Maintenance Fee
Maximum Amount. $20.00 for installment purchase payment contracts. $0.00 for
single purchase payment contracts.
When/How. Each year during the accumulation phase, we deduct this fee from your
account value on your account anniversary. It is also deducted at the time of a
full withdrawal, to the extent permitted under state law. It is deducted
proportionately from each subaccount and fixed interest option in which you
have interest.
Purpose. This fee reimburses us for administrative expenses related to the
establishment and maintenance of your account.
Fees Deducted From Investments in the Separate Account
Mortality and Expense Risk Charge
Maximum Amount. 1.25% annually of your account value invested in the
subaccounts.
When/How. We deduct this charge daily from the subaccounts corresponding to the
funds you select. We do not deduct this charge from any fixed interest option.
This charge is deducted during the accumulation phase and the income phase.
Purpose. This charge compensates us for the mortality and expense risks we
assume under the contracts.
> The mortality risks are those risks associated with our promises to pay the
death benefit available under the contract and to make lifetime income phase
payments based on annuity rates specified in the contract.
> The expense risk is the risk that the actual expenses we incur under the
contracts will exceed the maximum costs that we can charge.
If the amount we deduct for this charge is not enough to cover our mortality
costs and expenses under the contracts, we will bear the loss. We may use any
excess to recover distribution costs relating to the contract and as a source
of profit. We expect to make a profit from this charge.
Administrative Expense Charge
Maximum Amount. 0.25%. We currently do not impose this charge. We reserve the
right, however, on 30 days' notice, if allowed by your contract, to charge up
to 0.25% annually of your daily net assets invested in the subaccounts.
When/How. If imposed, we will deduct this charge daily from the subaccounts
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<PAGE>
corresponding to the funds you select. We do not deduct this charge from the
fixed interest option. This charge may be assessed during the accumulation
phase and/or the income phase. If we are imposing this charge when you enter
the income phase, the charge will apply to you during the entire income phase.
Purpose. This charge helps defray our administrative expenses that cannot be
recovered by the mortality and expense risk charge described above. The charge
is not intended to exceed the average expected cost of administering the
contracts. We do not expect to make a profit from this charge.
Fees Deducted by the Funds
Maximum Amount. Each fund's advisory fee and expenses are different. They are
set forth in "Fee Table--Fees Deducted by the Funds" and described in more
detail in each fund prospectus.
When/How. A fund's fees and expenses are not deducted from your account value.
Instead, they are reflected in the daily value of fund shares, which in turn
will affect the daily value of the subaccounts.
Purpose. These fees and expenses help to pay the fund's investment adviser and
operating expenses.
Premium and Other Taxes
Maxmium Amount. Some states and municipalities charge a premium tax on
annuities. These taxes currently range from 0% to 4%, depending upon the
jurisdiction.
When/How. We reserve the right to deduct premium taxes from your account value
or from purchase payments to the account at any time, but not before there is a
tax liability under state law. Our current practice is to deduct premium taxes
at the time of a complete withdrawal or, at the commencement of income phase
payments, to reflect the cost of premium taxes in our income phase payment
rates. In addition, we reserve the right to assess a charge for any federal
taxes due against the separate account, see "Taxation."
Your Account Value
- --------------------------------------------------------------------------------
During the accumulation phase, your account value at any given time equals:
> The current dollar value of amounts invested in the subaccounts, plus
> The current dollar value of amounts invested in the Fixed Account, including
interest to date.
Subaccount Accumulation Units. When you select a fund as an investment option,
your account dollars invest in "accumulation units" of the Variable Annuity
Account B subaccount corresponding to that fund. The subaccount invests
directly in the fund's shares. The value of your interest in a subaccount is
expressed as the number of accumulation units you hold multiplied by an
"Accumulation Unit Value," as described below, for each unit.
Accumulation Unit Value (AUV). The value of each accumulation unit in a
subaccount is called the accumulation unit value or AUV. The AUV varies daily
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<PAGE>
in relation to the underlying fund's investment performance. The value also
reflects deductions for fund fees and expenses, the mortality and expense risk
charge and the administrative expense charge (if any). We discuss these
deductions in more detail in "Fee Table" and "Fees."
Valuation. We determine the AUV every normal business day after the close of
the New York Stock Exchange. At that time, we calculate the current AUV by
multiplying the AUV last calculated by the "net investment factor" of the
subaccount. The net investment factor measures the investment performance of
the subaccount from one valuation to the next.
Current AUV = Prior AUV x Net Investment Factor
Net Investment Factor. The net investment factor for a subaccount between two
consecutive valuations equals the sum of 1.0000 plus the net investment rate.
Net Investment Rate. The net investment rate is computed according to a formula
that is equivalent to the following:
> The net assets of the fund held by the subaccount as of the current valuation;
minus
> The net assets of the fund held by the subaccount at the preceding valuation;
plus or minus
> Taxes or provisions for taxes, if any, due to subaccount operations (with any
federal income tax liability offset by foreign tax credits to the extent
allowed); divided by
> The total value of the subaccount's units at the preceding valuation; minus
> A daily deduction for the mortality and expense risk charge and the
administrative expense charge, if any, and any other fees deducted from
investments in the separate account, such as guarantee charges for Aetna GET
Fund. See "Fees."
The net investment rate may be either positive or negative.
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<PAGE>
Hypothetical Illustration. As a hypothetical illustration, assume that your
initial purchase payment is $5,000 and you direct us to invest $3,000 in Fund A
and $2,000 in Fund B. Also assume that on the day we receive the purchase
payment, the applicable AUV's after the next close of business of the New York
Stock Exchange are $10 for Subaccount A and $25 for Subaccount B. Your account
is credited with 300 accumulation units of Subaccount A, and 80 accumulation
units of Subaccount B.
--------------------------
$5,000 Purchase Payment
--------------------------
Step 1
---------------------------------------------------
Aetna Life Insurance and Annuity Company
---------------------------------------------------
Step 2
---------------------------------------------------
Variable Annuity Account B
---------------------------------------------------
Subaccount A Subaccount B Etc.
300 80
accumulation accumulation
units units
---------------------------------------------------
Step 3
---------- -----------
Mutual Mutual
Fund A Fund B
---------- -----------
Step 1: You make an initial purchase payment of $5000.
Step 2:
A. You direct us to invest $3,000 in Fund A. The purchase payment purchases 300
accumulation units of Subaccount A ($3,000 divided by the current $10 AUV).
B. You direct us to invest $2,000 in Fund B. The purchase payment purchases 80
accumulation units of Subaccount B ($2,000 divided by the current $25 AUV).
Step 3: The separate account purchases shares of the applicable funds at
the then current market value (net asset value or NAV).
Each fund's subsequent investment performance, expenses and charges, and the
daily charges deducted from the subaccount, will cause the AUV to move up or
down on a daily basis.
Purchase Payments to Your Account. If all or a portion of the initial purchase
payment is directed to the subaccounts, it will purchase subaccount
accumulation units at the AUV next computed after our acceptance of your
application as described in "Purchase and Rights." Subsequent payments or
transfers directed to the subaccounts will purchase subaccount accumulation
units at the AUV next computed following our receipt of the purchase payment or
transfer request in good order. The value of subaccounts may vary day to day.
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<PAGE>
Taxes, Fees and Deductions
Amounts withdrawn may be subject to one or more of the following:
> Early Withdrawal Charge (see "Fees--Early Withdrawal Charge")
> Annual Maintenance Fee (see "Fees--Annual Maintenance Fee")
> Tax Penalty (see "Taxation")
> Tax Withholding (see "Taxation")
To determine which may apply to you, refer to the appropriate sections of this
prospectus, contact your sales representative or call us at the number listed
in "Contract Overview--Questions: Contacting the Company."
Withdrawals
- --------------------------------------------------------------------------------
You may withdraw all or a portion of your account value at any time during the
accumulation phase.
Steps for Making A Withdrawal.
> Select the withdrawal amount.
1) Full Withdrawal: You will receive, reduced by any required withholding tax,
your account value minus any applicable early withdrawal charge and annual
maintenance fee.
2) Partial Withdrawal (Percentage or Specified Dollar Amount): You will
receive, reduced by any required withholding tax, the amount you specify,
subject to the value available in your account. However, the amount
actually withdrawn from your account will be adjusted by any applicable
early withdrawal charge. See Appendix I for more information about
withdrawals from the Fixed Account.
> Select investment options. If you do not specify this, we will withdraw
dollars proportionally from each of your investment options.
> Properly complete a disbursement form and send it to our Home Office.
Calculation of Your Withdrawal. We determine your account value every normal
business day after the close of the New York Stock Exchange. We pay withdrawal
amounts based on your account value as of the next valuation after we receive a
request for withdrawal in good order at our Home Office.
Delivery of Payment. Payments for withdrawal requests will be made in
accordance with SEC requirements. Normally, your withdrawal amount will be sent
no later than seven calendar days following our receipt of your properly
completed disbursement form in good order.
Reinvesting a Full Withdrawal. Within 30 days after a full withdrawal, if
allowed by law and the contract, you may elect to reinvest all or a portion of
the withdrawal. We must receive any reinvested amounts within 60 days of the
withdrawal. We reserve the right, however, to accept a reinvestment election
received more than 30 days after the withdrawal and accept proceeds received
more than 60 days after the withdrawal. We will credit your account for the
amount reinvested based upon the subaccount values next computed following our
receipt of your request and the amount to be reinvested. We will credit the
amount reinvested proportionally for annual maintenance fees and for early
withdrawal charges imposed at the time of withdrawal. We will deduct from the
amount reinvested any annual maintenance fee which fell due after the
withdrawal and before the reinvestment. We will reinvest in the same investment
options and proportions in place at the time of withdrawal. If you withdraw
amounts from a series of the Aetna GET Fund and then elect to reinvest them, we
will reinvest them in a GET Fund series that is then accepting deposits, if one
is available. If one is not available, we will reallocate your GET amounts
among other investment options in which you invested, on a pro rata basis. The
reinvestment privilege may be used only once. Seek competent advice regarding
the tax consequences associated with reinvestment.
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<PAGE>
Features of a Systematic Distribution Option
A systematic distribution option allows you to receive regular payments from
your contract, without moving into the income phase. By remaining in the
accumulation phase, you retain certain rights and investment flexibility not
available during the income phase.
Systematic Distribution Options
- --------------------------------------------------------------------------------
The following systematic distribution options may be available:
> SWO--Systematic Withdrawal Option. SWO is a series of automatic partial
withdrawals from your account based on a payment method you select. Consider
this option if you would like a periodic income while retaining investment
flexibility for amounts accumulated in the account.
> Other Systematic Distribution Options. We may add additional systematic
distribution options from time to time. You may obtain additional information
relating to any of the systematic distribution options from your sales
representative or by calling us at the number listed in "Contract
Overview--Questions: Contacting the Company."
Systematic Distribution Option Availability. If allowed by applicable law, we
may discontinue the availability of one or more of the systematic distribution
options for new elections at any time, and/or to change the terms of future
elections.
Eligibility for a Systematic Distribution Option. To determine if you meet the
age and account value criteria and to assess terms and conditions that may
apply, contact your sales representative or the Company at the number listed in
"Contract Overview--Question: Contacting the Company."
Terminating a Systematic Distribution Option. You may revoke a systematic
distribution option at any time by submitting a written request to our Home
Office. Once you revoke an option, you may not elect it again, nor may you
elect any other systematic distribution option that may be available, unless
you are allowed under the Internal Revenue Code of 1986, as amended (Tax Code).
Charges and Taxation. When you elect a systematic distribution option, your
account value remains in the accumulation phase and subject to the charges and
deductions described in the "Fees" and "Fee Table" sections. Taking a
withdrawal under a systematic distribution option may have tax consequences. If
you are concerned about tax implications consult a tax adviser before electing
an option.
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This section provides information about the death benefit during the
accumulation phase. For death benefit information applicable to the income
phase, see "The Income Phase".
Death Benefit
- --------------------------------------------------------------------------------
During the Accumulation Phase
Who Receives the Death Benefit? If you would like certain individuals or
entities to receive a death benefit when it becomes payable, you may name them
as your beneficiaries. If you die and no beneficiary exists, the death benefit
will be paid in a lump sum to your estate.
Designating Your Beneficiary. You may designate a beneficiary on your
application or by contacting your sales representative or us as indicated in
"Contract Overview--Questions: Contacting the Company."
When is a Death Benefit Payable? During the accumulation phase a death benefit
is payable when you, the contract holder, die.
Death Benefit Amount. The death benefit will equal your account value as of the
next time we value your account after the date on which we receive proof of
death acceptable to us. Interest, if any, will be paid from the date of death
at a rate no less than required by law.
Death Benefit--Methods of Payment
(For payment options during the income phase, see "The Income Phase.")
If you die during the accumulation phase of your contract, the following
payment options are available to your beneficiary, if allowed by the Tax Code:
> Lump-sum payment; or
> Payment in accordance with any of the available income phase payment plans.
See "The Income Phase--Payment Plans."
The following options are also available, however, the Tax Code limits how long
the death benefit proceeds may be left in these options:
> Leave the account value invested in the contract; or
> Leave the account value on deposit in the Company's general account, and
receive monthly, quarterly, semi-annual or annual interest payments at the
interest rate then being credited on such deposits. Your beneficiary can
withdraw the balance on deposit at any time or request to receive payment in
accordance with any of the available income phase payment plans. See "The
Income Phase--Payment Plans."
Steps Required for Death Benefits to be Paid to Your Beneficiary:
1. You must have designated a beneficiary(ies) for your contract.
2. Your beneficiary or someone on their behalf must provide us with proof of
your death acceptable to us; and
3. Your beneficiary must elect one of the payment options available under the
contract.
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<PAGE>
We will not pay any death proceeds until the beneficiary elects a method of
payment. Prior to the election of a payment method by the beneficiary, the
account value will remain in the account and continue to be affected by the
investment performance of the investment option(s) selected. The beneficiary
will have the right to allocate or transfer amounts among available investment
options. (Limitations may apply to transfers from the Fixed Account -- see
Appendix I)
We will mail payment to the beneficiary within seven days after we receive
proof of death and an election of the method of payment acceptable to us.
Taxation. In general, payments received by your beneficiary after your death
are taxed to the beneficiary in the same manner as if you had received those
payments. Additionally, your beneficiary may be subject to tax penalties if he
or she does not begin receiving death benefit payments within the time frame
required by the Tax Code. See "Taxation."
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<PAGE>
We may have used the following terms in prior prospectuses:
Annuity Phase--Income Phase
Annuity Option--Income Phase Payment Option
Annuity Payment--Income Phase Payment
Annuitization--Initiating Income Phase Payments
The Income Phase
- --------------------------------------------------------------------------------
During the income phase you stop contributing dollars to your account and start
receiving payments from your accumulated account value.
Initiating Payments. At least 30 days before the date you want to start
receiving income phase payments, you must notify us in writing of all of the
following:
> Payment start date;
> Income phase payment option (see the payment options table in this section);
> Payment frequency (i.e. monthly, quarterly, semi-annually or annually);
> Choice of fixed or variable payments or a combination of fix and variable
payments; and
> Selection of an assumed net investment rate (only if variable payments are
elected).
Your account will continue in the accumulation phase until you properly
initiate income phase payments. Once an income phase payment option is
selected, it may not be changed.
What Affects Payment Amounts? Some of the factors that may affect the amount of
your income phase payments include your age, gender, account value, the income
phase payment option selected, the number of guaranteed payments (if any)
selected, and whether you select fixed, variable or a combination of both fixed
and variable payments, and, for variable payments, the assumed net investment
rate selected.
Fixed Payments. Amounts funding fixed income phase payments will be held in the
Company's general account. The amount of fixed payments does not vary with
investment performance over time.
Variable Payments. Amounts funding your variable income phase payments will be
invested in subaccount(s) you select. Not all subaccounts available during the
accumulation phase may be available during the income phase. Currently, Aetna
Balanced VP, Inc., Aetna Bond VP and Aetna Growth and Income VP are the only
subaccounts available during the income phase. For variable payments, you must
also select an assumed net investment rate.
Assumed Net Investment Rate. If you select variable income phase payments, you
must also select an assumed net investment rate of either 5% or 31/2%. If you
select a 5% rate, your first payment will be higher, but subsequent payments
will increase only if the investment performance of the subaccounts you
selected is greater than 5% annually, after deduction of fees. Payment amounts
will decline if the investment performance is less than 5%, after deduction of
fees.
If you select a 3-1/2% rate, your first income phase payment will be lower and
subsequent payments will increase more rapidly or decline more slowly depending
upon changes to the net investment performance of the subaccounts you selected.
For more information about selecting an assumed net investment rate, call us for
a copy of the SAI. See "Contracting Overview-- Questions: Contacting the
Company".
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<PAGE>
Minimum Payment Amounts. The income phase payment option you select must result
in:
> A first income phase payment of at least $20; or
> Total yearly income phase payments of at least $100.
If your account value is too low to meet these minimum payment amounts you will
receive one lump-sum payment.
Restrictions on Start Dates and the Duration of Payments. When income phase
payments start, the age of the annuitant plus the number of years for which
payments are guaranteed may not exceed 95.
Income phase payments will not begin until you have selected an income phase
payment option. Failure to select an income phase payment option may have
adverse tax consequences. You should consult with a qualified tax adviser if
you are considering this course of action.
Charges Deducted. We make a daily deduction for mortality and expense risks
from amounts held in the subaccounts. Therefore, if you choose variable income
phase payments and a nonlifetime income phase payment option, we still make
this deduction from the subaccounts you select, even though we no longer assume
any mortality risks. We may also deduct a daily administrative charge from
amounts held in the subaccounts. See "Fees."
Death Benefit During the Income Phase. The death benefits that may be available
to a beneficiary are outlined in the income phase payment option table below.
If a lump-sum payment is due as a death benefit, we will make payment within
seven calendar days after we receive proof of death acceptable to us and the
request for payment in good order at our Home Office. If the continuing income
phase payments are elected, the beneficiary may not elect to receive a lump-sum
at a future date unless the income phase payment option specifically allows a
withdrawal right. We will calculate the value of any death benefit at the next
valuation after we receive proof of death and a request for payment. Such value
will be reduced by any payments we made after the date of death.
Partial Entry into the Income Phase. You may elect an income phase payment
option for a portion of your account dollars, while leaving the remaining
portion invested in the accumulation phase. Whether the Tax Code considers such
payments taxable as income phase payments or as withdrawals is currently
unclear; consult a tax adviser before electing this option. The same or a
different income phase payment option may be selected for the portion left
invested in the accumulation phase.
Taxation. To avoid certain tax penalties, you or your beneficiary must meet the
distribution rules imposed by the Tax Code. Additionally, when selecting an
income phase payment option, the Tax Code requires that your expected payments
will not exceed certain durations. See "Taxation" for additional information.
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Income Phase Payment Options
The following table lists the income phase payment options and accompanying
death benefits available during the income phase. We may offer additional
income phase payment options under the contract from time to time.
Once income phase payments begin, the income phase payment option selected may
not be changed.
Terms to understand:
Annuitant(s): The person(s) on whose life expectancy(ies) the income phase
payments are based.
Beneficiary(ies): The person(s) or entity(ies) entitled to receive a death
benefit under the contract.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Lifetime Income Phase Payment Options
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Length of Payments: For as long as the annuitant lives. It is possible that only one payment will be
made if the annuitant dies prior to the second payment's due date.
Life Income Death Benefit--None: All payments end upon the annuitant's death.
- -----------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as the annuitant lives, with payments guaranteed for your choice
of 5, 10, 15 or 20 years or as otherwise specified in the contract.
Life Income-- Death Benefit--Payment to the Beneficiary: If the annuitant dies before we have made all the
Guaranteed guaranteed payments, we will continue to pay the beneficiary the remaining guaranteed payments
Payments unless the beneficiary elects to receive a lump-sum payment equal to the present value of the
remaining guaranteed payments.
- -----------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as either annuitant lives. It is possible that only one payment will
be made if both annuitants die before the second payment's due date.
Continuing Payments:
(a) When you select this option you choose for 100%, 662/3% or 50% of the payment to continue
Life Income-- to the surviving annuitant after the first death; or
Two Lives (b) 100% of the payment to continue to the annuitant on the second annuitant's death, and 50%
of the payment will continue to the second annuitant on the annuitant's death.
Death Benefit--None: All payments end upon the death of both annuitants.
- -----------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as either annuitant lives, with payments guaranteed for a
minimum of 120 months.
Life Income-- Continuing Payments: 100% of the payment will continue to the surviving annuitant after the
Two Lives with first death.
Guaranteed Death Benefit--Payment to the Beneficiary: If both annuitants die before the guaranteed
Payments payments have all been paid, we will continue to pay the beneficiary the remaining guaranteed
payments, unless the beneficiary elects to receive a lump-sum payment equal to the present value
of the remaining guaranteed payments.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Table continued --->
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<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Nonlifetime Income Phase Payment Options
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Length of Payment: You may select payments for 3-30 years. In certain cases a
may be requested at any time. (see below)
Nonlifetime-- Death Benefit--Payment to the Beneficiary: If the annuitant dies before we make all
Guaranteed the guaranteed payments, we will continue to pay the beneficiary the remaining
Payments guaranteed payments, unless the beneficiary elects to receive a lump-sum payment
equal to the present value of the remaining guaranteed payments.
- -----------------------------------------------------------------------------------------------------------------------------
Lump-Sum Payment: If the Nonlifetime -- Guaranteed Payments option is elected with variable payments, you may request at
any time that all or a portion of the present value of the remaining payments be paid in one lump sum. Any such lump-sum
payment will be treated as a withdrawal during the accumulation phase and we will charge any applicable early withdrawal
charge. If the early withdrawal charge is based on completed purchase payment periods, each year that passes after income
payments have begun is treated as a completed purchase payment period even though no additional purchase payments have been
made. See "Fees -- Early Withdrawal Charge." We will send lump- sum payments within seven calendar days after we receive the
request for payment in good order at our Home Office.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Calculation of Lump-Sum Payments: If a lump-sum payment is available under the
income phase payment options above, the rate used to calculate the present
value for the remaining guaranteed payments is the same rate we used to
calculate the income phase payments (i.e. the actual fixed rate used for the
fixed payments or the 31/2% or 5% assumednet investment rate used for variable
payments).
27
<PAGE>
In This Section:
> Introduction
> Contract Type
> Withdrawals and Other Distributions
> Taxation of Distributions
> 10% Penalty Tax
> Withholding for Federal Income Tax Liability
> Minimum Distribution of Death Benefit Proceeds
> Taxation of Nonqualified Contracts
> Taxation of the Company
Taxation
- --------------------------------------------------------------------------------
Introduction
This section discusses our understanding of current federal income tax laws
affecting the contract. You should keep the following in mind when reading it:
> Your tax position (or the tax position of the beneficiary, as applicable)
determines federal taxation of amounts held or paid out under the contract.
> Tax laws change. It is possible that a change in the future could affect
contracts issued in the past.
> This section addresses federal income tax rules and does not discuss federal
estate and gift tax implications, state and local taxes or any other tax
provisions.
> We do not make any guarantee about the tax treatment of the contract or any
transaction involving the contract.
> The term "payment" in this section refers to income phase payments.
- --------------------------------------------------------------------------------
We do not intend this information to be tax advice. For advice about the
effect of federal income taxes or any other taxes on amounts held or paid out
under the contract consult a tax adviser.
- --------------------------------------------------------------------------------
Taxation of Gains Prior to Distribution. You will generally not pay taxes on
any earnings from the annuity contract descried in this prospectus until they
are withdrawn (or otherwise made available to you or a beneficiary). The IRS
has stated in published rulings, however, that a variable contract owner will
be considered the owner of separate account assets if the owner possesses
incidents of investment control over the assets. In these circumstances, income
and gains from the separate account assets would be includible in the variable
contract owner's gross income. The Treasury announced that it will issue
guidance regarding the extent to which owners could direct their investments
among subaccounts without being treated as owners of the underlying assets of
the separate account. It is possible that the Treasury's position, when
announced, may adversely affect the tax treatment of existing contracts. The
Company therefore reserves the right to modify the Contract as necessary to
attempt to prevent a contract holder from being considered the federal tax
owner of a pro rata share of the assets of the separate account.
Diversification. Tax Code section 817(h) requires that in a nonqualified
contract the investments of the funds be "adequately diversified" in accordance
with Treasury Regulations in order for the contracts to qualify as annuity
contracts under federal tax law. The separate account, through the funds,
intends to comply with the diversification requirements prescribed by the
Treasury in Reg. Sec. 1.817-5, which affects how the funds' assets may be
invested.
Contract Type
The contracts are designed for use on a non-tax qualified basis as a
nonqualified deferred annuity contract.
The Contract. You are responsible for determining that contributions,
distributions, investments and other transactions satisfy applicable laws.
Legal counsel and a tax adviser should be consulted regarding suitability of
the contract.
28
<PAGE>
Withdrawals and Other Distributions
Certain tax rules apply to distributions from the contract. A distribution is
any amount taken from the contract including withdrawals, income phase
payments, rollovers, exchanges and death benefit proceeds.
We report the taxable portion of all distributions to the Internal Revenue
Service (IRS).
Taxation of Distributions
Nonqualified Contracts. A full withdrawal of a nonqualified contract is taxable
to the extent that the amount received exceeds the investment in the contract.
A partial withdrawal is taxable to the extent that the account value
immediately before the withdrawal exceeds the investment in the contract. In
other words, a partial withdrawal is treated first as a withdrawal of taxable
earnings.
For income phase payments, a portion of each payment which represents the
investment in the contract is not taxable. An exclusion ratio is calculated to
determine the nontaxable portion.
For fixed income phase payments, in general, there is no tax on the portion of
each payment which represents the same ratio that the investment in the
contract bears to the total dollar amount of the expected payments as defined
in Tax Code section 72(c). The entire income phase payment will be taxable once
the recipient has recovered the investment in the contract.
For variable income phase payments, an equation is used to establish a specific
dollar amount of each payment that is not taxed. The dollar amount is
determined by dividing the investment in the contract by the total number of
expected periodic payments. The entire income phase payment will be taxable
once the recipient has recovered the investment in the contract.
All deferred nonqualified annuity contracts that are issued by the Company (or
its affiliates) to the same contract holder during any calendar year are
treated as one annuity contract for purposes of determining the amount
includible in gross income under Tax Code section 72(e). In addition, the
Treasury Department has specific authority to issue regulations that prevent
the avoidance of Tax Code section 72(e) through the serial purchase of annuity
contracts or otherwise.
Taxation of Death Benefit Proceeds. In general, payments received by your
beneficiaries after your death are taxed in the same manner as if you had
received those payments.
10% Penalty Tax
Under certain circumstances, the Tax Code may impose a 10% penalty tax on the
taxable portion of any distribution from a nonqualified contract unless one or
more of the following have occurred:
> You have attained age 59-1/2;
> You have become disabled within the meaning of the Tax Code;
> You have died;
> The distribution is made in substantially equal periodic payments (at least
annually) over your life or life expectancy or the joint lives or joint life
expectancies of you and your beneficiary; or
> The distribution is allocable to investment in the contract before August 14,
1982.
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<PAGE>
Withholding for Federal Income Tax Liability
Any distributions under the contract are generally subject to withholding.
Federal income tax liability rates vary according to the type of distribution
and the recipient's tax status.
Generally, you or a beneficiary may elect not to have tax withheld from
distributions.
Non-resident Aliens. If you or your beneficiary is a non-resident alien, then
any withholding is governed by Tax Code section 1441 based on the individual's
citizenship, the country of domicile and treaty status.
Minimum Distribution of Death Benefit Proceeds
Death of Contract Holder. The following requirements apply to nonqualified
contracts at your death. Different distribution requirements apply if your
death occurs:
> After you begin receiving income phase payments under the contract, or
> Before you begin receiving such distributions.
If your death occurs after you begin receiving income phase payments,
distributions must be made at least as rapidly as under the method in effect at
the time of your death.
If your death occurs before you begin receiving income phase payments, your
entire balance must be distributed within five years after the date of your
death. For example, if you die on September 1, 2000, your entire balance must
be distributed by August 31, 2005. However, if the distribution begins within
one year of your death, then payments may be made over one of the following
time-frames:
> Over the life of the beneficiary; or
> Over a period not extending beyond the life expectancy of the beneficiary.
Spousal Beneficiaries. If the beneficiary is your spouse, the contract may be
continued with the surviving spouse as the new contract holder.
Death of the Annuitant. If the contract holder is a nonnatural person and the
annuitant dies, the same rules apply as outlined above for death of a contract
holder, with the annuitant treated as the holder of the contract. If there is a
change in the annuitant, such change shall be treated as the death of the
holder of the contract. If the contract holder is a natural person but not the
annuitant and the annuitant dies, the beneficiary must elect an income phase
payment option within 60 days of the date of death, or any gain under the
contract will be includible in the beneficiary's income in the year the
annuitant dies.
Taxation of Nonqualified Contracts
In General. Tax Code section 72 governs taxation of annuities in general. A
contract holder under a nonqualified contract who is a natural person generally
is not taxed on increases in the account value until distribution occurs by
withdrawing all or part of such account value. The taxable portion of a
distribution is taxable as ordinary income.
30
<PAGE>
Non-Natural Holders of a Nonqualified Contract. If the contract holder is not
a natural person, a nonqualified contract generally is not treated as an
annuity for income tax purposes and the income on the contract for the taxable
year is currently taxable as ordinary income. Income on the contract is any
increase over the year in the surrender value, adjusted for purchase payments
made during the year, amounts previously distributed and amounts previously
included in income. There are some exceptions to this rule and a non-natural
person should consult a tax adviser prior to purchasing the contract. A
non-natural person exempt from federal income taxes should consult a tax
adviser regarding treatment of income on the contract for purposes of the
unrelated business income tax. When the contract holder is not a natural
person, a change in annuitant is treated as the death of the contract holder.
Transfers, Assignments or Exchanges of a Nonqualified Contract. A transfer of
ownership of a nonqualified contract, the designation of an annuitant, payee or
other beneficiary who is not also the contract holder, the selection of certain
income phase payment dates, or the exchange of a contract may result in certain
tax consequences. The assignment, pledge, or agreement to assign or pledge any
portion of the contract value generally will be treated as a distribution.
Anyone contemplating any such designation, transfer, assignment, selection, or
exchange should contact a tax adviser regarding the potential tax effects of
such a transaction.
Taxation of the Company
We are taxed as a life insurance company under the Tax Code. Variable Annuity
Separate Account B is not a separate entity from us. Therefore, it is not taxed
separately as a "regulated investment company", but is taxed as part of the
Company.
We automatically apply investment income and capital gains attributable to the
separate account to increase reserves under the contracts. Because of this,
under existing federal tax law we believe that any such income and gains will
not be taxed to the extent that such income and gains are applied to increase
reserves under the contracts. In addition, any foreign tax credits attributable
to the separate account will be first used to reduce any income taxes imposed
on the separate account before being used by the Company.
In summary, we do not expect that we will incur any federal income tax
liability attributable to the separate account and we do not intend to make any
provision for such taxes. However, changes in federal tax laws and/or their
interpretation may result in our being taxed on income or gains attributable to
the separate account. In this case, we may impose a charge against the separate
account (with respect to some or all of the contracts) to set aside provisions
to pay such taxes. We may deduct this amount from the separate account,
including from your contract value invested in the subaccounts.
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<PAGE>
Other Topics
- --------------------------------------------------------------------------------
The Company
We issue the contracts described in this prospectus and are responsible for
providing each contract's insurance and annuity benefits.
We are a stock life insurance company organized under the insurance laws of the
State of Connecticut in 1976 and an indirect wholly-owned subsidiary of Aetna
Inc. Through a merger our operations include the business of Aetna Variable
Annuity Life Insurance Company (formerly known as Participating Annuity Life
Insurance Company, an Arkansas life insurance company organized in 1954).
We are engaged in the business of issuing life insurance and annuities. Our
principal executive offices are located at:
151 Farmington Avenue
Hartford Connecticut 06156
Variable Annuity Account B
We established Variable Annuity Account B (the "separate account") in 1976 as a
segregated asset account to fund our variable annuity contracts. The separate
account is registered as a unit investment trust under the Investment Company
Act of 1940 (the "'40 Act"). It also meets the definition of "separate account"
under the federal securities laws.
The separate account is divided into "subaccounts." The subaccounts invest
directly in shares of a pre-assigned fund.
Although we hold title to the assets of the separate account, such assets are
not chargeable with the liabilities of any other business that we conduct.
Income, gains or losses of the separate account are credited to or charged
against the assets of the separate account without regard to other income,
gains or losses of the Company. All obligations arising under the contracts are
obligations of the Company.
Contract Distribution
We serve as the principal underwriter for the securities sold by this
prospectus. We are registered as a broker-dealer with the SEC and a member of
the National Association of Securities Dealers, Inc. (NASD).
As principal underwriter, we will enter into arrangements with one or more
registered broker-dealers, including at least one affiliate of the Company, to
offer and sell the contracts described in this prospectus. We may also enter
into these arrangements with banks that may be acting as broker-dealers without
separate registration under the Securities Exchange Act of 1934 pursuant to
legal and regulatory exceptions. In this prospectus, we refer to the registered
broker-dealers and the banks described above as "distributors."
We and one or more of our affiliates may also sell the contracts directly. All
individuals offering and selling the contracts must be registered
representatives of a broker-dealer, or employees of a bank exempt from
registration under the Securities Act of 1934, and must be licensed as
insurance agents to sell variable annuity contracts.
Occasionally, we may enter into arrangements with independent entities to help
find broker-dealers or banks interested in distributing the contract or to
32
<PAGE>
provide training, marketing and other sales-related functions, or
administrative services. We will reimburse such entities for expenses related
to and may pay fees to such entities in return for these services.
We may also contract with independent third party broker-dealers who will act
as wholesalers by assisting us in selecting broker-dealers or banks interested
in acting as distributors. These wholesalers may also provide training,
marketing and other sales related functions and the distributors and may
provide certain administrative services in connection with the contract. We may
pay such wholesalers compensation based upon purchase payments to contracts
purchased through distributors that they select.
We may also designate third parties to provide services in connection with the
contracts such as reviewing applications for completeness and compliance with
insurance requirements and providing the distributors with approved marketing
material, prospectuses or other supplies. These parties will also receive
payments for their services based upon purchase payments, to the extent such
payments are allowed by applicable securities laws. We will pay all costs and
expenses related to these services.
Payment of Commissions.We pay distributors and their registered representatives
who sell the contract commissions and service fees. Distributors will be paid
commissions up to an amount currently equal to 7 1/2% of first year purchase
payments or as a combination of a certain percentage of purchase payments at
time of sale and a trail commission as a percentage of assets. Under the latter
arrangement, commission payments may exceed 7 1/2% of purchase payments over the
life of the contract. We may also pay renewal comissions on purchase payments
made after the first year and asset-based service fees. Some sales personnel may
receive various types of non-cash compensation as special sales incentives,
including trips and educational and/or business seminars. However, any such
compensation will be paid in accordance with NASD rules. In addition, we may
provide additional compensation to the Company's supervisory and other
management personnel if the overall amount of investments in funds advised by
the Company or its affiliates increases over time.
We pay these commissions, fees and related distribution expenses out of any
early withdrawal charges assessed or out of our general assets, including
investment income and any profit from investment advisory fees and mortality
and expense risk charges. No additional deductions or charges are imposed for
commissions and related expenses.
Payment Delay or Suspension
We reserve the right to suspend or postpone the date of any payment of benefits
or values under any one of the following circumstances:
> On any valuation date when the New York Stock Exchange is closed (except
customary weekend and holiday closings) or when trading on the New York Stock
Exchange is restricted;
> When an emergency exists as determined by the SEC so that disposal of the
securities held in the subaccounts is not reasonably practicable or it is not
reasonably practicable to fairly determine the value of the subaccount's
assets; or
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<PAGE>
> During any other periods the SEC may by order permit for the protection of
investors.
The conditions under which restricted trading or an emergency exists shall be
determined by the rules and regulations of the SEC.
Performance Reporting
We may advertise different types of historical performance for the subaccounts
including:
> Standardized average annual total returns; and
> Non-standardized average annual total returns.
Standardized Average Annual Total Returns. We calculate standardized average
annual total returns according to a formula prescribed by the SEC. This shows
the percentage return applicable to $1,000 invested in the subaccounts over the
most recent one, five and ten-year periods. If the investment option was not
available for the full period, we give a history from the date money was first
received in that option under the separate account. Standardized average annual
total returns reflect deduction of all recurring charges during each period
(i.e. mortality and expense risk charges, annual maintenance fees,
administrative expense charges, if any, and any applicable early withdrawal
charges).
Non-Standardized Average Annual Total Returns. We calculate non-standardized
average annual total returns in a similar manner as that stated above, except
we do not include the deduction of any applicable early withdrawal charge. Some
non-standardized returns may also exclude the effect of an annual maintenance
fee. If we reflected these charges in the calculation it would decrease the
level of performance reflected by the calculation. Non-standardized returns may
include performance from the fund's inception date, if that date is earlier
than the one we use for standardized returns.
We may also advertise certain ratings, rankings or other information related to
the Company, the subaccounts or the funds. For further details regarding
performance reporting and advertising you may request a Statement of Additional
Information at the number listed in "Contract Overview--
Questions: Contacting the Company".
Voting Rights
Each of the subaccounts holds shares in a fund and each is entitled to vote at
regular and special meetings of that fund. Under our current view of applicable
law, we will vote the shares for each subaccount as instructed by persons
having a voting interest in the subaccount. We will vote shares for which we
receive no instructions in the same proportion as those for which we receive
instructions. You will receive periodic reports relating to the funds in which
you have an interest as well as any proxy materials and a form on which to give
voting instructions. Voting instructions will be solicited by a written
communication at least 14 days before the meeting.
The number of votes (including fractional votes) you are entitled to direct
will be determined as of the record date set by any fund you invest in through
the subaccounts.
> During the accumulation phase the number of votes is equal to the portion of
your account value invested in the fund, divided by the net asset value of one
share of that fund.
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<PAGE>
> During the income phase the number of votes is equal to the portion of
reserves set aside for the contract's share of the fund, divided by the net
asset value of one share of that fund.
Contract Modification
We may change the contract as required by federal or state law or as otherwise
permitted in the contract. Certain changes will require the approval of
appropriate state or federal regulatory authorities.
Transfer of Ownership: Assignment
We will accept assignments or transfers of ownership where such assignments are
not prohibited, with proper notification. The date of any such assignment or
transfer of ownership will be the date we receive the notification at our Home
Office. An assignment or transfer of ownership may have tax consequences and
you should consult with a tax adviser before assigning or transferring
ownership of the contract.
An assignment of a contract will only be binding on the Company if it is made
in writing and sent to us at our Home Office. We will use reasonable procedures
to confirm that the assignment is authentic, including verification of
signature. If we fail to follow our own procedures, we will be liable for any
losses to you directly resulting from such failure. Otherwise, we are not
responsible for the validity of any assignment. Your rights and the interest of
the annuitant and any beneficiary will be subject to the rights of any assignee
we have on our records.
Legal Matters and Proceedings
We are aware of no material legal proceedings pending which involve the separate
account as a party or which would materially affect the separate account. The
validity of the securities offered by this prospectus has been passed upon by
Counsel to the Company.
In recent years, several life insurance and annuity companies have been named as
defendants in lawsuits, including class action lawsuits, relating to life
insurance and annuity pricing and sales practices. A purported class action
complaint was filed in the Circuit Court of Lauderdale County, Alabama on March
28, 2000 by Loretta Shaner against the Company (the "Shaner Complaint"). The
Shaner Complaint seeks unspecified compensatory damages from the Company and
unnamed affiliates of the Company. The Shaner Complaint claims that the
Company's sale of deferred annuity products for use as investments in
tax-deferred contributory retirement plans (e.g., IRAs) is improper. This
litigation is in the preliminary stages. The Company intends to defend the
action vigorously.
The Company also is a party to other litigation and arbitration proceedings in
the ordinary course of its business, none of which is expected to have a
material adverse effect on the Company.
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<PAGE>
Contents of the Statement of Additional Information
- --------------------------------------------------------------------------------
The Statement of Additional Information (SAI) contains more specific
information on the separate account and the contract, as well as the financial
statements of the separate account and the Company. The following is a list of
the contents of the SAI.
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...............4
Income Phase Payments..................................7
Sales Material and Advertising.........................8
Independent Auditors...................................8
Financial Statements of the Separate Account.........S-1
Financial Statements of Aetna Life Insurance
and Annuity Company and Subsidiaries...............F-1
You may request an SAI by calling the Home Office at the number listed in
"Contract Overview --Questions: Contacting the Company."
36
<PAGE>
Appendix I
Fixed Account
- --------------------------------------------------------------------------------
The Fixed Account is an investment option available during the accumulation
phase of the contract.
- --------------------------------------------------------------------------------
Additional information about this option may be found in the contract.
- --------------------------------------------------------------------------------
Amounts allocated to the Fixed Account are held in the Company's general
account which supports insurance and annuity obligations.
General Disclosure.
> Interests in the Fixed Account have not been registered with the SEC in
reliance on exemptions under the Securities Act of 1933, as amended.
> Disclosure in this prospectus regarding the Fixed Account may be subject to
certain generally applicable provisions of the federal securities laws
relating to the accuracy and completeness of the statements.
> The SEC has not reviewed disclosure in this Appendix regarding the Fixed
Account.
Interest Rates.
> The Fixed Account guarantees that amounts allocated to this option will earn
the minimum interest rate specified in the contract. We may credit a higher
interest rate from time to time, but the rate we credit will never fall below
the guaranteed minimum specified in the contract. Amounts applied to the Fixed
Account will earn the interest rate in effect at the time money is applied.
Amounts in the Fixed Account will receive a compound interest rate as credited
by us. The rate we quote is an annual effective yield. Interest rate
guarantees are based on the claims paying ability of the Company.
> Our determination of interest rates reflects the investment income earned on
invested assets and the amortization of any capital gains and/or losses
realized on the sale of invested assets. Under this option, we assume the risk
of investment gain or loss by guaranteeing the amounts you allocate to this
option and promising a minimum interest rate and income phase payment.
Withdrawals. Under certain emergency conditions, some contracts allow us to
defer payment of any withdrawal for period of up to 6 months or as provided by
federal law.
Charges. We do not make deductions from amounts in the Fixed Account to cover
mortality and expense risks. We consider these risks when determining the
credited rate.
If you make a withdrawal from amounts in the Fixed Account, an early withdrawal
charge may apply. See "Fees."
Transfers. During the accumulation phase, you may transfer account dollars from
the Fixed Account to any other available investment option once during each
calendar year. We may vary the dollar amount that you are allowed to transfer,
but it will never be less than 10% of your account value held in the Fixed
Account.
By notifying the Home Office at least 30 days before income payments begin you
may elect to have amounts transferred to one or more of the funds available
during the income phase to provide variable payments.
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Appendix II
Description of Underlying Funds
- --------------------------------------------------------------------------------
The investment results of the mutual funds (funds) are likely to differ
significantly and there is no assurance that any of the funds will achieve
their respective investment objectives. Shares of the funds will rise and fall
in value and you could lose money by investing in the funds. Investments in the
funds are not bank deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Except as noted,
all funds are diversified, as defined under the Investment Company Act of 1940.
Aetna Balanced VP, Inc.
Investment Objective
Seeks to maximize investment return, consistent with reasonable safety of
principal by investing in a diversified portfolio of one or more of the
following asset classes: stocks, bonds, and cash equivalents, based on the
investment adviser's judgment of which of those sectors or mix thereof offers
the best investment prospects.
Policies
Under normal market conditions, allocates assets among the following asset
classes: equities such as common and preferred stocks; and debt, such as bonds,
mortgage-related and other asset-backed securities, U.S. Government securities,
and money market instruments. Typically maintains approximately 60% of total
assets in equities and 40% of total assets in debt (including money market
instruments), although those percentages may vary from time to time.
Risks
Principal risks are those generally attributable to stock and bond investing.
The success of the fund's strategy depends on the investment adviser's skill in
allocating fund assets between equities and debt and in choosing investments
within those categories. Risks attributable to stock investing include sudden
and unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile than stocks of larger companies and can be
particularly sensitive to expected changes in interest rates, borrowing costs
and earnings. Fixed-income investments are subject to the risk that interest
rates will rise, which generally causes bond prices to fall. Also, economic and
market conditions may cause issuers to default or go bankrupt. Values of
high-yield bonds are even more sensitive to economic and market conditions than
other bonds. Prices of mortgage-related securities, in addition to being
sensitive to changes in interest rates, also are sensitive to changes in the
prepayment patterns on the underlying instruments.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Income Shares d/b/a Aetna Bond VP
Investment Objective
Seeks to maximize total return, consistent with reasonable risk, through
investments in a diversified portfolio consisting primarily of debt securities.
It is anticipated that capital appreciation and investment income will both be
major factors in achieving total return.
Policies
Under normal market conditions, invests at least 65% of total assets in
high-grade corporate bonds, mortgage-related and other asset-backed securities,
and securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. High-grade securities are rated at least A by Standard &
Poor's Corporation (S&P) or Moody's Investors Service, Inc. (Moody's), or if
unrated, considered by the investment adviser to be of comparable quality. May
also invest up to 15% of total assets in high-yield bonds, and up to 25% of
total assets in foreign debt securities.
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Risks
Principal risks are those generally attributable to debt investing, including
increases in interest rates and loss of principal. Generally, when interest
rates rise, bond prices fall. Bonds with longer maturities tend to be more
sensitive to changes in interest rates. For all bonds there is a risk that the
issuer will default. High-yield bonds generally are more susceptible to the
risk of default than higher rated bonds. Prices of mortgage-related securities,
in addition to being sensitive to changes in interest rates, also are sensitive
to changes in the prepayment patterns on the underlying instruments. Foreign
securities have additional risks. Some foreign securities tend to be less
liquid and more volatile than their U.S. counterparts. In addition, accounting
standards and market regulations tend to be less standardized in certain
foreign countries. These risks are usually higher for securities of companies
in emerging markets. Securities of foreign companies may be denominated in
foreign currency. Exchange rate fluctuations may reduce or eliminate gains or
create losses.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Fund d/b/a Aetna Growth and Income VP
Investment Objective
Seeks to maximize total return through investments in a diversified portfolio
of common stocks and securities convertible into common stock. It is
anticipated that capital appreciation and investment income will both be major
factors in achieving total return.
Policies
Under normal market conditions, invests at least 65% of total assets in common
stocks that the investment adviser believes have significant potential for
capital appreciation or income growth. Tends to emphasize stocks of larger
companies. Also invests assets across other asset classes (including stocks of
small and medium-sized companies, international stock, real estate securities
and fixed income securities). May invest principally in common stocks having
significant potential for capital appreciation, or may purchase common stocks
principally for their income potential through dividends and option writing, or
may acquire securities having a mix of these characteristics.
Risks
Principal risks are those generally attributable to stock investing. These
risks include sudden and unpredictable drops in the value of the market as a
whole and periods of lackluster or negative performance. Although the
investment adviser emphasizes large cap stocks, to the extent the Fund is
diversified across asset classes, it may not perform as well as less
diversified funds when large cap stocks are in favor. Additionally, stocks of
medium-sized and smaller companies tend to be more volatile and less liquid
than stocks of larger companies.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Encore Fund d/b/a Aetna Money Market VP
Investment Objective
Seeks to provide high current return, consistent with preservation of capital
and liquidity, through investment in high-quality money market instruments.
Policies
Invests only in a diversified portfolio of high-quality fixed income securities
denominated in U.S. dollars, with short remaining maturities. These securities
include U.S. Government securities, such as U.S. Treasury bills and securities
issued or sponsored by U.S. government agencies. They also may include
corporate debt securities, commercial paper, asset-backed securities and
certain obligations of U.S. and foreign banks, each of which must be highly
rated by independent rating agencies or, if unrated, considered by the
investment adviser to be of comparable quality. Maintains a dollar-weighted
average portfolio maturity of 90 days or less.
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Risks
It is possible to lose money by investing in the fund. There is no guaranty the
fund will achieve its investment objective. An investment in the fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
A weak economy, strong equity markets and changes by the Federal Reserve in its
monetary policies all could affect short-term interest rates and therefore the
value and yield of the fund's shares.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Generation Portfolios, Inc.--Aetna Ascent VP
Investment Objective
Seeks to provide capital appreciation.
Policies
Managed for investors seeking capital appreciation who generally have an
investment horizon exceeding 15 years and who have a high level of risk
tolerance. Under normal market conditions, allocates assets among several
classes of equities, fixed-income securities, and money market instruments. The
investment adviser has instituted both a benchmark percentage allocation and a
fund level range allocation for each asset class. Asset allocation may vary
from the benchmark allocation (within the permissible range) based on
theinvestment adviser's ongoing evaluation of the expected returns and risks of
each asset class relative to other classes. May invest up to 15% of total
assets in high-yield bonds.
The benchmark portfolio is 80% equities and 20% fixed income under neutral
market conditions.
Risks
The success of the fund's strategy depends significantly on the investment
adviser's skill in choosing investments and in allocating assets among the
different investment classes. Principal risks are those generally attributable
to stock and bond investing. For stock investments, risks include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile. Risks associated with real estate securities include
periodic declines in the value of real estate, generally, and declines in the
rents and other income generated by real estate. For bonds, generally, when
interest rates rise, bond prices fall. Economic and market conditions may cause
issuers to default or go bankrupt. Values of high-yield bonds are even more
sensitive to economic and market conditions than other bonds. Prices of
mortgage-related securities, in addition to being sensitive to changes in
interest rates, also are sensitive to changes in the prepayment patterns on the
underlying instruments. Foreign securities have additional risks. Some foreign
securities tend to be less liquid and more volatile than their U.S.
counterparts. In addition, accounting standards and market regulations tend to
be less standardized in certain foreign countries. These risks are usually
higher for securities of companies in emerging markets. Securities of foreign
companies may be denominated in foreign currency. Exchange rate fluctuations
may reduce or eliminate gains or create losses. Hedging strategies intended to
reduce this risk may not perform as expected.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Generation Portfolios, Inc.--Aetna Crossroads VP
Investment Objective
Seeks to provide total return (i.e., income and capital appreciation, both
realized and unrealized).
Policies
Managed for investors seeking a balance between income and capital appreciation
who generally have an investment horizon exceeding ten years and who have a
moderate level of risk tolerance. Under normal market conditions, allocates
assets among several classes of equities, fixed-income securities, and money
market
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instruments. The investment adviser has instituted both a benchmark percentage
allocation and a fund level range allocation for each asset class. Asset
allocation may vary from the benchmark allocation (within the permissible
range) based on the investment adviser's ongoing evaluation of the expected
returns and risks of each asset class relative to other classes. May invest up
to 15% of total assets in high-yield bonds.
The benchmark portfolio is 60% equities and 40% fixed income under neutral
market conditions.
Risks
The success of the fund's strategy depends significantly on the investment
adviser's skill in choosing investments and in allocating assets among the
different investment classes. Principal risks are those generally attributable
to stock and bond investing. For stock investments, risks include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile. Risks associated with real estate securities include
periodic declines in the value of real estate, generally, and declines in the
rents and other income generated by real estate. For bonds, generally, when
interest rates rise, bond prices fall. Economic and market conditions may cause
issuers to default or go bankrupt. Values of high-yield bonds are even more
sensitive to economic and market conditions than other bonds. Prices of
mortgage-related securities, in addition to being sensitive to changes in
interest rates, also are sensitive to changes in the prepayment patterns on the
underlying instruments. Foreign securities have additional risks. Some foreign
securities tend to be less liquid and more volatile than their U.S.
counterparts. In addition, accounting standards and market regulations tend to
be less standardized in certain foreign countries. These risks are usually
higher for securities of companies in emerging markets. Securities of foreign
companies may be denominated in foreign currency. Exchange rate fluctuations
may reduce or eliminate gains or create losses. Hedging strategies intended to
reduce this risk may not perform as expected.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Generation Portfolios, Inc.--Aetna Legacy VP
Investment Objective
Seeks to provide total return consistent with preservation of capital.
Policies
Managed for investors primarily seeking total return consistent with capital
preservation who generally have an investment horizon exceeding five years and
who have a low level of risk tolerance. Under normal market conditions,
allocates assets among several classes of equities, fixed-income securities,
and money market instruments. The investment adviser has instituted both a
benchmark percentage allocation and a fund level range allocation for each
asset class. Asset allocation may vary from the benchmark allocation (within
the permissible range) based on the investment adviser's ongoing evaluation of
the expected returns and risks of each asset class relative to other classes.
May invest up to 15% of total assets in high-yield bonds.
The benchmark portfolio is 40% equities and 60% fixed income under neutral
market conditions.
Risks
The success of the fund's strategy depends significantly on the investment
adviser's skill in choosing investments and in allocating assets among the
different investment classes. Principal risks are those generally attributable
to stock and bond investing. For stock investments, risks include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile. Risks associated with real estate securities include
periodic declines in the value of real estate, generally, and declines in the
rents and other income generated by real estate. For bonds, generally, when
interest rates rise, bond prices fall. Economic and market conditions may cause
issuers to default or go bankrupt. Values of high-yield bonds are even more
sensitive to economic and market conditions than other bonds. Prices of
mortgage-related securities, in addition to being sensitive to changes in
interest rates, also are sensitive to changes in the prepayment patterns on the
underlying instruments. Foreign securities have additional risks. Some foreign
securities tend to be less liquid and more volatile than their U.S.
counterparts. In addition, accounting standards
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and market regulations tend to be less standardized in certain foreign
countries. These risks are usually higher for securities of companies in
emerging markets. Securities of foreign companies may be denominated in foreign
currency. Exchange rate fluctuations may reduce or eliminate gains or create
losses. Hedging strategies intended to reduce this risk may not perform as
expected.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Technology VP
Investment Objective
Seeks long-term capital appreciation.
Policies
Primarily invests in common stocks and securities convertible into common stock
of companies in the information technology industry sector. These companies
include companies that the subadviser considers to be principally engaged in
the development, production, or distribution of products or services related to
the processing, storage, transmission, or presentation of information or data.
A particular company will be considered to be principally engaged in the
information technology industries if, at the time of investment, the investment
adviser determines that at least 50% of the company's assets, gross income, or
net profits are committed to, or derived from, those industries. A company will
also be considered to be principally engaged if the subadviser considers that
the company has the potential for capital appreciation primarily as a result of
particular products, technology, patents, or other market advantages in those
industries. In selecting stocks, the subadviser looks at a company's valuation
relative to its potential long-term growth rate. May look to see whether a
company offers a new or improved product, service or business operation;
whether it has experienced a positive change in its financial or business
condition; whether the market for its goods or services has expanded or
experienced a positive change; and whether there is a potential catalyst for
positive change in the company's business or stock price. May sell a security
if the subadviser determines that the company has become overvalued due to
price appreciation or has experienced a change in its business fundamentals, if
the company's growth rate slows substantially, or if the subadviser believes
that another investment offers a better opportunity.
Risks
Principal risks are those generally attributable to stock investing which
include sudden and unpredictable drops in the value of the market as a whole
and periods of lackluster or negative performance. Stocks of smaller companies
tend to be less liquid and more volatile than stocks of larger companies.
Further, stocks of smaller companies also can be particularly sensitive to
expected changes in interest rates, borrowing costs and earnings. Because the
fund's investments are concentrated in the information technology industries,
the Fund may be subject to more abrupt swings in value than a fund which
invests in a broader range of industries. Investments in information technology
companies may be highly volatile. The fund may experience difficulty in
establishing or closing out positions in these securities at prevailing market
prices. Also, there may be less publicly available information about small
companies or less market interest in their securities as compared to larger
companies, and it may take longer for the prices of the securities to reflect
the full value of their issuers' earnings potential or assets.
Investment Adviser: Aeltus Investment Management, Inc.
Subadviser: Elijah Asset Management, LLC
Fidelity Variable Insurance Products Fund--Equity Income Portfolio
Investment Objective
Seeks reasonable income. Also considers the potential for capital appreciation.
Seeks a yield which exceeds the composite yield on the securities comprising
the S&P 500.
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Policies
Normally invests at least 65% of total assets in income-producing equity
securities. May also invest in other types of equity securities and debt
securities, including lower-quality debt securities. May invest in securities
of both foreign and domestic issuers. Emphasis on above-average
income-producing equity securities tends to lead to investments in large cap
"value" stocks. In making investment decisions, the investment adviser relies
on fundamental analysis of each issuer and its potential for success in light
of its current financial condition, its industry position, and economic and
market conditions. May use various techniques, such as buying and selling
futures contracts, to increase or decrease exposure to changing security
prices, or other factors that affect security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Debt securities have
varying levels of sensitivity to changes in interest rates. In general, the
price of a debt security can fall when interest rates rise. Securities with
longer maturities and mortgage securities can be more sensitive to interest
rate changes. Foreign investments, especially those in emerging markets, can be
more volatile and potentially less liquid than U.S. investments due to
increased risks of adverse issuer, political, regulatory, market or economic
developments. Lower-quality debt securities (those of less than
investment-grade quality) can be morevolatile due to increased sensitivity to
adverse issuer, political, regulatory, market or economic developments.
Lower-quality debt securities involve greater risk of default or price changes
due to changes in the credit quality of the issuer. "Value" stocks can react
differently to issuer, political, market and economic developments than the
market as a whole and other types of stocks. "Value" stocks may not ever
realize their full value.
Investment Adviser: Fidelity Management & Research Company
Fidelity Variable Insurance Products Fund--Growth Portfolio
Investment Objective
Seeks capital appreciation.
Policies
Normally invests primarily in common stocks of companies the investment adviser
believes have above-average growth potential. Companies with high growth
potential tend to be companies with higher than average price/
earning (PE) ratios and are often called "growth" stocks. May invest in
securities of both foreign and domestic issuers. In making investment
decisions, the investment adviser relies on fundamental analysis of each issuer
and its potential for success in light of its current financial condition, its
industry position, and economic and market conditions. May use various
techniques, such as buying and selling futures contracts, to increase or
decrease exposure to changing security prices, or other factors that affect
security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Foreign investments,
especially those in emerging markets, can be more volatile and potentially less
liquid than U.S. investments due to increased risks of adverse issuer,
political, regulatory, market or economic developments. "Growth" stocks tend to
be sensitive to changes in their earnings and more volatile than other types of
stocks.
Investment Adviser: Fidelity Management & Research Company
Fidelity Variable Insurance Products Fund--Overseas Portfolio
Investment Objective
Seeks long-term growth of capital.
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Policies
Normally invests at least 65% of total assets in foreign securities, primarily
in common stocks. Investments are allocated across countries and regions, with
consideration given to the size of the market in each country and region
relative to the size of the international market as a whole. In making
investment decisions, the investment adviser relies on fundamental analysis of
each issuer and its potential for success in light of its current financial
condition, its industry position, and economic and market conditions. May use
various techniques, such as buying and selling futures contracts, to increase
ordecrease exposure to changing security prices or other factors that affect
security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Debt securities have
varying levels of sensitivity to changes in interest rates. In general, the
price of a debt security can fall when interest rates rise. Securities with
longer maturities and mortgage securities can be more sensitive to interest
rate changes. Foreign investments, especially those in emerging markets, can be
more volatile and potentially less liquid than U.S. investments due to
increased risks of adverse issuer, political, regulatory, market or economic
developments.
Investment Adviser: Fidelity Management & Research Company
Subadvisers: Fidelity Management & Research (U.K.) Inc.; Fidelity Management &
Research Far East Inc.; Fidelity International Investment Advisors; Fidelity
International Investment Advisors (U.K.) Limited; Fidelity Investments Japan
Limited
Fidelity Variable Insurance Products Fund II--Contrafund[RegTM] Portfolio
Investment Objective
Seeks long-term capital appreciation.
Policies
Normally invests primarily in common stocks of companies whose value the
investment adviser believes is not fully recognized by the public. May invest
in securities of both foreign and domestic issuers. May tend to buy "growth"
stocks or "value" stocks, or a combination of both types. In making investment
decisions, the investment adviser relies on fundamental analysis of each issuer
and its potential for success in light of its current financial condition, its
industry position, and economic and market conditions. May use various
techniques, such as buying and selling futures contracts, to increase or
decrease exposure to changing security prices, interest rates or other factors
that affect security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Debt securities have
varying levels of sensitivity to changes in interest rates. In general, the
price of a debt security can fall when interest rates rise. Securities with
longer maturities and mortgage securities can be more sensitive to interest
rate changes. Foreign investments, especially those in emerging markets, can be
more volatile and potentially less liquid than U.S. investments due to
increased risks of adverse issuer, political, regulatory, market or economic
developments. "Growth" stocks tend to be sensitive to changes in their earnings
and more volatile than other types of stocks. "Value" stocks can react
differently to issuer, political, market and economic developments than the
market as a whole and other types of stocks. "Value" stocks may not ever
realize their full value.
Investment Adviser: Fidelity Management & Research Company
Subadvisers: Fidelity Management & Research (U.K.) Inc.; Fidelity Management &
Research Far East Inc.; Fidelity Investments Japan Limited
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Janus Aspen Series--Aggressive Growth Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
A nondiversified portfolio that invests primarily in common stocks selected for
their growth potential and normally invests at least 50% of its equity assets
in medium-sized companies. Medium-sized companies are those whose market
capitalizations at the time of investment fall within the range of companies in
the Standard and Poor's (S&P) MidCap 400 Index. The market capitalizations
within the Index will vary, but as of December 31, 1999, they ranged from
approximately $170 million to $37 billion. May at times hold substantial
positions in cash or similar investments.
Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease
in response to the activities of an individual company or in response to
general market and/or economic conditions. In addition, a nondiversified
portfolio has the ability to take larger positions in a smaller number of
issuers. Because the appreciation or depreciation of a single stock may have a
greater impact on the net asset value of a nondiversified portfolio, its share
price can be expected to fluctuate more than a diversified portfolio.
Performance may also be affected by risks specific to certain types of
investments, such as foreign securities, derivative investments, non-investment
grade debt securities (high-yield/high-risk securities or "junk" bonds) or
companies with relatively small market capitalizations. Smaller or newer
companies may suffer more significant losses as well as realize more
substantial growth than larger or more established issuers. Investments in such
companies tend to be more volatile and somewhat more speculative. Issues
associated with investing in foreign securities include currency risk,
political and economic risk, regulatory risk, market risk and transaction
costs. High-yield/high-risk securities are generally more dependent on the
ability of the issuer to meet interest and principal payments (i.e., credit
risk). They are more vulnerable to real or perceived economic changes,
political changes or other adverse developments specific to the issuer.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series--Balanced Portfolio
Investment Objective
Seeks long-term capital growth, consistent with preservation of capital and
balanced by current income.
Policies
Normally invests 40-60% of its assets in securities selected primarily for
their growth potential and 40-60% of its assets in securities selected
primarily for their income potential. Will normally invest at least 25% of its
assets in fixed-income securities. Assets may shift between the growth and
income components of the Portfolio based on the portfolio manager's analysis of
relevant market, financial and economic conditions. May at times hold
substantial positions in cash or similar investments.
Risks
Because the Portfolio may invest a significant portion of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease
in response to the activities of an individual company or in response to
general market and/or economic conditions. The income component of the
Portfolio's holdings includes fixed-income securities which generally will
decrease in value when interest rates rise. Another risk associated with
fixed-income securities is the risk that an issuer of a bond will be unable to
make principal and interest payments when due (i.e. credit risk). Performance
may also be affected by risks specific to certain types of investments, such as
foreign securities, derivative investments, non-investment grade debt
securities (high-yield/high-risk securities or "junk" bonds) or companies with
relatively small market capitalizations. Smaller or newer companies may suffer
more significant losses as well as realize more substantial growth than larger
or more established issuers.
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Investments in such companies tend to be more volatile and somewhat more
speculative. Issues associated with investing in foreign securities include
currency risk, political and economic risk, regulatory risk, market risk and
transaction costs. High-yield/high-risk securities are generally more
susceptible to credit risk. They are more vulnerable to real or perceived
economic changes, political changes or other adverse developments specific to
the issuer.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series--Flexible Income Portfolio
Investment Objective
Seeks to obtain maximum total return, consistent with the preservation of
capital.
Policies
Invests primarily in a wide variety of income-producing securities such as
corporate bonds and notes, government securities and preferred stock. Will
invest at least 80% of its assets in income-producing securities. May own an
unlimited amount of high-yield/high-risk securities ("junk bonds") which may be
a big part of the portfolio. May at times hold substantial positions in cash or
similar investments.
Risks
Because the Portfolio invests substantially all of its assets in fixed-income
securities, it is subject to risks such as credit or default risks or decreased
value due to interest rate increases. Generally, a fixed-income security will
increase in value when interest rates fall and decrease in value when interest
rates rise. Performance may also be affected by risks specific to certain types
ofinvestments, such as foreign securities, derivative investments, non-
investment grade debt securities (high-yield/high-risk securities or "junk"
bonds) or companies with relatively small market capitalizations. Smaller or
newer companies may suffer more significant losses as well as realize more
substantial growth than larger or more established issuers. Investments in such
companies tend to be more volatile and somewhat more speculative. Issues
associated with investing in foreign securities include currency risk,
political and economic risk, regulatory risk, market risk and transaction
costs. High-yield/high-risk securities are generally more dependent on the
ability of the issuer to meet interest and principal payments (i.e., credit
risk). They are more vulnerable to real or perceived economic changes,
political changes or other adverse developments specific to the issuer.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series--Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the preservation
of capital.
Policies
Generally invests primarily in common stocks of larger, more established
companies selected for their growth potential, although it can invest in
companies of any size. May at times hold substantial positions in cash or
similar investments.
Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease
in response to the activities of an individual company or in response to
general market and/or economic conditions. Performance may also be affected by
risks specific to certain types of investments, such as foreign securities,
derivative investments, non-investment grade debt securities (high-yield/
high-risk securities or "junk" bonds) or companies with relatively small market
capitalizations. Smaller or newer companies may suffer more significant losses
as well as realize more substantial growth than larger or more established
issuers. Investments in such companies tend to be more volatile and somewhat
more speculative.
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Issues associated with investing in foreign securities include currency risk,
political and economic risk, regulatory risk, market risk and transaction
costs. High-yield/high-risk securities are generally more dependent on the
ability of the issuer to meet interest and principal payments (i.e., credit
risk). They are more vulnerable to real or perceived economic changes,
political changes or other adverse developments specific to the issuer.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series--Worldwide Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the preservation
of capital.
Policies
Invests primarily in common stocks of companies of any size throughout the
world. Normally invests in issuers from at least five different countries,
including the United States. May at times invest in fewer than five countries
or even in a single country. May hold substantial positions in cash or similar
investments.
Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease
in response to the activities of an individual company or in response to
general market and/or economic conditions. Performance may also be affected by
risks specific to certain types of investments, such as foreign securities,
derivative investments, non-investment grade debt securities (high-yield/
high-risk securities or "junk" bonds) or companies with relatively small market
capitalizations. Smaller or newer companies may suffer more significant losses
as well as realize more substantial growth than larger or more established
issuers. Investments in such companies tend to be more volatile and somewhat
more speculative. Issues associated with investing in foreign securities
include currency risk, political and economic risk, regulatory risk, market
risk and transaction costs. High-yield/high-risk securities are generally more
dependent on the ability of the issuer to meet interest and principal payments
(i.e., credit risk). They are more vulnerable to real or perceived economic
changes, political changes or other adverse developments specific to the
issuer.
Investment Adviser: Janus Capital Corporation
Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (formerly
known as PPI MFS Value Equity Portfolio)
Investment Objective
Seeks capital appreciation.
Policies
Invests primarily (at least 65% of total assets) in common stocks and related
securities, such as preferred stock, convertible securities and depositary
receipts. Focuses on companies believed to have favorable growth prospects and
attractive valuations based on current and expected earnings or cash flow.
Investments may include securities traded in the over-the-counter markets.
May invest in foreign securities (including emerging market securities) and may
have exposure to foreign currencies through its investment in these securities,
its direct holdings of foreign currencies or through its use of foreign
currency exchange contracts for the purchase or sale of a fixed quantity of a
foreign currency at a future date.
Also may invest in debt securities issued by both U.S. and foreign companies,
including non-investment grade debt securities.
Risks
Investment in the portfolio is subject to the following risks:
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> Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security. In
addition, securities of growth companies may be more volatile because such
companies usually invest a high portion of their earnings in their businesses
and may lack the dividends of value companies, which can cushion the security
prices in a declining market.
> Over-the-Counter Risk: Equity securities that are traded over the counter may
be more volatile than exchange listed securities, and the portfolio may
experience difficulty in purchasing or selling these securities at a fair
price.
> Foreign Markets Risk: Investment in foreign securities involves additional
risks relating to political, social and economic developments abroad. Other
risks from these investments result from the differences between the
regulations to which U.S. and foreign issuers and markets are subject.
> Emerging Markets Risk: Emerging markets are generally defined as countries in
the initial stages of their industrialization cycles with low per capita
income. Investments in emerging markets securities involve all of the risks of
investment in foreign securities, and also have additional risks.
> Currency Risk: Exposure to foreign currencies may cause the value of the
portfolio to decline in the event that the U.S. dollar strengthens against
these currencies, or in the event that foreign governments intervene in the
currency markets.
> Interest Rate Risk: Investment in debt securities involves risks relating to
interest rate movement. If interest rates go up, the value of debt securities
held by the portfolio will decline.
> Credit Risk: Investment in non-investment grade debt securities involves
credit risk because issuers of non-investment grade securities are more
likely to have difficulty making timely payments of interest or principal.
Investment Adviser: Aetna Life Insurance and Annuity Company
Subadviser: Massachusetts Financial Services Company
Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
Invests primarily (at least 80% of total assets) in common stocks and related
securities, such as preferred stock, convertible securities and depositary
receipts, of emerging growth companies. Emerging growth companies are companies
believed to be either early in their life cycle but which have the potential to
become major enterprises, or major enterprises whose rates of earnings growth
are expected to accelerate. Investments may include securities traded in the
over-the-counter markets.
May also invest in foreign securities and may have exposure to foreign
currencies through its investment in these securities, its direct holdings of
foreign currencies or through its use of foreign currency exchange contracts
for the purchase or sale of a fixed quantity of foreign currency at a future
date.
Risks
Investment in the portfolio is subject to the following risks:
> Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security.
> Emerging Growth Risk: The portfolio's performance is particularly sensitive to
changes in the value of emerging growth companies. Investments in emerging
growth companies may be subject to more abrupt or erratic market movements and
may involve greater risks than investments in other companies.
> Over-the-Counter Risk: Equity securities that are traded over the counter may
be more volatile than exchange listed securities, and the portfolio may
experience difficulty in purchasing or selling these securities at a fair
price.
48
<PAGE>
> Foreign Markets Risk: Investment in foreign securities involves risks related
to political, social and economic developments abroad. These risks result from
differences between the regulations to which U.S. and foreign issuers and
Markets are subject.
> Currency Risk: Exposure to foreign currencies may cause the value of the
portfolio to decline if the U.S. dollar strengthens against these currencies
or if foreign governments intervene in the currency markets.
Investment Adviser: Aetna Life Insurance and Annuity Company
Subadviser: Massachusetts Financial Services Company
Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio
Investment Objective
Seeks long-term growth of capital and future income.
Policies
Invests primarily (at least 65% of total assets) in common stocks and related
securities, such as preferred stock, convertible securities and depositary
receipts. Focuses on companies believed to have favorable prospects for
long-term growth, attractive valuations based on current and expected earnings
or cash flow, dominant or growing market share and superior management. May
invest in companies of any size. Investments may also include securities traded
on securities exchanges or in the over-the-counter markets.
May invest in foreign securities and may have exposure to foreign currencies
through its investment in these securities, its direct holdings of foreign
currencies or through its use of foreign currency exchange contracts for the
purchase or sale of a fixed quantity of foreign currency at a future date.
Risks
Investment in the portfolio is subject to the following risks:
> Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security. In
addition, securities of growth companies may be more volatile because such
companies usually invest a high portion of their earnings in their businesses
and may lack the dividends of value companies, which can cushion the security
prices in a declining market.
> Over-the-Counter Risk: Equity securities that are traded over-the-counter may
be more volatile than exchange-listed securities, and the portfolio may
experience difficulty in purchasing or selling these securities at a fair
price.
> Foreign Markets Risk: Investment in foreign securities involves additional
risks relating to political, social and economic developments abroad. Other
risks from these investments result from the differences between the
regulations to which U.S. and foreign issuers and markets are subject.
> Currency Risk: Exposure to foreign currencies may cause the value of the
portfolio to decline if the U.S. dollar strengthens against these currencies
or if foreign governments intervene in the currency markets.
Investment Adviser: Aetna Life Insurance and Annuity Company
Subadviser: Massachusetts Financial Services Company
49
<PAGE>
Portfolio Partners, Inc. (PPI) Scudder International Growth Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
Invests primarily (at least 65% of total assets) in the equity securities of
foreign companies believed to have high growth potential. Normally invests in
securities of at least three different countries other than the U.S. Will
invest in securities in both developed and developing markets. Seeks to invest
in those companies believed to be best able to capitalize on the growth and
changes taking place within and between various regions of the world.
Typically, these are companies with leading or rapidly developing business
franchises, strong financial positions, and high quality management capable of
defining and implementing strategies to take advantage of local, regional or
global markets.
Also may invest in debt securities issued by both U.S. and foreign companies,
including non-investment grade debt securities.
Risks
Investment in the portfolio is subject to the following risks:
> Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security.
> Foreign Markets Risk: Investment in foreign securities involves additional
risks relating to political, social and economic developments abroad. Other
risks from these investments result from the differences between the
regulations to which U.S. and foreign issuers and markets are subject.
> Currency Risk: Exposure to foreign currencies may cause the value of the
portfolio to decline in the event that the U.S. dollar strengthens against
these currencies, or in the event that foreign governments intervene in the
currency markets.
> Emerging Growth Risk: The portfolio's performance is particularly sensitive to
changes in the value of emerging growth companies. Investments in emerging
growth companies may be subject to more abrupt or erraticmarket movements and
may involve greater risks than investments in other companies.
> Interest Rate Risk: Investment in debt securities involves risks relating to
interest rate movement. If interest rates go up, the value of debt securities
held by the portfolio will decline.
> Credit Risk: Investment in non-investment grade debt securities involves
credit risk because issuers of non-investment grade securities are more
likely to have difficulty making timely payments of interest or principal.
Investment Adviser: Aetna Life Insurance and Annuity Company
Subadviser: Scudder Kemper Investments, Inc.
Portfolio Partners, Inc. (PPI) T. Rowe Price Growth Equity Portfolio
Investment Objective
Seeks long-term capital growth, and secondarily, increasing dividend income.
Policies
Invests primarily (at least 65% of total assets) in the common stocks of a
diversified group of growth companies. Seeks companies where dividends are
expected to rise over time as earnings increase; with above-average rate of
earnings growth; and with a lucrative niche in the economy that is believed to
give them the ability to sustain earnings momentum even during times of slow
economic growth.
50
<PAGE>
May invest in foreign securities and may have exposure to foreign currencies
through its investment in these securities, its direct holdings of foreign
currencies or through its use of foreign currency exchange contracts for the
purchase or sale of a fixed quantity of foreign currency at a future date.
Risks
Investment in the portfolio is subject to the following risks:
> Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security. In
addition, securities of growth companies may be more volatile because such
companies usually invest a high portion of their earnings in their businesses
and may lack the dividends of value companies, which can cushion the security
prices in a declining market.
> Growth Stock Risk: Growth stock companies usually invest a high portion of
earnings in their business, and they may lack the dividends of value stocks
that can cushion stock prices in a falling market. Also, earnings
disappointments often lead to sharply falling prices because investors buy
growth stocks in anticipation of superior earnings growth.
> Foreign Markets Risk: Investment in foreign securities involves additional
risks relating to political, social and economic developments abroad. Other
risks from these investments result from the differences between the
regulations to which U.S. and foreign issuers and markets are subject.
> Currency Risk: Exposure to foreign currencies may cause the value of the
portfolio to decline in the event that the U.S. dollar strengthens against
these currencies, or in the event that foreign governments intervene in the
currency markets.
Investment Adviser: Aetna Life Insurance and Annuity Company
Subadviser: T. Rowe Price Associates, Inc.
51
<PAGE>
Appendix III
Condensed Financial Information
- --------------------------------------------------------------------------------
TABLE I
FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 1.25%
(Selected data for accumulation units outstanding throughout each period)
================================================================================
The condensed financial information presented below for each of the periods in
the ten-year period ended December 31, 1999 (as applicable), is derived from
the financial statements of the separate account, which have been audited by
KPMG LLP, independent auditors. The financial statements and the independent
auditors' report thereon for the year ended December 31, 1999 are included in
the Statement of Additional Information.
<TABLE>
<CAPTION>
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
AETNA ASCENT VP
Value at beginning of period $ 15.855 $ 15.392 $ 12.999 $ 10.652
Value at end of period $ 17.905 $ 15.855 $ 15.392 $ 12.999
Number of accumulation units
outstanding at end of period 96,551 274,115 317,579 99,589
AETNA BALANCED VP, INC.
Value at beginning of period $ 21.929 $ 18.989 $ 15.698 $ 13.803
Value at end of period $ 24.603 $ 21.929 $ 18.989 $ 15.698
Number of accumulation units
outstanding at end of period 2,278,136 2,929,720 3,174,738 3,885,730
AETNA BOND VP
Value at beginning of period $ 14.270 $ 13.361 $ 12.493 $ 12.212
Value at end of period $ 13.988 $ 14.270 $ 13.361 $ 12.493
Number of accumulation units
outstanding at end of period 887,371 1,129,589 1,168,988 1,947,629
AETNA CROSSROADS VP
Value at beginning of period $ 15.095 $ 14.432 $ 12.430 $ 10.594
Value at end of period $ 16.431 $ 15.095 $ 14.432 $ 12.430
Number of accumulation units
outstanding at end of period 115,324 218,649 175,559 74,128
AETNA GROWTH AND
INCOME VP
Value at beginning of period $ 24.907 $ 22.028 $ 17.173 $ 13.972
Value at end of period $ 28.883 $ 24.907 $ 22.028 $ 17.173
Number of accumulation units
outstanding at end of period 7,212,849 9,491,619 10,689,845 15,372,944
AETNA LEGACY VP
Value at beginning of period $ 14.064 $ 13.317 $ 11.776 $ 10.443
Value at end of period $ 14.875 $ 14.064 $ 13.317 $ 11.776
Number of accumulation units
outstanding at end of period 111,343 197,742 133,741 25,977
AETNA MONEY MARKET VP
Value at beginning of period $ 12.425 $ 11.930 $ 11.453 $ 11.007
Value at end of period $ 12.894 $ 12.425 $ 11.930 $ 11.453
Number of accumulation units
outstanding at end of period 1,034,154 1,146,661 974,714 1,984,269
FIDELITY VIP
EQUITY-INCOME
PORTFOLIO
Value at beginning of period $ 17.400 $ 15.784 $ 12.475 $ 11.054
Value at end of period $ 18.272 $ 17.400 $ 15.784 $ 12.475
Number of accumulation units
outstanding at end of period 236,374 298,921 328,562 208,072
FIDELITY VIP GROWTH
PORTFOLIO
Value at beginning of period $ 19.155 $ 13.904 $ 11.402 $ 10.066
Value at end of period $ 25.999 $ 19.155 $ 13.904 $ 11.402
Number of accumulation units
outstanding at end of period 474,649 324,558 229,060 199,720
FIDELITY VIP OVERSEAS
PORTFOLIO
Value at beginning of period $ 13.786 $ 12.381 $ 11.238 $ 10.052
Value at end of period $ 19.419 $ 13.786 $ 12.381 $ 11.238
Number of accumulation units
outstanding at end of period 37,275 54,226 51,780 38,994
FIDELITY VIP II
CONTRAFUND[RegTM]
PORTFOLIO
Value at beginning of period $ 19.735 $ 15.374 $ 12.540 $ 10.468
Value at end of period $ 24.217 $ 19.735 $ 15.374 $ 12.540
Number of accumulation units
outstanding at end of period 449,134 488,102 465,699 273,189
<CAPTION>
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
AETNA ASCENT VP
Value at beginning of period $ 10.000(1)
Value at end of period $ 10.652
Number of accumulation units
outstanding at end of period 16,791
AETNA BALANCED VP, INC.
Value at beginning of period $ 10.971 $ 11.164 $ 10.286 $ 12.717(2) $ 10.882 $10.423
Value at end of period $ 13.803 $ 10.971 $ 11.164 $ 10.286 $ 12.717 $10.882
Number of accumulation units
outstanding at end of period 6,430,772 3,541,703 318,711 6,537 1,324,822 984,798
AETNA BOND VP
Value at beginning of period $ 10.457 $ 11.006 $ 10.160 $ 37.815(3) $ 32.066 $29.752
Value at end of period $ 12.212 $ 10.457 $ 11.006 $ 10.160 $ 37.815 $32.066
Number of accumulation units
outstanding at end of period 4,853,662 1,988,960 166,913 4,196 427,893 358,454
AETNA CROSSROADS VP
Value at beginning of period $ 10.000(1)
Value at end of period $ 10.594
Number of accumulation units
outstanding at end of period 16,953
AETNA GROWTH AND
INCOME VP
Value at beginning of period $ 10.698 $ 10.940 $ 10.378 $ 84.249(4) $ 67.496 $66.174
Value at end of period $ 13.972 $ 10.698 $ 10.940 $ 10.378 $ 84.249 $67.496
Number of accumulation units
outstanding at end of period 30,554,957 11,117,383 879,670 3,107 908,777 810,126
AETNA LEGACY VP
Value at beginning of period $ 10.000(1)
Value at end of period $ 10.443
Number of accumulation units
outstanding at end of period 2,222
AETNA MONEY MARKET VP
Value at beginning of period $ 10.509 $ 10.223 $ 10.031 $ 34.122(5) $ 32.431 $30.285
Value at end of period $ 11.007 $ 10.509 $ 10.223 $ 10.031 $ 34.122 $32.431
Number of accumulation units
outstanding at end of period 4,354,272 1,822,449 90,782 2,808 548,425 722,438
FIDELITY VIP
EQUITY-INCOME
PORTFOLIO
Value at beginning of period $ 10.000(1)
Value at end of period $ 11.054
Number of accumulation units
outstanding at end of period 294,244
FIDELITY VIP GROWTH
PORTFOLIO
Value at beginning of period $ 10.000(1)
Value at end of period $ 10.066
Number of accumulation units
outstanding at end of period 288,576
FIDELITY VIP OVERSEAS
PORTFOLIO
Value at beginning of period $ 10.000(1)
Value at end of period $ 10.052
Number of accumulation units
outstanding at end of period 33,813
FIDELITY VIP II
CONTRAFUND[RegTM]
PORTFOLIO
Value at beginning of period $ 10.000(1)
Value at end of period $ 10.468
Number of accumulation units
outstanding at end of period 379,862
</TABLE>
52
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period $ 20.433 $ 15.410 $ 13.850 $ 12.992
Value at end of period $ 45.486 $ 20.433 $ 15.410 $ 13.850
Number of accumulation units
outstanding at end of period 828,592 512,154 469,230 590,904
JANUS ASPEN BALANCED
PORTFOLIO
Value at beginning of period $ 19.880 $ 14.990 $ 12.431 $ 10.835
Value at end of period $ 24.886 $ 19.880 $ 14.990 $ 12.431
Number of accumulation units
outstanding at end of period 527,201 334,508 193,429 74,184
JANUS ASPEN FLEXIBLE
INCOME PORTFOLIO
Value at beginning of period $ 15.509 $ 14.393 $ 13.040 $ 12.094
Value at end of period $ 15.562 $ 15.509 $ 14.393 $ 13.040
Number of accumulation units
outstanding at end of period 73,596 85,517 109,812 96,128
JANUS ASPEN GROWTH
PORTFOLIO
Value at beginning of period $ 20.651 $ 15.414 $ 12.716 $ 10.870
Value at end of period $ 29.366 $ 20.651 $ 15.414 $ 12.716
Number of accumulation units
outstanding at end of period 432,037 217,310 179,226 132,465
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period $ 21.320 $ 16.745 $ 13.880 $ 10.893
Value at end of period $ 34.626 $ 21.320 $ 16.745 $ 13.880
Number of accumulation units
outstanding at end of period 902,510 1,069,704 953,522 520,275
PPI MFS CAPITAL
OPPORTUNITIES
PORTFOLIO
Value at beginning of period $ 26.713 $ 21.343 $ 21.038(7)
Value at end of period $ 39.254 $ 26.713 $ 21.343
Number of accumulation units
outstanding at end of period 278,562 303,746 296,540
PPI MFS EMERGING
EQUITIES PORTFOLIO
Value at beginning of period $ 19.489 $ 15.219 $ 15.411(7)
Value at end of period $ 29.040 $ 19.489 $ 15.219
Number of accumulation units
outstanding at end of period 485,026 695,813 742,913
PPI MFS RESEARCH
GROWTH PORTFOLIO
Value at beginning of period $ 15.481 $ 12.744 $ 12.995(7)
Value at end of period $ 18.963 $ 15.481 $ 12.744
Number of accumulation units
outstanding at end of period 408,870 605,271 664,979
PPI SCUDDER
INTERNATIONAL GROWTH
PORTFOLIO
Value at beginning of period $ 21.057 $ 17.903 $ 17.682(7)
Value at end of period $ 32.942 $ 21.057 $ 17.903
Number of accumulation units
outstanding at end of period 316,726 360,392 411,600
PPI T. ROWE PRICE
GROWTH EQUITY
PORTFOLIO
Value at beginning of period $ 18.146 $ 14.400 $ 14.112(7)
Value at end of period $ 21.922 $ 18.146 $ 14.400
Number of accumulation units
outstanding at end of period 177,799 287,914 231,297
<CAPTION>
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
JANUS ASPEN AGGRESSIVE
GROWTH PORTFOLIO
Value at beginning of period $ 10.319 $ 10.000(6)
Value at end of period $ 12.992 $ 10.319
Number of accumulation units
outstanding at end of period 723,839 131,702
JANUS ASPEN BALANCED
PORTFOLIO
Value at beginning of period $ 10.000(1)
Value at end of period $ 10.835
Number of accumulation units
outstanding at end of period 7,772
JANUS ASPEN FLEXIBLE
INCOME PORTFOLIO
Value at beginning of period $ 9.886 $ 10.000(6)
Value at end of period $ 12.094 $ 9.886
Number of accumulation units
outstanding at end of period 84,048 15,893
JANUS ASPEN GROWTH
PORTFOLIO
Value at beginning of period $ 10.000(1)
Value at end of period $ 10.870
Number of accumulation units
outstanding at end of period 26,022
JANUS ASPEN WORLDWIDE
GROWTH PORTFOLIO
Value at beginning of period $ 10.000(1)
Value at end of period $ 10.893
Number of accumulation units
outstanding at end of period 227,582
PPI MFS CAPITAL
OPPORTUNITIES
PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
PPI MFS EMERGING
EQUITIES PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
PPI MFS RESEARCH
GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
PPI SCUDDER
INTERNATIONAL GROWTH
PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
PPI T. ROWE PRICE
GROWTH EQUITY
PORTFOLIO
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
</TABLE>
53
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
(1) The initial accumulation unit value was established at $10.000 during
August 1995, when the fund became available under the contract.
(2) The accumulation unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the accumulation unit value of the fund was $12.991. On the
date of conversion, additional units were issued so that account values
were not changed as a result of the conversion.
(3) The accumulation unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the accumulation unit value of the fund was $39.496. On the
date of conversion, additional units were issued so that account values
were not changed as a result of the conversion.
(4) The accumulation unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the accumulation unit value of the fund was $85.546. On the
date of conversion, additional units were issued so that account values
were not changed as a result of the conversion.
(5) The accumulation unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the accumulation unit value of the fund was $34.828. On the
date of conversion, additional units were issued so that account values
were not changed as a result of the conversion.
(6) The initial accumulation unit value was established at $10.000 during
October 1994, when the funds were first received in this option.
(7) Funds were first received in this option during November 1997.
54
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
TABLE II
FOR CONTRACTS CONTAINING LIMITS ON FEES
(Selected data for accumulation units outstanding throughout each period)
================================================================================
The condensed financial information presented below for each of the periods in
the three-year period ended December 31, 1999 (as applicable), is derived from
the financial statements of the separate account, which have been audited by
KPMG LLP, independent auditors. The financial statements and the independent
auditors' report thereon for the year ended December 31, 1999 are included in
the Statement of Additional Information.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
AETNA ASCENT VP
Value at beginning of period $ 15.942 $ 15.422 $ 13.943(1)
Value at end of period $ 18.066 $ 15.942 $ 15.422
Number of accumulation units outstanding at end of period 21,776 24,014 23,868
AETNA BALANCED VP, INC.
Value at beginning of period $ 22.015 $ 19.016 $ 16.898(1)
Value at end of period $ 24.762 $ 22.015 $ 19.016
Number of accumulation units outstanding at end of period 383.141 452,764 477,504
AETNA BOND VP
Value at beginning of period $ 14.304 $ 13.373 $ 12.747(1)
Value at end of period $ 14.042 $ 14.304 $ 13.373
Number of accumulation units outstanding at end of period 387,135 452,992 489,431
AETNA CROSSROADS VP
Value at beginning of period $ 15.179 $ 14.461 $ 13.178(1)
Value at end of period $ 16.579 $ 15.179 $ 14.461
Number of accumulation units outstanding at end of period 9,939 10,769 10,798
AETNA GROWTH AND INCOME VP
Value at beginning of period $ 25.005 $ 22.060 $ 19.527(1)
Value at end of period 29.069 $ 25.005 $ 22.060
Number of accumulation units outstanding at end of period 3,297,663 3,821,349 4,106,796
AETNA LEGACY VP
Value at beginning of period $ 14.141 $ 13.343 $ 12.335(1)
Value at end of period $ 14.497 $ 14.141 $ 13.343
Number of accumulation units outstanding at end of period 0 1,958 2,254
AETNA MONEY MARKET VP
Value at beginning of period $ 12.425 $ 11.930 $ 11.654(1)
Value at end of period $ 12.894 $ 12.425 $ 11.930
Number of accumulation units outstanding at end of period 457,619 505,775 580,412
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $ 17.400 $ 15.784 $ 14.017(1)
Value at end of period $ 18.272 $ 17.400 $ 15.784
Number of accumulation units outstanding at end of period 11,370 13,539 35,342
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $ 19.155 $ 13.904 $ 12.498(1)
Value at end of period $ 25.999 $ 19.155 $ 13.904
Number of accumulation units outstanding at end of period 32,858 24,195 3,029
FIDELITY VIP II CONTRAFUND[RegTM] PORTFOLIO
Value at beginning of period $ 19.735 $ 15.374 $ 13.535(1)
Value at end of period $ 24.217 $ 19.735 $ 15.374
Number of accumulation units outstanding at end of period 13,750 14,618 13,675
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $ 20.433 $ 15.410 $ 13.806(1)
Value at end of period $ 45.486 $ 20.433 $ 15.410
Number of accumulation units outstanding at end of period 34,550 24,373 19,818
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $ 19.880 $ 14.990 $ 13.554(1)
Value at end of period $ 24.886 $ 19.880 $ 14.990
Number of accumulation units outstanding at end of period 12,101 6,712 2,819
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $ 15.509 $ 14.630(2)
Value at end of period $ 15.562 $ 15.509
Number of accumulation units outstanding at end of period 3,110 5,158
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $ 20.651 $ 15.414 $ 13.985(1)
Value at end of period $ 29.366 $ 20.651 $ 15.414
Number of accumulation units outstanding at end of period 29,284 1,028 750
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $ 21.320 $ 16.745 $ 15.851(1)
Value at end of period $ 34.626 $ 21.320 $ 16.745
Number of accumulation units outstanding at end of period 44,861 45,971 44,433
</TABLE>
55
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO
Value at beginning of period $ 26.713 $ 21.343 $ 21.038(3)
Value at end of period $ 39.254 $ 26.713 $ 21.343
Number of accumulation units outstanding at end of period 9,451 9,947 8,563
PPI MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period $ 19.489 $ 15.219 $ 15.411(3)
Value at end of period $ 29.040 $ 19.489 $ 15.219
Number of accumulation units outstanding at end of period 12,142 11,330 11,848
PPI MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period $ 15.481 $ 12.744 $ 12.995(3)
Value at end of period $ 18.963 $ 15.481 $ 12.744
Number of accumulation units outstanding at end of period 135,420 148,963 141,582
PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period $ 21.057 $ 17.903 $ 17.682(3)
Value at end of period $ 32.942 $ 21.057 $ 17.903
Number of accumulation units outstanding at end of period 4,496 5,245 3,986
PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO
Value at beginning of period $ 18.146 $ 14.400 $ 14.112(3)
Value at end of period $ 21.922 $ 18.146 $ 14.400
Number of accumulation units outstanding at end of period 4,491 4,730 3,310
</TABLE>
- -----------------
(1) Funds were first received in this option during June 1997.
(2) Funds were first received in this option during February 1998.
(3) Funds were first received in this option during November 1997.
56
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
Statement of Additional Information dated May 1, 2000
Individual Variable Annuity Contracts
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Variable Annuity Account B (the
"Separate Account") dated May 1, 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
1-800-262-3862
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the prospectus.
TABLE OF CONTENTS
Page
----
General Information and History........................................... 2
Variable Annuity Account B................................................ 2
Offering and Purchase of Contracts........................................ 3
Performance Data.......................................................... 3
General............................................................... 3
Average Annual Total Return Quotations................................ 4
Income Phase Payments..................................................... 7
Sales Material and Advertising............................................ 8
Independent Auditors...................................................... 8
Financial Statements of the Separate Account.............................. S-1
Financial Statements of Aetna Life Insurance and Annuity Company and
Subsidiaries........................................................... F-1
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Life Insurance and Annuity Company (the "Company," we, us, our) is 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, it succeeded to the business of Aetna Variable Annuity Life
Insurance Company (formerly Participating Annuity Life Insurance Company
organized in 1954). The Company is engaged in the business of issuing life
insurance policies and annuity contracts. Our Home Office is located at 151
Farmington Avenue, Hartford, Connecticut 06156.
As of December 31, 1999, the Company and its subsidiary life company had $53
billion invested through their products, including $39 billion in its separate
accounts (of which the Company, or an affiliate oversees the management of $24
billion). The Company is ranked based on assets among the top 2% of all life
insurance companies rated by A.M. Best Company as of December 31, 1998.
In addition to serving as the principal underwriter and the depositor for the
separate account, the Company is a registered investment adviser under the
Investment Advisers Act of 1940, and a registered broker-dealer under the
Securities Exchange Act of 1934. We provide investment advice to several of the
registered management investment companies offered as variable investment
options under the contracts funded by the separate account (see "Variable
Annuity Account B" below).
Other than the mortality and expense risk charges and administrative expense
charge described in the prospectus, all expenses incurred in the operations of
the separate account are borne by the Company. See "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.
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.
Payments to accounts under the contract may be allocated to one or more of the
subaccounts. Each subaccount invests in the shares of only one of the funds
listed below. We may make additions to, deletions from or substitutions of
available investment options as permitted by law and subject to the conditions
of the contract. The availability of the funds is subject to applicable
regulatory authorization. Not all funds are available in all jurisdictions or
under all contracts.
2
<PAGE>
The funds currently available under the contract are as follows:
o Aetna Ascent VP
o Aetna Balanced VP, Inc.
o Aetna Income Shares d/b/a Aetna Bond VP
o Aetna Crossroads VP
o Aetna Variable Fund d/b/a Aetna Growth and Income VP
o Aetna Legacy VP
o Aetna Variable Encore Fund d/b/a Aetna Money Market VP
Aetna Technology VP
o Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio
o Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio
o Fidelity Variable Insurance Products Fund (VIP) Overseas Portfolio
o Fidelity Variable Insurance Products Fund II (VIP II) Contrafund[Reg TM]
Portfolio
o Janus Aspen Aggressive Growth Portfolio
o Janus Aspen Balanced Portfolio
o Janus Aspen Flexible Income Portfolio
o Janus Aspen Growth Portfolio
o Janus Aspen Worldwide Growth Portfolio
o Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio
(formerly PPI MFS Value Equity Portfolio)
o Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio
o Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio
o Portfolio Partners, Inc. (PPI) Scudder International Growth Portfolio
o Portfolio Partners, Inc. (PPI) T. Rowe Price Growth Equity Portfolio
Complete descriptions of each of the funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectuses and statements of additional information for each of the funds.
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold by the prospectus. We offer the contracts through life insurance
agents licensed to sell variable annuities who are registered representatives of
the Company or of other registered broker-dealers who have sales agreements with
the Company. The offering of the contracts is continuous. A description of the
manner in which contracts are purchased may be found in the prospectus under the
sections titled "Purchase" 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 contracts. 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 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 all recurring charges under the contracts
during each period (1.25% mortality and expense risk charge, $20 annual
maintenance fee, and an early withdrawal charge of 5% grading down to 0% after
10 payment periods). These charges will be deducted on a pro rata basis in the
case of fractional periods.
3
<PAGE>
The maintenance fee is converted to a percentage of assets based on the average
account size under the contracts described in the prospectus. The total return
figures shown below may be different from the actual historical total return
under your contract because for periods prior to 1994, the subaccount's
investment performance was based on the performance of the underlying fund plus
any cash held by the subaccount.
The non-standardized figures will be calculated in a similar manner, except that
they will not reflect the deduction of any applicable early withdrawal charge,
and in some advertisements will also exclude the effect of the maintenance fee.
The deduction of the early withdrawal charge and the 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 all charges under the contract except the early withdrawal
charge. The maintenance fee has been deducted for the purpose of calculating the
returns.
Investment results of the funds will fluctuate over time, and any presentation
of the subaccounts' total return quotations for any prior period should not be
considered as a representation of how the subaccounts will perform in any future
period. Additionally, the contract value and/or 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 show the average annual standardized and non-standardized
total return quotation figures for the periods ended December 31, 1999 for the
subaccounts under installment payment contracts. The standardized returns assume
the maximum charges under the contract as described under "General" above. For
those subaccounts where results are not available for the full calendar period
indicated, performance for such partial periods is shown in the column labeled
"Since Inception." For standardized performance, the "Since Inception" column
shows average annual return since the date contributions were first received in
the fund under the separate account. For non-standardized performance, the
"Since Inception" column shows average annual total return since the fund's
inception date.
For the subaccounts funded by the Portfolio Partners portfolios, two sets of
performance returns are shown for each subaccount: one showing performance based
solely on the performance of the Portfolio Partners portfolio from November 28,
1997, the date the portfolio commenced operations; and one quotation based on
(a) performance through November 26, 1997 of the fund it replaced under many
contracts and; (b) after November 26, 1997, based on the performance of the
Portfolio Partners portfolio.
4
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------
Date
Contributions
First
Received
Under the
Separate
STANDARDIZED Account
- --------------------------------------------------------------------------------------------------
Since
SUBACCOUNT 1 Year 5 Year 10 Year Inception*
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP 7.27% 13.46% 08/31/1995
- --------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.(1) 6.58% 17.08% 11.85%
- --------------------------------------------------------------------------------------------------
Aetna Bond VP(1) (6.88%) 5.28% 6.37%
- --------------------------------------------------------------------------------------------------
Aetna Crossroads VP 3.39% 11.19% 08/31/1995
- --------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 10.15% 21.64% 14.08%
- --------------------------------------------------------------------------------------------------
Aetna Legacy VP 0.47% 8.91% 08/31/1995
- --------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) (1.43%) 3.41% 4.01%
- --------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio (0.25%) 16.71% 16.70% 12/30/1994
- --------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 28.94% 27.88% 27.86% 12/30/1994
- --------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 33.80% 16.80% 01/31/1995
- --------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund[Reg TM] Portfolio 16.57% 22.91% 06/30/1995
- --------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 111.47% 34.36% 32.69% 10/31/1994
- --------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 18.92% 22.83% 01/31/1995
- --------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio (4.69%) 8.90% 8.35% 10/31/1994
- --------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 35.08% 28.02% 25.76% 07/29/1994
- --------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 54.28% 33.75% 04/28/1995
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PPI MFS Capital Opportunities Portfolio 39.59% 33.34% 11/28/1997
- --------------------------------------------------------------------------------------------------
Neuberger Berman AMT Growth/PPI MFS Capital
Opportunities(3) 39.59% 26.06% 17.86% 11/30/1992
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PPI MFS Emerging Equities Portfolio 41.54% 33.99% 11/28/1997
- --------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI MFS Emerging
Equities(3) 41.54% 24.43% 18.38% 09/30/1993
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 16.36% 18.12% 11/28/1997
- --------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI
MFS Research Growth(3) 16.36% 11.23% 9.89% 08/31/1992
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio 48.61% 33.24% 11/28/1997
- --------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI
Scudder International Growth(3) 48.61% 19.38% 16.56% 08/31/1992
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio 14.76% 21.83% 11/28/1997
- --------------------------------------------------------------------------------------------------
Alger American Growth/PPI T. Rowe Price Growth
Equity(3) 14.76% 23.29% 02/28/1995
- --------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the tables for an explanation of the
charges included and methodology used in calculating the standardized and
non-standardized figures. These figures represent historical performance and
should not be considered a projection of future performance.
* Reflects performance from the date contributions were first received in the
fund under the separate account.
(1) These funds have been available through the separate account for more than
ten years.
(2) The current yield for the subaccount for the seven-day period ended
December 31, 1999 (on an annualized basis) was 4.54%. 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 5% early
withdrawal charge.
(3) The fund first listed was replaced with the applicable Portfolio Partners
Portfolio after the close of business on November 26, 1997. The performance
shown is based on the performance of the replaced fund until November 26,
1997, and the performance of the applicable Portfolio Partners Portfolio
after that date. The replaced fund may not have been available under all
contracts. The "Date Contributions First Received Under the Separate
Account" refers to the applicable date for the replaced fund. If no date is
shown, contributions were first received in the replaced fund under the
separate account more than ten years ago.
5
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------
Fund
Inception
NON-STANDARDIZED Date
- --------------------------------------------------------------------------------------------------------------
Since
SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP 12.92% 11.25% 14.61% 07/05/1995
- ---------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.(1) 12.19% 16.15% 17.49% 11.85%
- ---------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) (1.98%) 3.83% 5.98% 6.37%
- ---------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 8.84% 9.74% 12.31% 07/05/1995
- ---------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 15.95% 18.91% 21.97% 14.08%
- ---------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 5.76% 8.09% 9.97% 07/05/1995
- ---------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 3.76% 4.02% 4.16% 4.01%
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio(1) 5.00% 13.55% 17.13% 13.06%
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio(1) 35.72% 31.61% 28.12% 18.44%
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio(1) 40.85% 19.99% 15.91% 10.04%
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund[Reg TM] Portfolio 22.70% 24.52% 26.16% 01/03/1995
- ---------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 122.60% 48.63% 34.53% 32.74% 09/13/1993
- ---------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 25.17% 26.02% 23.13% 19.12% 09/13/1993
- ---------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 0.33% 6.06% 9.49% 7.15% 09/13/1993
- ---------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 42.19% 32.17% 28.27% 22.73% 09/13/1993
- ---------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 62.40% 35.61% 31.93% 28.09% 09/13/1993
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PPI MFS Capital Opportunities Portfolio 46.93% 34.76% 11/28/1997
- ---------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Growth/PPI MFS Capital
Opportunities(3) 46.93% 31.89% 26.32% 14.87%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PPI MFS Emerging Equities Portfolio 48.99% 35.40% 11/28/1997
- ---------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI MFS Emerging
Equities(3) 48.99% 27.19% 24.72% 18.47%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 22.49% 19.81% 11/28/1997
- ---------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI
MFS Research Growth(3) 22.49% 12.55% 11.76% 9.45%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio 56.44% 34.66% 11/28/1997
- ---------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI
Scudder International Growth(3) 56.44% 25.57% 19.75% 12.17%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio 20.80% 23.44% 11/28/1997
- ---------------------------------------------------------------------------------------------------------------
Alger American Growth/PPI T. Rowe Price
Growth Equity(3) 20.80% 24.45% 23.78% 18.74%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the tables for an explanation of the
charges included and methodology used in calculating the standardized and
non-standardized figures. These figures represent historical performance and
should not be considered a projection of future performance.
** Reflects performance from the fund's inception date.
(1) These funds have been in operation for more than ten years.
(2) The current yield for the subaccount for the seven-day period ended
December 31, 1999 (on an annualized basis) was 4.54%. 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 5% early withdrawal charge is not reflected.
(3) The fund first listed was replaced with the applicable Portfolio Partners
Portfolio after the close of business on November 26, 1997. The performance
shown is based on the performance of the replaced fund until November 26,
1997, and the performance of the applicable Portfolio Partners Portfolio
after that date. The replaced fund may not have been available under all
contracts. The "Fund Inception Date" refers to the applicable date for the
replaced fund. If no date is shown, the replaced fund has been in operation
for more than ten years.
6
<PAGE>
INCOME PHASE PAYMENTS
When you begin receiving payments under the contract during the income phase
(see "Income Phase" in the prospectus), the value of your account is determined
using accumulation unit values as of the tenth valuation before the first
payment is due. Such value (less any applicable premium tax) is applied to
provide payments to you in accordance with the payment option and investment
options elected.
The annuity option tables found in the contract show, for each option, the
amount of the first payment for each $1,000 of value applied. Thereafter,
variable payments fluctuate as the annuity unit value(s) fluctuates with the
investment experience of the selected investment option(s). The first payment
and subsequent payments also vary depending on the assumed net investment rate
selected (3.5% or 5% per annum). Selection of a 5% rate causes a higher first
payment, but payments will increase thereafter only to the extent that the net
investment rate increases by more than 5% on an annual basis. Payments would
decline if the rate failed to increase by 5%. Use of the 3.5% assumed rate
causes a lower first payment, but subsequent payments would increase more
rapidly or decline more slowly as changes occur in the net investment rate.
When the 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 payment based on a particular investment option, and
(b) is the then current annuity unit value for that investment option. As noted,
annuity unit values fluctuate from one valuation period to the next (see
"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 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 payments are to begin, there are 3,000 accumulation
units credited under a particular contract or account and that the value of an
accumulation unit for the tenth valuation period prior to retirement was
$13.650000. This produces a total value of $40,950.
Assume also that no premium tax is payable and that the annuity table in the
contract provides, for the payment option elected, a first monthly variable
payment of $6.68 per $1000 of value applied; the annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an annuity unit upon the valuation period in which
the first payment was due was $13.400000. When this value is divided into the
first monthly payment, the number of annuity units is determined to be 20.414.
The value of this number of annuity units will be paid in each subsequent month.
If the net investment factor with respect to the appropriate subaccount is
1.0015000 as of the tenth valuation preceding the due date of the second monthly
payment, multiplying this factor by .9999058* (to take into account the assumed
net investment rate of 3.5% per annum built into the number of annuity units
determined above) produces a result of 1.0014057. This is then multiplied by the
annuity unit value for the prior valuation period (assume such value to be
$13.504376) to produce an annuity unit value of $13.523359 for the valuation
period occurring when the second payment is due.
7
<PAGE>
The second monthly payment is then determined by multiplying the number of
annuity units by the current annuity unit value, or 20.414 times $13.523359,
which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
take into account such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
We may include hypothetical illustrations in our sales literature that explain
the mathematical principles of dollar cost averaging, compounded interest, tax
deferred accumulation, and the mechanics of variable annuity contracts. We may
also discuss the difference between variable annuity contracts and other types
of savings or investment products such as, personal savings accounts and
certificates of deposit.
We may distribute sales literature that compares the percentage change in
accumulation unit values for any of the subaccounts to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the subaccount
being compared.
We may publish in advertisements and reports, the ratings and other information
assigned to us by one or more independent rating organizations such as A.M. Best
Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors
Service, Inc. The purpose of the ratings is to reflect our financial strength
and/or claims-paying ability. We may also quote ranking services such as
Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable
Insurance Products Performance Analysis Service (VIPPAS), which rank variable
annuity or life subaccounts or their underlying funds by performance and/or
investment objective. We may categorize funds in terms of the asset classes they
represent and use such categories in marketing material for the contracts. We
may illustrate in advertisements the performance of the underlying funds, if
accompanied by performance which also shows the performance of such funds
reduced by applicable charges under the separate account. We may also show in
advertisements the portfolio holdings of the underlying funds, updated at
various intervals. From time to time, we will quote articles from newspapers and
magazines or other publications or reports 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 contracts 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 review of filings made with the SEC.
8
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT B
Index
<TABLE>
<CAPTION>
Page
<S> <C>
Statement of Assets and Liabilities........................................S-2
Statement of Operations....................................................S-8
Statements of Changes in Net Assets........................................S-8
Condensed Financial Information............................................S-9
Notes to Financial Statements..............................................S-19
Independent Auditors' Report...............................................S-33
</TABLE>
S-1
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1999
ASSETS:
Investments, at net asset value: (Note 1)
<TABLE>
<CAPTION>
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
Aetna Ascent VP: 1,339,218 $ 19,497,391 $ 19,981,127
Aetna Balanced VP, Inc.: 13,294,723 200,294,733 206,998,843
Aetna Bond VP: 8,139,100 105,951,065 99,052,842
Aetna Crossroads VP: 1,811,648 24,397,709 24,946,398
Aetna Get Fund, Series C: 557,907 6,337,611 7,124,468
Aetna Get Fund, Series D: 16,585,252 167,045,093 176,632,929
Aetna Get Fund, Series E: 35,440,889 358,288,306 381,698,376
Aetna Get Fund, Series G: 20,429,610 205,920,149 211,855,059
Aetna Get Fund, Series H: 172,261 1,724,516 1,726,955
Aetna Growth and Income VP: 38,230,584 1,242,232,773 1,173,296,609
Aetna Growth VP: 4,099,459 62,421,793 71,002,637
Aetna High Yield VP: 27,918 261,762 245,682
Aetna Index Plus Large Cap VP: 11,455,392 215,316,778 239,074,027
Aetna Index Plus Mid Cap VP: 69,900 908,995 866,762
Aetna Index Plus Small Cap VP: 83,607 815,021 911,313
Aetna International VP: 285,162 4,209,331 4,539,776
Aetna Legacy VP: 2,367,470 29,607,908 29,569,704
Aetna Money Market VP: 16,084,329 214,007,331 215,772,879
Aetna Real Estate Securities VP: 250,934 2,121,243 1,939,720
Aetna Small Company VP: 1,549,015 19,347,626 25,589,722
Aetna Value Opportunity VP: 1,030,379 14,096,136 16,918,826
AIM V.I. Funds:
Capital Appreciation Fund: 280,246 7,859,362 9,971,139
Growth and Income Fund: 743,596 19,743,238 23,490,185
Growth Fund: 587,010 16,219,102 18,931,063
Value Fund: 1,248,557 37,154,670 41,826,668
Alger American Funds:
Balanced Portfolio: 399,088 4,045,034 6,213,801
Income & Growth Portfolio: 1,085,760 10,917,112 19,087,670
Leveraged AllCap Portfolio: 433,195 10,067,916 25,112,341
American Century VP Funds:
Balanced Fund: 443,179 3,338,472 3,452,367
International Fund: 599,923 4,078,203 7,499,031
Calvert Social Balanced Portfolio: 1,193,697 2,580,920 2,589,130
Federated Insurance Series:
American Leaders Fund II: 6,011,859 101,875,749 125,166,912
Equity Income Fund II: 1,866,873 23,409,796 30,392,700
Growth Strategies Fund II: 1,511,581 23,895,134 46,677,628
High Income Bond Fund II: 4,082,647 42,574,388 41,806,306
International Equity Fund II: 1,046,515 13,236,657 28,925,669
Prime Money Fund II: 8,657,471 8,657,471 8,657,471
U.S. Government Securities Fund II: 1,213,486 12,886,100 12,814,411
Utility Fund II: 1,850,767 22,657,976 26,558,505
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio: 7,458,378 173,930,775 191,754,908
Growth Portfolio: 3,804,524 141,323,786 208,982,521
High Income Portfolio: 5,543,291 65,301,314 62,694,624
Overseas Portfolio: 732,104 15,274,074 20,088,940
</TABLE>
S-2
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1999 (continued):
<TABLE>
<CAPTION>
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio: 1,152,622 $ 19,622,237 $ 21,519,462
Contrafund Portfolio: 8,061,682 178,179,619 234,998,024
Index 500 Portfolio: 1,018,264 137,567,179 170,467,635
Investment Grade Bond Portfolio: 338,820 4,044,947 4,120,050
Janus Aspen Series:
Aggressive Growth Portfolio: 4,601,525 174,527,385 274,665,000
Balanced Portfolio: 6,637,676 145,141,742 185,323,915
Flexible Income Portfolio: 1,714,747 20,581,641 19,582,411
Growth Portfolio: 6,624,687 166,042,220 222,920,706
Worldwide Growth Portfolio: 10,088,356 298,223,051 481,718,979
Lexington Emerging Markets Fund, Inc.: 200,939 1,994,956 2,574,027
Lexington Natural Resources Trust Fund: 253,314 3,663,108 3,168,963
MFS Funds:
Global Government Series: 163,850 1,695,439 1,643,414
Total Return Series: 2,861,377 48,938,636 50,789,444
Mitchell Hutchins Series Trust:
Growth & Income Portfolio: 49,539 735,854 809,956
Small Cap Portfolio: 11,313 163,053 172,522
Tactical Allocation Portfolio: 446,856 7,328,726 7,364,195
Oppenheimer Funds:
Aggressive Growth Fund/VA: 375,791 22,642,573 30,931,348
Global Securities Fund/VA: 284,758 7,200,987 9,513,748
Main Street Growth & Income Fund/VA: 2,288,522 48,877,782 56,366,293
Strategic Bond Fund/VA: 3,983,514 19,810,756 19,798,066
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 2,212,287 118,884,638 183,243,707
PPI MFS Research Growth Portfolio: 6,937,544 76,162,887 102,536,898
PPI MFS Value Equity Portfolio: 1,003,064 37,923,777 54,937,791
PPI Scudder International Growth Portfolio: 1,390,831 31,810,842 35,452,273
PPI T. Rowe Price Growth Equity Portfolio: 1,921,115 85,993,480 126,793,561
-------------- ----------------
NET ASSETS $5,313,588,034 $ 6,173,851,032
============== ================
</TABLE>
S-3
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1999 (continued):
Net assets represented by:
Reserves for annuity contracts in accumulation and payment period:
(Notes 1 and 6)
<TABLE>
<S> <C>
Aetna Ascent VP:
Annuity contracts in accumulation .............................................. $ 19,981,127
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation .............................................. 180,920,898
Annuity contracts in payment period ............................................ 26,077,945
Aetna Bond VP:
Annuity contracts in accumulation .............................................. 93,390,139
Annuity contracts in payment period ............................................ 5,662,703
Aetna Crossroads VP:
Annuity contracts in accumulation .............................................. 23,405,948
Annuity contracts in payment period ............................................ 1,540,450
Aetna Get Fund, Series C:
Annuity contracts in accumulation .............................................. 7,124,468
Aetna Get Fund, Series D:
Annuity contracts in accumulation .............................................. 176,632,929
Aetna Get Fund, Series E:
Annuity contracts in accumulation .............................................. 381,698,376
Aetna Get Fund, Series G:
Annuity contracts in accumulation .............................................. 211,855,059
Aetna Get Fund, Series H:
Annuity contracts in accumulation .............................................. 1,726,955
Aetna Growth and Income VP:
Annuity contracts in accumulation .............................................. 980,638,280
Annuity contracts in payment period ............................................ 192,658,329
Aetna Growth VP:
Annuity contracts in accumulation .............................................. 66,260,594
Annuity contracts in payment period ............................................ 4,742,043
Aetna High Yield VP:
Annuity contracts in accumulation .............................................. 245,682
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation .............................................. 198,210,089
Annuity contracts in payment period ............................................ 40,863,938
Aetna Index Plus Mid Cap VP:
Annuity contracts in accumulation .............................................. 866,762
Aetna Index Plus Small Cap VP:
Annuity contracts in accumulation .............................................. 911,313
Aetna International VP:
Annuity contracts in accumulation .............................................. 4,434,269
Annuity contracts in payment period ............................................ 105,507
Aetna Legacy VP:
Annuity contracts in accumulation .............................................. 26,597,646
Annuity contracts in payment period ............................................ 2,972,058
Aetna Money Market VP:
Annuity contracts in accumulation .............................................. 214,710,443
Annuity contracts in payment period ............................................ 1,062,436
Aetna Real Estate Securities VP:
Annuity contracts in accumulation .............................................. 1,925,817
Annuity contracts in payment period ............................................ 13,903
</TABLE>
S-4
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1999 (continued):
<TABLE>
<S> <C>
Aetna Small Company VP:
Annuity contracts in accumulation ........... $ 25,125,952
Annuity contracts in payment period ......... 463,770
Aetna Value Opportunity VP:
Annuity contracts in accumulation ........... 16,918,826
AIM V.I. Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation ........... 9,923,942
Annuity contracts in payment period ......... 47,197
Growth and Income Fund:
Annuity contracts in accumulation ........... 789,296
Annuity contracts in payment period ......... 22,700,889
Growth Fund:
Annuity contracts in accumulation ........... 18,608,980
Annuity contracts in payment period ......... 322,083
Value Fund:
Annuity contracts in accumulation ........... 40,884,392
Annuity contracts in payment period ......... 942,276
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation ........... 6,213,801
Income & Growth Portfolio:
Annuity contracts in accumulation ........... 19,087,670
Leveraged AllCap Portfolio:
Annuity contracts in accumulation ........... 25,112,341
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation ........... 3,452,367
International Fund:
Annuity contracts in accumulation ........... 7,499,031
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation ........... 2,589,130
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation ........... 61,038
Annuity contracts in payment period ......... 125,105,874
Equity Income Fund II:
Annuity contracts in accumulation ........... 30,384,515
Annuity contracts in payment period ......... 8,185
Growth Strategies Fund II:
Annuity contracts in accumulation ........... 46,677,628
High Income Bond Fund II:
Annuity contracts in accumulation ........... 41,788,490
Annuity contracts in payment period ......... 17,816
International Equity Fund II:
Annuity contracts in accumulation ........... 28,925,669
Prime Money Fund II:
Annuity contracts in accumulation ........... 8,657,471
U.S. Government Securities Fund II:
Annuity contracts in accumulation ........... 12,814,411
</TABLE>
S-5
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1999 (continued):
<TABLE>
<S> <C>
Utility Fund II:
Annuity contracts in accumulation ........... $ 26,498,835
Annuity contracts in payment period ......... 59,670
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation ........... 191,754,908
Growth Portfolio:
Annuity contracts in accumulation ........... 208,982,521
High Income Portfolio:
Annuity contracts in accumulation ........... 61,938,947
Annuity contracts in payment period ......... 755,677
Overseas Portfolio:
Annuity contracts in accumulation ........... 20,088,940
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation ........... 21,519,462
Contrafund Portfolio:
Annuity contracts in accumulation ........... 234,998,024
Index 500 Portfolio:
Annuity contracts in accumulation ........... 170,467,635
Investment Grade Bond Portfolio:
Annuity contracts in accumulation ........... 4,120,050
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation ........... 274,665,000
Balanced Portfolio:
Annuity contracts in accumulation ........... 185,323,915
Flexible Income Portfolio:
Annuity contracts in accumulation ........... 19,582,411
Growth Portfolio:
Annuity contracts in accumulation ........... 9,348,397
Annuity contracts in payment period ......... 213,572,309
Worldwide Growth Portfolio:
Annuity contracts in accumulation ........... 11,305,698
Annuity contracts in payment period ......... 470,413,281
Lexington Emerging Markets Fund, Inc.:
Annuity contracts in accumulation ........... 2,574,027
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation ........... 3,168,963
MFS Funds:
Global Government Series:
Annuity contracts in accumulation ........... 1,643,414
Total Return Series:
Annuity contracts in accumulation ........... 50,789,444
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Annuity contracts in accumulation ........... 809,956
Small Cap Portfolio:
Annuity contracts in accumulation ........... 172,522
Tactical Allocation Portfolio:
Annuity contracts in accumulation ........... 7,364,195
</TABLE>
S-6
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1999 (continued):
<TABLE>
<S> <C>
Oppenheimer Funds:
Aggressive Growth Fund/VA:
Annuity contracts in accumulation ........... $ 29,291,524
Annuity contracts in payment period ......... 1,639,824
Global Securities Fund/VA:
Annuity contracts in accumulation ........... 9,513,748
Main Street Growth & Income Fund/VA:
Annuity contracts in accumulation ........... 56,214,303
Annuity contracts in payment period ......... 151,990
Strategic Bond Fund/VA:
Annuity contracts in accumulation ........... 19,569,256
Annuity contracts in payment period ......... 228,810
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation ........... 181,712,440
Annuity contracts in payment period ......... 1,531,267
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation ........... 102,536,898
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation ........... 53,173,898
Annuity contracts in payment period ......... 1,763,893
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation ........... 35,328,550
Annuity contracts in payment period ......... 123,723
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation ........... 723,814
Annuity contracts in payment period ......... 126,069,747
--------------
$6,173,851,032
==============
</TABLE>
See Notes to Financial Statements
S-7
<PAGE>
Variable Annuity Account B
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ................................................... $ 372,453,223
Expenses: (Notes 2 and 5)
Valuation period deductions ................................. (59,498,930)
--------------
Net investment income ........................................ $ 312,954,293
--------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ......................................... $1,971,718,606
Cost of investments sold .................................... 1,728,629,845
--------------
Net realized gain on investments ........................... 243,088,761
--------------
Net unrealized gain on investments: (Note 5)
Beginning of year ........................................... 349,806,583
End of year ................................................. 860,262,998
--------------
Net change in unrealized gain on investments ............... 510,456,415
--------------
Net realized and unrealized gain on investments .............. 753,545,176
--------------
Net increase in net assets resulting from operations ......... $1,066,499,469
==============
</TABLE>
See Notes to Financial Statements
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
---- ----
<S> <C> <C>
FROM OPERATIONS:
Net investment income .................................................. $ 312,954,293 $ 283,508,891
Net realized gain on investments ....................................... 243,088,761 143,410,533
Net change in unrealized gain on investments ........................... 510,456,415 94,282,077
-------------- --------------
Net increase in net assets resulting from operations ................... 1,066,499,469 521,201,501
-------------- --------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ............................ 659,312,376 489,286,251
Transfers from the Company for mortality guarantee adjustments ......... 2,250,831 (906,373)
Transfers from the Company's fixed account options ..................... 818,802,585 212,914,994
Transfer to the Company's other variable annuity accounts .............. 644,115 0
Redemptions by contract holders ........................................ (300,870,502) (167,845,102)
Annuity payments ....................................................... (30,374,265) (22,421,712)
Other .................................................................. 1,018,001 1,896,006
-------------- --------------
Net increase in net assets from unit transactions (Note 6) ............ 1,150,783,141 512,924,064
-------------- --------------
Change in net assets ................................................... 2,217,282,610 1,034,125,565
NET ASSETS:
Beginning of year ...................................................... 3,956,568,422 2,922,442,857
-------------- --------------
End of year ............................................................ $6,173,851,032 $3,956,568,422
============== ==============
</TABLE>
See Notes to Financial Statements
S-8
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP:
Non-Qualified V $15.855 $17.905 12.93% 96,550.7 $ 1,728,713
Non-Qualified V (0.75) 16.082 18.253 13.50% 129,604.8 2,365,645
Non-Qualified VII 15.769 17.779 12.75% 742,494.1 13,200,807
Non-Qualified VIII 14.012 15.822 12.92% 143,277.9 2,266,982
Non-Qualified IX 15.786 17.783 12.65% 1,438.0 25,572
Non-Qualified X 15.942 18.066 13.32% 21,775.7 393,408
- --------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Non-Qualified V 21.929 24.603 12.19% 2,278,135.6 56,049,439
Non-Qualified V (0.75) 22.244 25.081 12.75% 1,579,287.7 39,610,851
Non-Qualified VI 18.445 20.706 12.26% 37,676.9 780,148
Non-Qualified VII 21.507 24.091 12.01% 2,243,589.9 54,049,730
Non-Qualified VIII 15.212 17.066 12.19% 456,096.7 7,783,834
Non-Qualified IX 21.834 24.436 11.92% 28,079.2 686,140
Non-Qualified X 22.015 24.762 12.48% 383,141.3 9,487,227
Non-Qualified XI 18.517 20.840 12.55% 5,143.3 107,184
Non-Qualified XII 10.548 11.902 12.84% (2) 7,910.4 94,148
Non-Qualified XIII 10.337 11.632 12.53% 417,961.2 4,861,556
Non-Qualified XIV 10.323 11.581 12.19% 403,186.5 4,669,198
Non-Qualified XV 10.316 11.555 12.01% 237,245.60 2,741,443
Annuity contracts in payment period 26,077,945
- --------------------------------------------------------------------------------------------------------------------
Aetna Bond VP:
Non-Qualified V 14.270 13.988 (1.98%) 887,370.7 12,412,832
Non-Qualified V (0.75) 14.475 14.260 (1.49%) 1,654,932.3 23,599,990
Non-Qualified VI 13.041 12.792 (1.91%) 43,965.0 562,381
Non-Qualified VII 13.998 13.700 (2.13%) 1,967,951.2 26,960,637
Non-Qualified VIII 11.910 11.674 (1.98%) 487,813.6 5,694,656
Non-Qualified IX 14.208 13.893 (2.22%) 22,155.4 307,807
Non-Qualified X 14.304 14.042 (1.83%) 387,135.1 5,436,287
Non-Qualified XI 13.072 12.841 (1.77%) 4,285.2 55,026
Non-Qualified XIII 10.319 10.145 (1.69%) 708,744.3 7,190,136
Non-Qualified XIV 10.305 10.101 (1.98%) 806,342.7 8,144,472
Non-Qualified XV 10.298 10.078 (2.14%) 300,240.3 3,025,915
Annuity contracts in payment period 5,662,703
- --------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Non-Qualified V 15.095 16.431 8.85% 115,323.8 1,894,869
Non-Qualified V (0.75) 15.312 16.750 9.39% 124,068.8 2,078,187
Non-Qualified VII 15.013 16.316 8.68% 947,775.8 15,463,446
Non-Qualified VIII 13.588 14.789 8.84% 254,767.3 3,767,710
Non-Qualified IX 15.030 16.319 8.58% 469.8 7,667
Non-Qualified X 15.179 16.579 9.22% 9,938.7 164,777
Non-Qualified XVII 15.521 16.474 6.14% (8) 1,778.00 29,292
Annuity contracts in payment period 1,540,450
- --------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Non-Qualified V 15.904 19.358 21.72% 51,240.5 991,932
Non-Qualified V (0.75) 16.087 19.679 22.33% 302,695.5 5,956,780
Non-Qualified IX 15.835 19.227 21.42% 9,141.2 175,756
- --------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Non-Qualified V 10.062 10.726 6.60% 2,241,700.8 24,043,761
Non-Qualified V (0.75) 10.073 10.792 7.14% 1,808,945.0 19,521,878
Non-Qualified VII 10.058 10.704 6.42% 5,471,517.0 58,567,813
Non-Qualified VIII 10.136 10.739 5.95% (3) 2,431,960.4 26,117,416
Non-Qualified IX 10.063 10.693 6.26% (1) 309.5 3,309
Non-Qualified X 10.062 10.726 6.60% 183,152.7 1,964,436
Non-Qualified XII 9.997 10.785 7.88% (2) 3,713.7 40,053
Non-Qualified XIII 10.072 10.769 6.92% 1,700,909.8 18,316,499
</TABLE>
S-9
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Get Fund, Series D (continued):
Non-Qualified XIV $ 10.066 $ 10.730 6.60% 1,875,931.5 $ 20,127,863
Non-Qualified XV 10.063 10.710 6.43% 740,420.7 7,929,901
- -----------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series E:
Non-Qualified V 10.001 10.760 7.59% (5) 1,905,050.2 20,498,554
Non-Qualified V (0.75) 10.015 10.789 7.73% (5) 220,007.1 2,373,760
Non-Qualified VII 10.012 10.743 7.30% (5) 4,068,992.1 43,712,319
Non-Qualified VIII 10.012 10.752 7.39% (5) 534,700.9 5,748,947
Non-Qualified X 10.013 10.766 7.52% (5) 146,177.0 1,573,775
Non-Qualified XIII 10.012 10.770 7.57% (5) 10,224,328.7 110,111,245
Non-Qualified XIV 10.012 10.752 7.39% (5) 9,636,860.3 103,612,689
Non-Qualified XV 10.012 10.743 7.30% (5) 8,756,301.1 94,067,087
- -----------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series G:
Non-Qualified V 9.999 10.370 3.71% (8) 278,908.9 2,892,221
Non-Qualified V (0.75) 10.006 10.386 3.80% (8) 176,701.3 1,835,189
Non-Qualified VII 9.998 10.363 3.65% (8) 2,759,663.2 28,599,474
Non-Qualified VIII 10.003 10.368 3.65% (8) 456,778.0 4,735,998
Non-Qualified X 10.071 10.377 3.04% 10) 12,410.4 128,778
Non-Qualified XIII 9.998 10.378 3.80% (8) 5,406,495.6 56,108,725
Non-Qualified XIV 9.998 10.368 3.70% (8) 7,314,314.2 75,836,777
Non-Qualified XV 9.998 10.363 3.65% (8) 4,025,505.7 41,717,897
- -----------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series H:
Non-Qualified V 10.005 10.020 0.15% (11) 2,530.3 25,352
Non-Qualified VII 10.001 10.019 0.18% (11) 25,606.9 256,555
Non-Qualified VIII 10.005 10.020 0.15% (11) 15,022.0 150,515
Non-Qualified XIII 10.001 10.021 0.20% (11) 30,915.2 309,801
Non-Qualified XIV 10.000 10.020 0.20% (11) 60,328.2 604,471
Non-Qualified XV 10.001 10.019 0.18% (11) 37,954.0 380,261
- -----------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Non-Qualified 1964 267.347 310.020 15.96% 958.7 297,208
Non-Qualified V 24.907 28.883 15.96% 7,212,849.3 208,327,406
Non-Qualified V (0.75) 25.265 29.444 16.54% 11,813,415.6 347,835,862
Non-Qualified VI 23.322 27.061 16.03% 1,662,948.1 45,001,830
Non-Qualified VII 24.839 28.758 15.78% 7,621,660.3 219,185,741
Non-Qualified VIII 16.604 19.253 15.95% 1,372,571.6 26,426,472
Non-Qualified IX 24.800 28.686 15.67% 134,360.2 3,854,314
Non-Qualified X 25.005 29.069 16.25% 3,297,663.1 95,859,271
Non-Qualified XI 23.414 27.236 16.32% 41,567.6 1,132,126
Non-Qualified XII 10.246 11.882 15.97% (2) 25,734.1 305,763
Non-Qualified XIII 9.886 11.498 16.31% 1,093,629.5 12,574,135
Non-Qualified XIV 9.872 11.447 15.95% 1,317,641.6 15,083,505
Non-Qualified XV 9.866 11.422 15.77% 407,605.2 4,655,755
Non-Qualified XVII 263.583 285.280 8.23% (8) 346.6 98,892
Annuity contracts in payment period 192,658,329
- -----------------------------------------------------------------------------------------------------------------------
Aetna Growth VP:
Non-Qualified V 17.912 23.875 33.29% 172,425.2 4,116,687
Non-Qualified V (0.75) 18.067 24.203 33.96% 626,397.2 15,160,779
Non-Qualified VII 17.862 23.771 33.08% 947,365.7 22,520,149
Non-Qualified VIII 17.909 23.870 33.28% 367,226.0 8,765,776
Non-Qualified IX 17.834 23.713 32.97% 5,532.0 131,179
Non-Qualified XII 11.536 15.094 30.84% (2) 4,940.4 74,572
Non-Qualified XIII 10.489 14.022 33.68% 453,569.6 6,360,064
Non-Qualified XIV 10.475 13.961 33.28% 536,726.5 7,493,206
Non-Qualified XV 10.468 13.930 33.07% 114,035.50 1,588,550
Non-Qualified XVII 15.198 18.142 19.37% (8) 2,735.70 49,632
Annuity contracts in payment period 4,742,043
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
S-10
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna High Yield VP:
Non-Qualified V $ 9.212 $ 9.739 5.72% 2,827.4 $ 27,537
Non-Qualified V (0.75) 9.244 9.822 6.25% 21,597.9 212,138
Non-Qualified IX 9.677 9.698 0.22% (3) 619.4 6,007
- -----------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Non-Qualified V 18.772 23.044 22.76% 347,853.6 8,015,945
Non-Qualified V (0.75) 18.989 23.427 23.37% 1,552,901.9 36,379,360
Non-Qualified VII 18.704 22.923 22.56% 2,708,364.6 62,083,723
Non-Qualified VIII 18.449 22.646 22.75% 838,357.2 18,985,392
Non-Qualified IX 18.691 22.887 22.45% 31,248.1 715,186
Non-Qualified XII 11.411 13.677 19.86% (2) 18,623.1 254,700
Non-Qualified XIII 10.716 13.193 23.11% 2,135,758.9 28,177,968
Non-Qualified XIV 10.702 13.136 22.74% 2,394,660.9 31,455,670
Non-Qualified XV 10.694 13.107 22.56% 926,392.60 12,142,145
Annuity contracts in payment period 40,863,938
- -----------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Non-Qualified V 10.891 12.455 14.36% 6,906.5 86,024
Non-Qualified V (0.75) 10.928 12.561 14.94% 60,811.0 763,858
Non-Qualified IX 10.872 12.403 14.08% 1,361.0 16,880
- -----------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Non-Qualified V 8.815 9.645 9.42% 15,815.5 152,537
Non-Qualified V (0.75) 8.846 9.727 9.96% 76,971.1 748,670
Non-Qualified IX 8.800 9.604 9.14% 1,041.3 10,001
Non-Qualified XII 8.325 10.485 25.95% (2) 10.0 105
- -----------------------------------------------------------------------------------------------------------------------
Aetna International VP:
Non-Qualified V 9.765 14.594 49.45% 10,655.3 155,502
Non-Qualified V (0.75) 9.798 14.718 50.21% 44,537.5 655,483
Non-Qualified VII 9.754 14.554 49.21% 44,241.2 643,908
Non-Qualified VIII 9.764 14.592 49.45% 33,244.7 485,106
Non-Qualified XIII 9.149 13.715 49.91% 75,017.3 1,028,838
Non-Qualified XIV 9.137 13.655 49.45% 79,291.0 1,082,697
Non-Qualified XV 9.131 13.625 49.22% 28,091.1 382,735
Annuity contracts in payment period 105,507
- -----------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP:
Non-Qualified V 14.064 14.875 5.77% 111,343.3 1,656,206
Non-Qualified V (0.75) 14.266 15.164 6.29% 77,496.0 1,175,149
Non-Qualified VII 13.989 14.772 5.60% 1,203,703.1 17,781,290
Non-Qualified VIII 13.037 13.787 5.75% 430,581.6 5,936,585
Non-Qualified IX 14.003 14.774 5.51% 502.1 7,418
Non-Qualified XII 9.846 10.713 8.81% (2) 3,826.9 40,998
Annuity contracts in payment period 2,972,058
- -----------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP:
Non-Qualified V 12.425 12.894 3.77% 1,034,153.6 13,334,505
Non-Qualified V (0.75) 12.604 13.145 4.29% 2,521,960.2 33,150,869
Non-Qualified VI 12.132 12.597 3.83% 57,059.8 718,807
Non-Qualified VII 12.322 12.766 3.60% 7,902,383.9 100,885,317
Non-Qualified VIII 11.141 11.561 3.77% 1,373,014.2 15,872,994
Non-Qualified IX 12.372 12.806 3.51% 28,273.9 362,086
Non-Qualified X 12.425 12.894 3.77% 457,618.5 5,900,590
Non-Qualified XI 12.132 12.597 3.83% 4,835.1 60,910
Non-Qualified XIII 10.199 10.615 4.08% 2,174,382.7 23,082,032
Non-Qualified XIV 10.186 10.569 3.76% 1,313,322.2 13,880,480
Non-Qualified XV 10.179 10.546 3.61% 707,569.2 7,461,853
Annuity contracts in payment period 1,062,436
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
S-11
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Real Estate Securities VP:
Non-Qualified V $ 8.873 $ 8.393 (5.41%) 6,001.7 $ 50,372
Non-Qualified V (0.75) 8.903 8.464 (4.93%) 60,992.9 516,260
Non-Qualified VII 8.863 8.370 (5.56%) 59,453.8 497,647
Non-Qualified VIII 8.872 8.392 (5.41%) 25,152 211,073
Non-Qualified XIII 8.903 8.446 (5.13%) 36,876 311,466
Non-Qualified XIV 8.891 8.409 (5.42%) 34,137 287,073
Non-Qualified XV 8.885 8.391 (5.56%) 6,188 51,926
Annuity contracts in payment period 13,903
- ------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Non-Qualified V 13.633 17.617 29.22% 19,165.4 337,633
Non-Qualified V (0.75) 13.751 17.859 29.87% 177,816.5 3,175,601
Non-Qualified VII 13.595 17.540 29.02% 715,581.7 12,551,330
Non-Qualified VIII 13.631 17.613 29.21% 276,385.7 4,868,001
Non-Qualified IX 13.574 17.497 28.90% 1,732.5 30,314
Non-Qualified XII 8.741 12.352 41.31% (2) 25,983.5 320,941
Non-Qualified XIII 9.357 12.128 29.61% 163,679.4 1,985,026
Non-Qualified XIV 9.345 12.074 29.20% 114,137.8 1,378,154
Non-Qualified XV 9.338 12.048 29.02% 39,753.80 478,952
Annuity contracts in payment period 463,770
- ------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Non-Qualified V 16.030 18.930 18.09% 23,354.3 442,092
Non-Qualified V (0.75) 16.169 19.190 18.68% 93,802.4 1,800,053
Non-Qualified VII 15.985 18.847 17.90% 609,861.9 11,494,317
Non-Qualified VIII 16.028 18.926 18.08% 160,009.9 3,028,321
Non-Qualified IX 15.960 18.801 17.80% 298.5 5,613
Non-Qualified XII 10.626 13.007 22.41% (2) 11,411.6 148,430
- ------------------------------------------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Non-Qualified V 10.008 13.753 37.42% (5) 2,630.0 36,171
Non-Qualified V (0.75) 9.979 13.801 38.30% (7) 11,914.5 164,426
Non-Qualified XIII 10.245 14.675 43.24% 190,830.9 2,800,502
Non-Qualified XIV 10.231 14.611 42.81% 317,266.2 4,635,623
Non-Qualified XV 10.224 14.579 42.60% 156,883.8 2,287,220
Annuity contracts in payment period 47,197
- ------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund:
Non-Qualified V 9.568 11.716 22.45% (5) 10,586.7 124,029
Non-Qualified V (0.75) 10.215 11.756 15.09% (6) 36,163.4 425,147
Non-Qualified XIII 10.663 14.179 32.97% 370,289.3 5,250,354
Non-Qualified XIV 10.649 14.117 32.57% 938,411.4 13,247,617
Non-Qualified XV 10.641 14.086 32.37% 259,386.9 3,653,742
Annuity contracts in payment period 789,296
- ------------------------------------------------------------------------------------------------------------------------
Growth Fund:
Non-Qualified V 9.663 12.069 24.90% (5) 1,842.7 22,238
Non-Qualified V (0.75) 9.722 12.111 24.57% (7) 47,998.6 581,287
Non-Qualified XIII 10.779 14.438 33.95% 300,326.8 4,336,151
Non-Qualified XIV 10.764 14.375 33.55% 722,832.0 10,390,712
Non-Qualified XV 10.757 14.343 33.34% 228,577.5 3,278,592
Annuity contracts in payment period 322,083
- ------------------------------------------------------------------------------------------------------------------------
Value Fund:
Non-Qualified V 9.891 11.506 16.33% (4) 6,923.5 79,660
Non-Qualified V (0.75) 9.764 11.546 18.25% (4) 83,636.8 965,645
Non-Qualified XIII 10.616 13.659 28.66% 895,401.3 12,230,007
Non-Qualified XIV 10.601 13.599 28.28% 1,538,846.0 20,926,738
Non-Qualified XV 10.594 13.569 28.08% 492,467.0 6,682,342
Annuity contracts in payment period 942,276
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-12
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit
--------
Beginning End of
of Year Year
- --------------------------------------------------------------
<S> <C> <C>
Alger American Funds:
Balanced Portfolio:
Non-Qualified VII $20.946 $26.687
- --------------------------------------------------------------
Income & Growth Portfolio:
Non-Qualified VII 22.064 30.991
- --------------------------------------------------------------
Leveraged AllCap Portfolio:
Non-Qualified VII 24.881 43.684
Non-Qualified VIII 18.206 32.013
- --------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Non-Qualified VII 17.479 18.968
- --------------------------------------------------------------
International Fund:
Non-Qualified VII 16.139 26.105
Non-Qualified VIII 14.599 23.649
- --------------------------------------------------------------
Calvert Social Balanced Portfolio:
Non-Qualified V 20.415 22.626
Non-Qualified V (0.75) 20.708 23.066
Non-Qualified VII 11.437 12.656
Non-Qualified VIII 11.456 12.696
- --------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
Non-Qualified VII 23.528 24.746
Non-Qualified VIII 16.869 17.769
Annuity contracts in payment period
- --------------------------------------------------------------
Equity Income Fund II:
Non-Qualified VII 14.022 16.369
Annuity contracts in payment period
- --------------------------------------------------------------
Growth Strategies Fund II:
Non-Qualified VII 18.269 31.060
- --------------------------------------------------------------
High Income Bond Fund II:
Non-Qualified VII 14.910 15.040
Non-Qualified VIII 12.629 12.759
Annuity contracts in payment period
- --------------------------------------------------------------
International Equity Fund II:
Non-Qualified VII 14.719 26.832
Non-Qualified VIII 13.523 24.690
- --------------------------------------------------------------
Prime Money Fund II:
Non-Qualified VII 11.503 11.868
- ------------------------------------------- ------- -------
U.S. Government Securities Fund II:
Non-Qualified VII 12.614 12.363
- --------------------------------------------------------------
Utility Fund II:
Non-Qualified VII 18.663 18.714
Non-Qualified VIII 15.472 15.537
Annuity contracts in payment period
- --------------------------------------------------------------
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Non-Qualified V 17.400 18.272
Non-Qualified V (0.75) 17.650 18.627
Non-Qualified VII 20.872 21.883
Non-Qualified VIII 14.942 15.689
Non-Qualified IX 17.325 18.147
Non-Qualified X 17.400 18.272
Non-Qualified XII 10.184 10.651
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Year of Year
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alger American Funds:
Balanced Portfolio:
Non-Qualified VII 27.41% 232,842.7 $ 6,213,801
- ---------------------------------------------------------------------------------------------------------
Income & Growth Portfolio:
Non-Qualified VII 40.46% 615,919.4 19,087,670
- ---------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Non-Qualified VII 75.57% 574,744.6 25,106,952
Non-Qualified VIII 75.84% 168.3 5,389
- ---------------------------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Non-Qualified VII 8.52% 182,012.0 3,452,367
- ---------------------------------------------------------------------------------------------------------
International Fund:
Non-Qualified VII 61.75% 287,102.7 7,494,706
Non-Qualified VIII 61.99% 182.9 4,325
- ---------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Non-Qualified V 10.83% 8,235.7 186,344
Non-Qualified V (0.75) 11.39% 37,045.8 854,507
Non-Qualified VII 10.66% 63,517.0 803,879
Non-Qualified VIII 10.82% 58,632.1 744,400
- ---------------------------------------------------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
Non-Qualified VII 5.18% 5,048,733.2 124,936,306
Non-Qualified VIII 5.34% 9,542.9 169,568
Annuity contracts in payment period 61,038
- ---------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Non-Qualified VII 16.74% 1,856,257.2 30,384,515
Annuity contracts in payment period 8,185
- ---------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Non-Qualified VII 70.01% 1,502,834.6 46,677,628
- ---------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Non-Qualified VII 0.87% 2,778,202.2 41,784,652
Non-Qualified VIII 1.03% 300.8 3,838
Annuity contracts in payment period 17,816
- ---------------------------------------------------------------------------------------------------------
International Equity Fund II:
Non-Qualified VII 82.29% 1,077,889.2 28,922,440
Non-Qualified VIII 82.58% 130.8 3,229
- ---------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Non-Qualified VII 3.17% 729,506.2 8,657,471
- ---------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Non-Qualified VII (1.99%) 1,036,547.5 12,814,411
- ---------------------------------------------------------------------------------------------------------
Utility Fund II:
Non-Qualified VII 0.27% 1,415,963.0 26,497,792
Non-Qualified VIII 0.42% 67.1 1,043
Annuity contracts in payment period 59,670
- ---------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Non-Qualified V 5.01% 236,374.1 4,318,918
Non-Qualified V (0.75) 5.54% 519,884.7 9,683,767
Non-Qualified VII 4.84% 6,104,314.1 133,577,684
Non-Qualified VIII 5.00% 992,829.0 15,576,658
Non-Qualified IX 4.74% 8,863.0 160,839
Non-Qualified X 5.01% 11,369.5 207,738
Non-Qualified XII 4.59% (2) 653.9 6,965
</TABLE>
S-13
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit
--------
Beginning End of
of Year Year
- ------------------------------------------------------------------
<S> <C> <C>
Equity-Income Portfolio (continued):
Non-Qualified XIII $ 9.911 $10.438
Non-Qualified XIV 9.897 10.392
Non-Qualified XV 9.891 10.369
- ------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V 19.155 25.999
Non-Qualified V (0.75) 19.430 26.504
Non-Qualified VII 26.348 35.706
Non-Qualified VIII 17.420 23.643
Non-Qualified IX 19.072 25.822
Non-Qualified X 19.155 25.999
Non-Qualified XII 12.390 16.024
Non-Qualified XIII 10.265 12.649
Non-Qualified XIV 10.231 12.628
Non-Qualified XV 10.793 12.618
Non-Qualified XVII 22.058 26.366
- ------------------------------------------------------------------
High Income Portfolio:
Non-Qualified VII 13.168 14.042
Non-Qualified VIII 11.798 12.601
Non-Qualified XIII 8.949 9.586
Non-Qualified XIV 8.936 9.544
Non-Qualified XV 8.930 9.523
Annuity contracts in payment period
- ------------------------------------------------------------------
Overseas Portfolio:
Non-Qualified V 13.786 19.419
Non-Qualified V (0.75) 13.984 19.796
Non-Qualified VII 15.210 21.391
Non-Qualified VIII 12.879 18.139
Non-Qualified IX 13.727 19.287
- ------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Non-Qualified VII 17.786 19.482
Non-Qualified VIII 14.783 16.218
- ------------------------------------------------------------------
Contrafund Portfolio:
Non-Qualified V 19.735 24.217
Non-Qualified V (0.75) 20.018 24.687
Non-Qualified VII 21.872 26.797
Non-Qualified VIII 17.492 21.463
Non-Qualified IX 19.649 24.052
Non-Qualified X 19.735 24.217
Non-Qualified XII 11.460 13.787
Non-Qualified XIII 10.535 12.966
Non-Qualified XIV 10.521 12.909
Non-Qualified XV 10.514 12.881
Non-Qualified XVII 23.549 27.241
- ------------------------------------------------------------------
Index 500 Portfolio:
Non-Qualified VII 22.727 27.005
Non-Qualified VIII 18.925 22.522
- ------------------------------------------------------------------
Investment Grade Bond Portfolio:
Non-Qualified VII 12.446 12.143
Non-Qualified VIII 11.918 11.834
- ------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Non-Qualified V 20.433 45.486
Non-Qualified V (0.75) 20.726 46.370
Non-Qualified VII 20.410 45.363
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Year of Year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity-Income Portfolio (continued):
Non-Qualified XIII 5.32% 735,175.3 $ 7,673,717
Non-Qualified XIV 5.00% 1,507,319.6 15,664,494
Non-Qualified XV 4.83% 471,011.6 4,884,128
- -----------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V 35.73% 474,648.7 12,340,278
Non-Qualified V (0.75) 36.41% 874,557.2 23,179,283
Non-Qualified VII 35.52% 4,177,865.8 149,173,411
Non-Qualified VIII 35.72% 831,556.3 19,660,094
Non-Qualified IX 35.39% 23,653 610,766
Non-Qualified X 35.73% 32,858 854,269
Non-Qualified XII 29.33% (2) 4,299 68,894
Non-Qualified XIII 23.22% (8) 84,394.1 1,067,531
Non-Qualified XIV 23.43% (8) 124,948 1,577,908
Non-Qualified XV 16.91% (9) 35,352 446,070
Non-Qualified XVII 19.53% (8) 152 4,017
- -----------------------------------------------------------------------------------------------------------
High Income Portfolio:
Non-Qualified VII 6.64% 2,739,738.4 38,471,925
Non-Qualified VIII 6.81% 688,515.9 8,675,998
Non-Qualified XIII 7.12% 590,620.8 5,661,907
Non-Qualified XIV 6.80% 712,099.4 6,796,569
Non-Qualified XV 6.64% 244,926.9 2,332,548
Annuity contracts in payment period 755,677
- -----------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Non-Qualified V 40.86% 37,274.5 723,834
Non-Qualified V (0.75) 41.56% 182,516.9 3,613,179
Non-Qualified VII 40.64% 685,323.4 14,659,617
Non-Qualified VIII 40.84% 58,815.1 1,066,865
Non-Qualified IX 40.50% 1,319.3 25,445
- -----------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Non-Qualified VII 9.54% 951,972.5 18,546,594
Non-Qualified VIII 9.71% 183,310.4 2,972,868
- -----------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Non-Qualified V 22.71% 449,134.2 10,876,529
Non-Qualified V (0.75) 23.32% 732,242.8 18,077,121
Non-Qualified VII 22.52% 5,373,380.6 143,990,372
Non-Qualified VIII 22.70% 787,797.1 16,908,448
Non-Qualified IX 22.41% 20,988.0 504,802
Non-Qualified X 22.71% 13,750.2 332,984
Non-Qualified XII 20.31% (2) 5,460.5 75,287
Non-Qualified XIII 23.08% 1,126,346.9 14,604,330
Non-Qualified XIV 22.70% 1,682,679.9 21,722,393
Non-Qualified XV 22.51% 604,941.5 7,792,281
Non-Qualified XVII 15.68% (8) 4,165.7 113,477
- -----------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Non-Qualified VII 18.82% 5,394,050.7 145,664,290
Non-Qualified VIII 19.01% 1,101,288.9 24,803,345
- -----------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Non-Qualified VII (2.43%) 339,030.3 4,116,714
Non-Qualified VIII (0.70%) (2) 282 3,336
- -----------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Non-Qualified V 122.61% 828,592.3 37,689,170
Non-Qualified V (0.75) 123.73% 1,056,343.2 48,982,313
Non-Qualified VII 122.26% 2,409,624.0 109,306,960
</TABLE>
S-14
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Portfolio (continued):
Non-Qualified VIII $14.162 $31.525 122.60% 532,220.6 $ 16,778,169
Non-Qualified IX 20.345 45.177 122.05% 29,489.6 1,332,245
Non-Qualified X 20.433 45.486 122.61% 34,550.4 1,571,554
Non-Qualified XII 12.588 26.089 107.25% (2) 11,071.3 288,842
Non-Qualified XIII 11.042 24.654 123.27% 1,018,786.6 25,116,929
Non-Qualified XIV 11.027 24.546 122.60% 994,779.9 24,418,006
Non-Qualified XV 11.020 24.492 122.25% 368,329.7 9,021,250
Non-Qualified XVII 32.641 53.698 64.51% (8) 2,971.5 159,562
- ----------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Non-Qualified V 19.880 24.886 25.18% 527,201.1 13,120,149
Non-Qualified V (0.75) 20.165 25.370 25.81% 545,606.2 13,842,073
Non-Qualified VII 22.101 27.623 24.99% 2,773,991.6 76,624,788
Non-Qualified VIII 17.569 21.992 25.18% 807,835.2 17,766,013
Non-Qualified IX 19.794 24.717 24.87% 6,162.6 152,321
Non-Qualified X 19.880 24.886 25.18% 12,100.9 301,148
Non-Qualified XII 12.137 14.479 19.30% (2) 435.6 6,307
Non-Qualified XIII 10.945 13.742 25.56% 1,721,021.8 23,649,433
Non-Qualified XIV 10.930 13.681 25.17% 2,130,089.6 29,142,690
Non-Qualified XV 10.923 13.651 24.97% 778,170.3 10,623,120
Non-Qualified XVII 21.430 24.954 16.44% (8) 3,842.0 95,873
- ----------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Non-Qualified V 15.509 15.562 0.34% 73,596.4 1,145,287
Non-Qualified V (0.75) 15.731 15.864 0.85% 190,660.1 3,024,702
Non-Qualified VII 15.405 15.433 0.18% 783,971.0 12,099,259
Non-Qualified VIII 12.873 12.916 0.33% 249,484.1 3,222,452
Non-Qualified IX 15.442 15.456 0.09% 2,079.7 32,143
Non-Qualified X 15.509 15.562 0.34% 3,109.8 48,393
Non-Qualified XII 10.355 10.404 0.47% (2) 977.9 10,175
- ----------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V 20.651 29.366 42.20% 432,037.4 12,687,006
Non-Qualified V (0.75) 20.948 29.936 42.91% 668,408.8 20,009,591
Non-Qualified VII 24.532 34.828 41.97% 2,701,099.3 94,073,291
Non-Qualified VIII 17.461 24.827 42.19% 521,852.0 12,956,249
Non-Qualified IX 20.562 29.166 41.84% 11,840.3 345,332
Non-Qualified X 20.651 29.366 42.20% 29,283.9 859,939
Non-Qualified XII 12.040 16.313 35.49% (2) 4,195.4 68,441
Non-Qualified XIII 10.938 15.599 42.61% 1,611,326.8 25,135,000
Non-Qualified XIV 10.923 15.531 42.19% 2,407,009.9 37,382,714
Non-Qualified XV 10.915 15.497 41.98% 647,595.6 10,035,592
Non-Qualified XVII 25.578 32.068 25.37% (8) 597.3 19,154
Annuity contracts in payment period 9,348,397
- ----------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Non-Qualified V 21.320 34.626 62.41% 902,510.1 31,250,007
Non-Qualified V (0.75) 21.626 35.298 63.22% 1,601,735.3 56,538,428
Non-Qualified VII 24.039 38.979 62.15% 7,044,821.4 274,600,411
Non-Qualified VIII 17.358 28.189 62.40% 1,226,255.8 34,566,580
Non-Qualified IX 21.228 34.390 62.00% 31,114.7 1,070,046
Non-Qualified X 21.320 34.626 62.41% 44,861.0 1,553,341
Non-Qualified XII 10.532 16.613 57.74% (2) 17,701.2 294,069
Non-Qualified XIII 9.576 15.599 62.90% 1,828,182.5 28,517,271
Non-Qualified XIV 9.563 15.531 62.41% 2,118,679.7 32,904,339
Non-Qualified XV 9.557 15.497 62.15% 583,969.4 9,049,494
Non-Qualified XVII 26.861 38.687 44.03% (8) 1,791 69,295
Annuity contracts in payment period 11,305,698
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-15
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lexington Emerging Markets Fund, Inc.:
Non-Qualified VII $ 6.090 $13.640 123.97% 188,713.2 $ 2,574,027
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Non-Qualified V 11.030 12.428 12.67% 57,915.6 719,794
Non-Qualified V (0.75) 11.189 12.670 13.24% 65,369.7 828,244
Non-Qualified VII 10.932 12.298 12.50% 129,841.3 1,596,776
Non-Qualified IX 10.982 12.344 12.40% 191.3 2,361
Non-Qualified X 11.030 12.428 12.67% 1,753.1 21,788
- ---------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series:
Non-Qualified VII 10.860 10.440 (3.87%) 138,331.0 1,444,158
Non-Qualified VIII 10.904 10.498 (3.72%) 18,979.9 199,256
- ---------------------------------------------------------------------------------------------------------------------------
Total Return Series:
Non-Qualified VII 14.432 14.669 1.64% 2,056,862.5 30,172,256
Non-Qualified VIII 14.491 14.751 1.79% 483,032.7 7,125,264
Non-Qualified XIII 10.171 10.385 2.10% 321,447.1 3,338,204
Non-Qualified XIV 10.157 10.339 1.79% 675,245.9 6,981,698
Non-Qualified XV 10.150 10.317 1.65% 307,462.6 3,172,022
- ---------------------------------------------------------------------------------------------------------------------------
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Non-Qualified XIII 9.816 10.960 11.65% (4) 10,140.8 111,141
Non-Qualified XIV 10.189 10.937 7.34% (4) 60,270.6 659,166
Non-Qualified XV 10.056 10.925 8.64% (4) 3,629.1 39,649
- ---------------------------------------------------------------------------------------------------------------------------
Small Cap Portfolio:
Non-Qualified XIV 11.067 11.828 6.88% (6) 14,182.0 167,748
Non-Qualified XV 9.764 11.816 21.02% (9) 404.1 4,774
- ---------------------------------------------------------------------------------------------------------------------------
Tactical Allocation Portfolio:
Non-Qualified XIII 9.451 10.651 12.70% (4) 101,507.5 1,081,178
Non-Qualified XIV 9.852 10.629 7.89% (4) 541,486.6 5,755,371
Non-Qualified XV 9.567 10.618 10.99% (5) 49,695.2 527,646
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA:
Non-Qualified VII 13.520 24.477 81.04% 734,833.6 17,986,178
Non-Qualified VIII 13.556 24.578 81.31% 251,982.6 6,193,324
Non-Qualified XIII 9.362 17.027 81.87% 102,851.7 1,751,223
Non-Qualified XIV 9.350 16.952 81.30% 139,614.8 2,366,791
Non-Qualified XV 9.343 16.915 81.04% 58,764.5 994,008
Annuity contracts in payment period 1,639,824
- ---------------------------------------------------------------------------------------------------------------------------
Global Securities Fund/VA:
Non-Qualified V 10.018 15.681 56.53% 12,402.0 194,472
Non-Qualified V (0.75) 10.053 15.814 57.31% 38,363.3 606,665
Non-Qualified VII 12.982 20.287 56.27% 346,236.2 7,024,157
Non-Qualified VIII 13.016 20.372 56.52% 82,152.5 1,673,576
Non-Qualified IX 10.001 15.615 56.13% 952.8 14,878
- ---------------------------------------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA:
Non-Qualified VII 13.199 15.839 20.00% 1,942,405.4 30,766,659
Non-Qualified VIII 13.234 15.905 20.18% 685,331.0 10,900,475
Non-Qualified XIII 9.080 10.946 20.55% 341,457.9 3,737,521
Non-Qualified XIV 9.067 10.898 20.19% 737,210.2 8,034,042
Non-Qualified XV 9.061 10.874 20.01% 255,252.7 2,775,606
Annuity contracts in payment period 151,990
- ---------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund/VA:
Non-Qualified V 9.895 10.048 1.55% 5,339.8 53,654
Non-Qualified V (0.75) 9.929 10.133 2.05% 3,553.3 36,007
</TABLE>
S-16
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit
--------
Beginning End of
of Year Year
- ----------------------------------------------------------------
<S> <C> <C>
Strategic Bond Fund/VA (continued):
Non-Qualified VII $ 10.921 $11.072
Non-Qualified VIII 10.950 11.118
Non-Qualified IX 9.878 10.006
Non-Qualified XIII 9.823 10.005
Non-Qualified XIV 9.810 9.961
Non-Qualified XV 9.803 9.939
Annuity contracts in payment period
- ----------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Non-Qualified V 19.489 29.040
Non-Qualified V (0.75) 19.769 29.605
Non-Qualified VII 18.803 27.973
Non-Qualified VIII 12.761 19.012
Non-Qualified IX 19.405 28.843
Non-Qualified X 19.489 29.040
Non-Qualified XII 10.087 16.210
Non-Qualified XIII 10.371 15.499
Non-Qualified XIV 10.357 15.431
Non-Qualified XV 10.350 15.397
Non-Qualified XVII 21.207 28.739
Annuity contracts in payment period
- ----------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Non-Qualified V 15.481 18.963
Non-Qualified V (0.75) 15.703 19.332
Non-Qualified VI 13.080 16.032
Non-Qualified VII 15.331 18.750
Non-Qualified VIII 10.532 12.901
Non-Qualified IX 15.414 18.834
Non-Qualified X 15.481 18.963
Non-Qualified XIII 10.113 12.424
Non-Qualified XIV 10.099 12.370
Non-Qualified XV 10.092 12.343
- ----------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Non-Qualified V 26.713 39.254
Non-Qualified V (0.75) 27.097 40.017
Non-Qualified VII 12.686 18.612
Non-Qualified VIII 12.708 18.672
Non-Qualified IX 26.598 38.987
Non-Qualified X 26.713 39.254
Non-Qualified XII 10.883 15.732
Non-Qualified XIII 10.193 15.023
Non-Qualified XIV 10.180 14.957
Non-Qualified XV 10.173 14.924
Non-Qualified XVII 33.592 43.155
Annuity contracts in payment period
- ----------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Non-Qualified V 21.057 32.942
Non-Qualified V (0.75) 21.359 33.582
Non-Qualified VII 11.640 18.181
Non-Qualified VIII 11.659 18.238
Non-Qualified IX 20.966 32.718
Non-Qualified X 21.057 32.942
Non-Qualified XII 10.107 15.541
Non-Qualified XIII 9.248 14.511
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Year of Year
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Strategic Bond Fund/VA (continued):
Non-Qualified VII 1.38% 831,202.9 $ 9,203,371
Non-Qualified VIII 1.53% 307,277.8 3,416,465
Non-Qualified IX 1.30% 114.2 1,143
Non-Qualified XIII 1.85% 247,094.9 2,472,154
Non-Qualified XIV 1.54% 321,796.7 3,205,447
Non-Qualified XV 1.39% 118,823.90 1,181,015
Annuity contracts in payment period 228,810
- ---------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Non-Qualified V 49.01% 485,026.4 14,085,159
Non-Qualified V (0.75) 49.75% 457,664.5 13,548,971
Non-Qualified VII 48.77% 4,571,239.7 127,872,111
Non-Qualified VIII 48.99% 554,655.3 10,545,302
Non-Qualified IX 48.64% 11,546.9 333,043
Non-Qualified X 49.01% 12,141.7 352,595
Non-Qualified XII 60.70% (2) 12,647.9 205,025
Non-Qualified XIII 49.45% 360,243.8 5,583,250
Non-Qualified XIV 48.99% 421,058.9 6,497,276
Non-Qualified XV 48.76% 173,670.9 2,673,998
Non-Qualified XVII 35.52% (8) 546.7 15,710
Annuity contracts in payment period 1,531,267
- ---------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Non-Qualified V 22.49% 408,869.5 7,753,575
Non-Qualified V (0.75) 23.11% 331,760.0 6,413,686
Non-Qualified VI 22.57% 9,318.3 149,388
Non-Qualified VII 22.30% 3,631,867.0 68,096,121
Non-Qualified VIII 22.49% 576,382.1 7,435,639
Non-Qualified IX 22.19% 18,743.4 353,021
Non-Qualified X 22.49% 135,419.7 2,568,024
Non-Qualified XIII 22.85% 208,889.0 2,595,276
Non-Qualified XIV 22.49% 434,220.7 5,371,244
Non-Qualified XV 22.30% 145,910.2 1,800,924
- ---------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Non-Qualified V 46.95% 278,561.6 10,934,611
Non-Qualified V (0.75) 47.68% 202,966.2 8,122,064
Non-Qualified VII 46.71% 975,016.1 18,147,137
Non-Qualified VIII 46.93% 289,619.5 5,407,687
Non-Qualified IX 46.58% 3,143.4 122,552
Non-Qualified X 46.95% 9,451.0 370,986
Non-Qualified XII 44.56% (2) 188.4 2,964
Non-Qualified XIII 47.39% 207,410.2 3,115,879
Non-Qualified XIV 46.93% 361,089.0 5,400,856
Non-Qualified XV 46.70% 99,417.2 1,483,731
Non-Qualified XVII 28.47% (8) 1,516.2 65,431
Annuity contracts in payment period 1,763,893
- ---------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Non-Qualified V 56.44% 316,726.40 10,433,693
Non-Qualified V (0.75) 57.23% 331,361.7 11,127,920
Non-Qualified VII 56.19% 183,802.0 3,341,658
Non-Qualified VIII 56.43% 80,485.4 1,467,904
Non-Qualified IX 56.05% 5,869.2 192,030
Non-Qualified X 56.44% 4,496.1 148,113
Non-Qualified XII 53.76% (2) 229.6 3,568
Non-Qualified XIII 56.91% 292,269.5 4,241,163
</TABLE>
S-17
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
Value
Per Unit
--------
Beginning End of
of Year Year
- ----------------------------------------------------------------------------
<S> <C> <C>
PPI Scudder International Growth Portfolio (continued):
Non-Qualified XIV $ 9.236 $14.448
Non-Qualified XV 9.229 14.416
Annuity contracts in payment period
- ----------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Non-Qualified V 18.146 21.922
Non-Qualified V (0.75) 18.407 22.348
Non-Qualified VII 23.078 27.835
Non-Qualified VIII 16.682 20.151
Non-Qualified IX 18.068 21.773
Non-Qualified X 18.146 21.922
Non-Qualified XII 10.925 13.248
Non-Qualified XVII 21.843 25.309
Annuity contracts in payment period
- ----------------------------------------------------------------------------
Total
============================================================================
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Year of Year
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PPI Scudder International Growth Portfolio (continued):
Non-Qualified XIV 56.43% 180,821.9 $ 2,612,466
Non-Qualified XV 56.20% 122,088.7 1,760,035
Annuity contracts in payment period 123,723
- ------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Non-Qualified V 20.81% 177,799 3,897,694
Non-Qualified V (0.75) 21.41% 314,992 7,039,487
Non-Qualified VII 20.61% 3,902,488.8 108,627,153
Non-Qualified VIII 20.79% 304,101.7 6,127,882
Non-Qualified IX 20.51% 10,243.8 223,037
Non-Qualified X 20.81% 4,490.9 98,450
Non-Qualified XII 21.26% (2) 1,255.7 16,635
Non-Qualified XVII 15.87% (8) 1,557.1 39,409
Annuity contracts in payment period 723,814
- ------------------------------------------------------------------------------------------------------------------------
Total $6,173,851,032
========================================================================================================================
</TABLE>
<TABLE>
<S> <C>
Non-Qualified 1964 Individual contracts issued from December 1, 1964 to March 14, 1967.
Non-Qualified V Certain AetnaPlus contracts issued in connection with Deferred Compensation Plans issued since August
28, 1992, and certain individual non-qualified contracts.
Non-Qualified VI Certain existing contracts that were converted to ACES, an administrative system (previously valued
under Non-Qualified I).
Non-Qualified VII Certain individual and group contracts issued as non-qualified deferred annuity contracts or Individual
Retirement Annuity contracts issued since May 4, 1994.
Non-Qualified VIII Certain individual Retirement Annuity contracts issued since May 1, 1998.
Non-Qualified IX Group AetnaPlus contracts assessing an administrative expense charge effective April 7, 1997 issued in
connection with Deferred Compensation Plans.
Non-Qualified X Group AetnaPlus contracts containing contractual limits on fees, issued in connection with Deferred
Compensation Plans and as individual non-qualified contracts, resulting in reduced daily charges for
certain funding options effective May 29, 1997.
Non-Qualified XI Certain contracts, previously valued under Non-Qualified VI, containing contractual limits limits on
fees, resulting in reduced daily charges for certain funding options effective May 29, 1997.
Non-Qualified XIII Certain individual Retirement Annuity contracts issued since October 1, 1998.
Non-Qualified XIV Certain individual Retirement Annuity contracts issued since September 1, 1998.
Non-Qualified XV Certain individual Retirement Annuity contracts issued since September 1, 1998.
Non-Qualified XVII Group AetnaPlus contracts issued in connection with Deferred Compensation Plans having contract
modifications effective May 29, 1997.
</TABLE>
Notes to Condensed Financial Information:
(1) -- Reflects less than a full year of performance activity. Funds were
first received in this option during January 1999.
(2) -- Reflects less than a full year of performance activity. Funds were
first received in this option during March 1999.
(3) -- Reflects less than a full year of performance activity. Funds were
first received in this option during April 1999.
(4) -- Reflects less than a full year of performance activity. Funds were
first received in this option during May 1999.
(5) -- Reflects less than a full year of performance activity. Funds were
first received in this option during June 1999.
(6) -- Reflects less than a full year of performance activity. Funds were
first received in this option during July 1999.
(7) -- Reflects less than a full year of performance activity. Funds were
first received in this option during August 1999.
(8) -- Reflects less than a full year of performance activity. Funds were
first received in this option during September 1999.
(9) -- Reflects less than a full year of performance activity. Funds were
first received in this option during October 1999.
(10) -- Reflects less than a full year of performance activity. Funds were
first received in this option during November 1999.
(11) -- Reflects less than a full year of performance activity. Funds were
first received in this option during December 1999.
See Notes to Financial Statements
S-18
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999
1. Summary of Significant Accounting Policies
Variable Annuity Account B (the "Account") is a separate account established
by Aetna Life Insurance and Annuity Company (the "Company") registered under
the Investment Company Act of 1940 as a unit investment trust. The Account
is sold exclusively for use with variable annuity contracts that may be
entitled to tax-deferred treatment under specific sections of the Internal
Revenue Code of 1986, as amended.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Actual results could
differ from these estimates.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset
value per share as determined by each Fund on December 31, 1999:
<TABLE>
<S> <C>
Aetna Ascent VP Fidelity Variable Insurance Products Fund:
Aetna Balanced VP, Inc. o Equity-Income Portfolio
Aetna Bond VP o Growth Portfolio
Aetna Crossroads VP o High Income Portfolio
Aetna Get Fund, Series C o Overseas Portfolio
Aetna Get Fund, Series D Fidelity Variable Insurance Products Fund II:
Aetna Get Fund, Series E o Asset Manager Portfolio
Aetna Get Fund, Series G o Contrafund Portfolio
Aetna Get Fund, Series H o Index 500 Portfolio
Aetna Growth and Income VP o Investment Grade Bond Portfolio
Aetna Growth VP Janus Aspen Series:
Aetna High Yield VP o Aggressive Growth Portfolio
Aetna Index Plus Large Cap VP o Balanced Portfolio
Aetna Index Plus Mid Cap VP o Flexible Income Portfolio
Aetna Index Plus Small Cap VP o Growth Portfolio
Aetna International VP o Worldwide Growth Portfolio
Aetna Legacy VP Lexington Emerging Markets Fund, Inc.
Aetna Money Market VP Lexington Natural Resources Trust Fund
Aetna Real Estate Securities VP MFS Funds:
Aetna Small Company VP o Global Government Series
Aetna Value Opportunity VP o Total Return Series
AIM V.I. Funds: Mitchell Hutchins Series Trust:
o Capital Appreciation Fund o Growth & Income Portfolio
o Growth and Income Fund o Small Cap portfolio
o Growth Fund o Tactical Allocation Portfolio
o Value Fund Oppenheimer Funds:
Alger American Funds: o Aggressive Growth Fund/VA
o Balanced Portfolio o Global Securities Fund/VA
o Income & Growth Portfolio o Main Street Growth & Income Fund/VA
o Leveraged AllCap Portfolio o Strategic Bond Fund/VA
American Century VP Funds: Portfolio Partners, Inc. (PPI):
o Balanced Fund o PPI MFS Emerging Equities Portfolio
o International Fund o PPI MFS Research Growth Portfolio
Calvert Social Balanced Portfolio o PPI MFS Value Equity Portfolio
Federated Insurance Series: o PPI Scudder International Growth Portfolio
o American Leaders Fund II o PPI T. Rowe Price Growth Equity Portfolio
o Equity Income Fund II
o Growth Strategies Fund II
o High Income Bond Fund II
o International Equity Fund II
o Prime Money Fund II
o U.S. Government Securities Fund II
o Utility Fund II
</TABLE>
S-19
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
b. Other
Investment transactions are accounted for on a trade date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is
determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of the Company which is taxed as a life insurance company under
the Internal Revenue Code of 1986, as amended.
d. Annuity Reserves
Annuity reserves held in the Account are computed for currently payable
contracts according to the Progressive Annuity, a49, 1971 Individual Annuity
Mortality, 1971 Group Annuity Mortality, 83a, and 1983 Group Annuity
Mortality tables using various assumed interest rates not to exceed seven
percent. Mortality experience is monitored by the Company. Charges to
annuity reserves for mortality experience are reimbursed to the Company if
the reserves required are less than originally estimated. If additional
reserves are required, the Company reimburses the Account.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made in
accordance with the terms of the contracts and are paid to the Company.
3. Dividend Income
On an annual basis, the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions to
the Account are automatically reinvested in shares of the Funds. The
Account's proportionate share of each Fund's undistributed net investment
income (distributions in excess of net investment income) and accumulated
net realized gain (loss) on investments is included in net unrealized gain
(loss) in the Statement of Operations.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the year ended December 31, 1999 aggregated
$3,435,456,040 and $1,971,718,606.
S-20
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
5. Supplemental Information to Statements of Operations
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds Cost of
Period from Investments
Dividends Deductions Sales Sold
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Ascent VP:
Annuity contracts in accumulation $1,340,444 ($270,151) $9,313,006 $8,698,919
- -----------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation 26,401,416 (2,291,480) 33,436,167 27,637,858
- -----------------------------------------------------------------------------------------------------------
Aetna Bond VP:
Annuity contracts in accumulation 6,124,925 (1,115,110) 40,901,359 41,151,754
- -----------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Annuity contracts in accumulation 1,502,501 (342,919) 8,948,614 8,113,257
- -----------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Annuity contracts in accumulation 7,848,121 (128,073) 19,750,183 23,962,269
- -----------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Annuity contracts in accumulation 1,957,571 (74,044) 3,666,266 2,463,747
- -----------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Annuity contracts in accumulation 3,756,117 (2,728,466) 32,922,228 32,044,756
- -----------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series E:
Annuity contracts in accumulation 2,481,190 (1,968,291) 9,474,528 9,239,165
- -----------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series G:
Annuity contracts in accumulation 102,974 (208,523) 522,773 511,829
- -----------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series H:
Annuity contracts in accumulation 0 (535) 0 0
- -----------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Annuity contracts in accumulation 207,834,884 (12,198,695) 237,901,365 210,303,160
- -----------------------------------------------------------------------------------------------------------
Aetna Growth VP:
Annuity contracts in accumulation 3,084,013 (580,261) 51,360,082 42,601,164
- -----------------------------------------------------------------------------------------------------------
Aetna High Yield VP:
Annuity contracts in accumulation 23,128 (2,983) 278,712 305,621
- -----------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation 9,509,103 (1,876,028) 67,290,981 54,385,900
- -----------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Annuity contracts in accumulation 158,723 (7,101) 5,181,529 5,178,353
- -----------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Annuity contracts in accumulation 2,021 (8,247) 1,258,038 1,253,262
- -----------------------------------------------------------------------------------------------------------
Aetna International VP:
Annuity contracts in accumulation 343,759 (29,531) 12,411,249 11,614,440
- -----------------------------------------------------------------------------------------------------------
Aetna Legacy VP:
Annuity contracts in accumulation 1,676,882 (417,080) 10,198,632 9,520,795
- -----------------------------------------------------------------------------------------------------------
Aetna Money Market VP:
Annuity contracts in accumulation 7,203,776 (2,397,398) 588,072,224 585,938,903
- -----------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Annuity contracts in accumulation 98,540 (19,120) 1,488,862 1,583,368
- -----------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Annuity contracts in accumulation 299,261 (252,577) 9,437,948 8,942,352
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net Unrealized Net Net
Net Gain (Loss) Change in Increase (Decrease)
Realized ----------- Unrealized in Net Assets
Gain (Loss) Beginning End Gain (Loss) Resulting from
on Investments of Year of Year on Investments Operations
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP:
Annuity contracts in accumulation $614,087 ($204,552) $483,736 $688,288 $2,372,668
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation 5,798,309 13,657,518 6,704,110 (6,953,408) 22,954,837
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP:
Annuity contracts in accumulation (250,395) (271,440) (6,898,223) (6,626,783) (1,867,363)
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Annuity contracts in accumulation 835,357 455,992 548,689 92,697 2,087,636
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Annuity contracts in accumulation (4,212,086) 3,285,620 0 (3,285,620) 222,342
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Annuity contracts in accumulation 1,202,519 2,432,614 786,857 (1,645,757) 1,440,289
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Annuity contracts in accumulation 877,472 (64,824) 9,587,836 9,652,660 11,557,783
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series E:
Annuity contracts in accumulation 235,363 0 23,410,070 23,410,070 24,158,332
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series G:
Annuity contracts in accumulation 10,944 0 5,934,910 5,934,910 5,840,305
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series H:
Annuity contracts in accumulation 0 0 2,439 2,439 1,904
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Annuity contracts in accumulation 27,598,205 (14,386,593) (68,936,164) (54,549,571) 168,684,823
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP:
Annuity contracts in accumulation 8,758,918 4,054,739 8,580,844 4,526,105 15,788,775
- -------------------------------------------------------------------------------------------------------------------------------
Aetna High Yield VP:
Annuity contracts in accumulation (26,909) (38,627) (16,080) 22,547 15,783
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation 12,905,081 9,544,413 23,757,249 14,212,836 34,750,992
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Annuity contracts in accumulation 3,176 25,068 (42,233) (67,301) 87,497
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Annuity contracts in accumulation 4,776 8,264 96,292 88,028 86,578
- -------------------------------------------------------------------------------------------------------------------------------
Aetna International VP:
Annuity contracts in accumulation 796,809 (4,447) 330,445 334,892 1,445,929
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP:
Annuity contracts in accumulation 677,837 230,393 (38,204) (268,597) 1,669,042
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP:
Annuity contracts in accumulation 2,133,321 1,434,703 1,765,548 330,845 7,270,544
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Annuity contracts in accumulation (94,506) (78,505) (181,523) (103,018) (118,104)
- -------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Annuity contracts in accumulation 495,596 1,188,423 6,242,096 5,053,673 5,595,953
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-21
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
5. Supplemental Information to Statements of Operations (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds Cost of
Period from Investments
Dividends Deductions Sales Sold
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Value Opportunity VP:
Annuity contracts in accumulation $797,048 ($226,028) $7,969,978 $6,860,631
- ------------------------------------------------------------------------------------------------------
Capital Appreciation Fund:
Annuity contracts in accumulation 199,178 (36,849) 1,961,367 1,742,638
- ------------------------------------------------------------------------------------------------------
Growth and Income Fund:
Annuity contracts in accumulation 179,109 (106,709) 716,417 632,280
- ------------------------------------------------------------------------------------------------------
Growth Fund:
Annuity contracts in accumulation 631,309 (62,029) 747,792 656,292
- ------------------------------------------------------------------------------------------------------
Value Fund:
Annuity contracts in accumulation 629,443 (155,450) 2,307,793 2,034,925
- ------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation 454,912 (85,354) 1,556,530 1,053,499
- ------------------------------------------------------------------------------------------------------
Income & Growth Portfolio:
Annuity contracts in accumulation 914,221 (222,145) 2,270,282 1,259,702
- ------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation 1,249,119 (271,946) 3,592,783 1,650,828
- ------------------------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation 683,536 (56,724) 1,675,116 1,632,360
- ------------------------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation 0 (80,728) 1,365,915 995,445
- ------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 247,325 (26,165) 406,307 370,404
- ------------------------------------------------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation 13,552,341 (1,896,640) 21,302,731 12,295,752
- ------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation 830,081 (412,745) 4,773,203 3,622,910
- ------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 0 (459,868) 4,243,118 2,328,173
- ------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation 4,081,257 (651,738) 10,263,690 9,738,521
- ------------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation 503,745 (271,182) 3,123,504 1,926,381
- ------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 411,869 (127,832) 9,317,264 9,315,041
- ------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 733,040 (203,519) 4,193,043 3,940,186
- ------------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 2,100,934 (397,724) 5,009,213 3,572,281
- ------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net Unrealized Net Net
Net Gain (Loss) Change in Increase (Decrease)
Realized ----------- Unrealized in Net Assets
Gain (Loss) Beginning End Gain (Loss) Resulting from
on Investments of Year of Year on Investments Operations
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Value Opportunity VP:
Annuity contracts in accumulation $1,109,347 $1,733,031 $2,822,690 $1,089,659 $2,770,026
- ----------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund:
Annuity contracts in accumulation 218,729 19,720 2,111,777 2,092,057 2,473,115
- ----------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund:
Annuity contracts in accumulation 84,137 17,765 3,746,947 3,729,182 3,885,719
- ----------------------------------------------------------------------------------------------------------------------------
Growth Fund:
Annuity contracts in accumulation 91,500 12,342 2,711,961 2,699,619 3,360,399
- ----------------------------------------------------------------------------------------------------------------------------
Value Fund:
Annuity contracts in accumulation 272,868 22,553 4,671,998 4,649,445 5,396,306
- ----------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 503,031 1,582,996 2,168,767 585,771 1,458,360
- ----------------------------------------------------------------------------------------------------------------------------
Income & Growth Portfolio:
Annuity contracts in accumulation 1,010,580 4,215,812 8,170,558 3,954,746 5,657,402
- ----------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation 1,941,955 6,533,437 15,044,425 8,510,988 11,430,116
- ----------------------------------------------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation 42,756 487,853 113,895 (373,958) 295,610
- ----------------------------------------------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation 370,470 743,148 3,420,828 2,677,680 2,967,422
- ----------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 35,903 14,930 8,210 (6,720) 250,343
- ----------------------------------------------------------------------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation 9,006,979 37,231,660 23,291,163 (13,940,497) 6,722,183
- ----------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation 1,150,293 3,973,133 6,982,904 3,009,771 4,577,400
- ----------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 1,914,945 5,244,563 22,782,494 17,537,931 18,993,008
- ----------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation 525,169 2,714,767 (768,082) (3,482,849) 471,839
- ----------------------------------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation 1,197,123 3,819,534 15,689,012 11,869,478 13,299,164
- ----------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 2,223 2,223 0 (2,223) 284,037
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 252,857 1,013,377 (71,689) (1,085,066) (302,688)
- ----------------------------------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 1,436,932 7,053,257 3,900,529 (3,152,728) (12,586)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-22
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
5. Supplemental Information to Statements of Operations (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds Cost of
Period from Investments
Dividends Deductions Sales Sold
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation $8,367,628 ($2,573,916) $30,786,251 $23,310,042
- ----------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 16,174,596 (2,218,187) 15,856,150 10,078,861
- ----------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 5,027,115 (781,519) 15,051,314 17,531,702
- ----------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 639,927 (217,131) 17,051,576 15,470,272
- ----------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 1,521,294 (290,423) 3,958,472 3,549,278
- ----------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 6,677,923 (2,522,798) 42,148,010 26,560,684
- ----------------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 2,351,381 (2,155,269) 61,376,663 41,833,912
- ----------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation 278,742 (67,977) 1,529,299 1,459,169
- ----------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 4,328,099 (1,464,290) 180,428,933 153,089,375
- ----------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 3,289,917 (1,574,299) 7,838,806 4,594,554
- ----------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 1,403,262 (265,146) 9,325,969 9,178,770
- ----------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 990,849 (1,633,385) 22,246,086 14,336,557
- ----------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 538,521 (3,924,479) 85,749,085 54,113,435
- ----------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc.:
Annuity contracts in accumulation 8,564 (22,933) 463,764 730,052
- ----------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation 20,628 (42,793) 1,388,088 1,704,273
- ----------------------------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation 103,104 (25,617) 1,099,699 1,092,429
- ----------------------------------------------------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation 2,209,450 (612,684) 5,002,849 3,909,198
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net Unrealized Net
Net Gain (Loss) Change in
Realized ----------- Unrealized
Gain (Loss) Beginning End Gain (Loss)
on Investments of Year of Year on Investments
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation $7,476,209 $22,859,546 $17,824,133 $(5,035,413)
- --------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 5,777,289 33,940,400 67,658,735 33,718,335
- --------------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation (2,480,388) (4,425,686) (2,606,690) 1,818,996
- --------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 1,581,304 669,980 4,814,866 4,144,886
- --------------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 409,194 1,633,427 1,897,225 263,798
- --------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 15,587,326 35,201,475 56,818,405 21,616,930
- --------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 19,542,751 25,538,020 32,900,456 7,362,436
- --------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation 70,130 478,048 75,103 (402,945)
- --------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 27,339,558 8,106,849 100,137,615 92,030,766
- --------------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 3,244,252 15,241,071 40,182,173 24,941,102
- --------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 147,199 255,193 (999,230) (1,254,423)
- --------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 7,909,529 12,281,148 56,878,486 44,597,338
- --------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 31,635,650 37,241,442 183,495,928 146,254,486
- --------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc.:
Annuity contracts in accumulation (266,288) (1,196,659) 579,071 1,775,730
- --------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation (316,185) (1,266,269) (494,145) 772,124
- --------------------------------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation 7,270 102,292 (52,025) (154,317)
- --------------------------------------------------------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation 1,093,651 3,834,735 1,850,808 (1,983,927)
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease)
in Net Assets
Resulting from
Operations
- -----------------------------------------------------------------------
<S> <C>
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation $8,234,508
- -----------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 53,452,033
- -----------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 3,584,204
- -----------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 6,148,986
- -----------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 1,903,863
- -----------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 41,359,381
- -----------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 27,101,299
- -----------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation (122,050)
- -----------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 122,234,133
- -----------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 29,900,972
- -----------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 30,892
- -----------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 51,864,331
- -----------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 174,504,178
- -----------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc.:
Annuity contracts in accumulation 1,495,073
- -----------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation 433,774
- -----------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation (69,560)
- -----------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation 706,490
- -----------------------------------------------------------------------
</TABLE>
S-23
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
5. Supplemental Information to Statements of Operations (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds Cost of
Period from Investments
Dividends Deductions Sales Sold
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Annuity contracts in accumulation $3 $(2,950) $134,571 $132,047
- ------------------------------------------------------------------------------------------------------------------------
Small Cap Portfolio:
Annuity contracts in accumulation 5,932 (761) 1,608 1,675
- ------------------------------------------------------------------------------------------------------------------------
Tactical Allocation Portfolio:
Annuity contracts in accumulation 473,308 (12,484) 259,982 250,453
- ------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation 0 (228,766) 29,784,999 24,129,999
- ------------------------------------------------------------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation 280,254 (94,735) 6,574,995 4,790,427
- ------------------------------------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation 454,029 (588,876) 5,827,992 5,360,308
- ------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation 786,643 (214,526) 4,087,701 4,296,040
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Partners,Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation 1,395,386 (1,803,211) 69,154,424 53,471,073
- ------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation 179,933 (1,192,525) 22,188,694 17,498,425
- ------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 1,111,624 (447,967) 6,884,756 4,709,438
- ------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 1,024,592 (243,925) 75,090,895 65,822,845
- ------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 2,862,703 (1,607,370) 19,816,183 14,545,431
- ------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $372,453,223 ($ 59,498,930) $1,971,718,606 $1,728,629,845
========================================================================================================================
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net Unrealized Net
Net Gain (Loss) Change in
Realized ----------- Unrealized
Gain (Loss) Beginning End Gain (Loss)
on Investments of Year of Year on Investments
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Annuity contracts in accumulation $2,524 $0 $74,102 $74,102
- ----------------------------------------------------------------------------------------------------------------------
Small Cap Portfolio:
Annuity contracts in accumulation (67) 0 9,469 9,469
- ----------------------------------------------------------------------------------------------------------------------
Tactical Allocation Portfolio:
Annuity contracts in accumulation 9,529 0 35,469 35,469
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation 5,655,000 1,243,228 8,288,775 7,045,547
- ----------------------------------------------------------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation 1,784,568 786,005 2,312,761 1,526,756
- ----------------------------------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation 467,684 (435,824) 7,488,511 7,924,335
- ----------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation (208,339) 47,663 (12,690) (60,353)
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Partners,Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation 15,683,351 19,423,983 64,359,069 44,935,086
- ----------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation 4,690,269 11,016,482 26,374,011 15,357,529
- ----------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 2,175,318 3,770,053 17,014,014 13,243,961
- ----------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 9,268,050 863,502 3,641,431 2,777,929
- ----------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 5,270,752 24,891,619 40,800,081 15,908,462
- ----------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $243,088,761 $349,806,583 $860,262,998 $510,456,415
======================================================================================================================
<CAPTION>
- ----------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease)
in Net Assets
Resulting from
Operations
- ----------------------------------------------------------------------
<S> <C>
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Annuity contracts in accumulation $73,679
- ----------------------------------------------------------------------
Small Cap Portfolio:
Annuity contracts in accumulation 14,573
- ----------------------------------------------------------------------
Tactical Allocation Portfolio:
Annuity contracts in accumulation 505,822
- ----------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation 12,471,781
- ----------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation 3,496,843
- ----------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation 8,257,172
- ----------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation 303,425
- ----------------------------------------------------------------------
Portfolio Partners,Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation 60,210,612
- ----------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation 19,035,206
- ----------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 16,082,936
- ----------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 12,826,646
- ----------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 22,434,547
- ----------------------------------------------------------------------
Total Variable Annuity Account B $1,066,499,469
======================================================================
</TABLE>
(1) - Effective May 1, 1999, MFS Worldwide Government Series name changed to
MFS Global Government Series.
(2) - Effective May 1, 1999, Oppenheimer Aggressive Growth Fund/OVAF's name
changed to Oppenheimer Aggressive Growth Fund/VA.
(3) - Effective May 1, 1999, Oppenheimer Global Securities Fund/OVAF's name
changed to Oppenheimer Global Securities Fund/VA.
(4) - Effective May 1, 1999, Oppenheimer Growth and Income Fund/OVAF's name
changed to Oppenheimer Main Street Growth and Income Fund/VA.
(5) - Effective May 1, 1999, Oppenheimer Strategic Bond Fund/OVAF's name
changed to Oppenheimer Strategic Bond Fund/VA.
S-24
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP:
Annuity contracts in accumulation $1,070,293 $614,087 $688,288
- ----------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation 24,109,936 5,798,309 (6,953,408)
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna Bond VP:
Annuity contracts in accumulation 5,009,815 (250,395) (6,626,783)
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna Crossroads VP:
Annuity contracts in accumulation 1,159,582 835,357 92,697
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Annuity contracts in accumulation 7,720,048 (4,212,086) (3,285,620)
- ----------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Annuity contracts in accumulation 1,883,527 1,202,519 (1,645,757)
- ----------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Annuity contracts in accumulation 1,027,651 877,472 9,652,660
- ----------------------------------------------------------------------------------------
Aetna Get Fund, Series E:
Annuity contracts in accumulation 512,899 235,363 23,410,070
- ----------------------------------------------------------------------------------------
Aetna Get Fund, Series G:
Annuity contracts in accumulation (105,549) 10,944 5,934,910
- ----------------------------------------------------------------------------------------
Aetna Get Fund, Series H:
Annuity contracts in accumulation (535) 0 2,439
- ----------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Annuity contracts in accumulation 195,636,189 27,598,205 (54,549,571)
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna Growth VP:
Annuity contracts in accumulation 2,503,752 8,758,918 4,526,105
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna High Yield VP:
Annuity contracts in accumulation 20,145 (26,909) 22,547
- ----------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation 7,633,075 12,905,081 14,212,836
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Annuity contracts in accumulation 151,622 3,176 (67,301)
- ----------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Annuity contracts in accumulation (6,226) 4,776 88,028
- ----------------------------------------------------------------------------------------
Aetna International VP:
Annuity contracts in accumulation 314,228 796,809 334,892
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
Aetna Legacy VP:
Annuity contracts in accumulation 1,259,802 677,837 (268,597)
Annuity contracts in payment period
- ----------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP:
Annuity contracts in accumulation ($7,289,731) $24,898,190 $19,981,127
- -----------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation (10,869,045) 176,154,146 180,920,898
Annuity contracts in payment period 18,758,905 26,077,945
- -----------------------------------------------------------------------------------------
Aetna Bond VP:
Annuity contracts in accumulation 10,606,260 85,100,187 93,390,139
Annuity contracts in payment period 5,213,758 5,662,703
- -----------------------------------------------------------------------------------------
Aetna Crossroads VP:
Annuity contracts in accumulation (6,748,440) 28,289,880 23,405,948
Annuity contracts in payment period 1,317,322 1,540,450
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Annuity contracts in accumulation (19,622,110) 19,399,768 0
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Annuity contracts in accumulation (3,591,840) 9,276,019 7,124,468
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Annuity contracts in accumulation 75,168,020 89,907,126 176,632,929
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series E:
Annuity contracts in accumulation 357,540,044 0 381,698,376
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series G:
Annuity contracts in accumulation 206,014,754 0 211,855,059
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series H:
Annuity contracts in accumulation 1,725,051 0 1,726,955
- -----------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Annuity contracts in accumulation (106,172,195) 955,586,320 980,638,280
Annuity contracts in payment period 155,197,661 192,658,329
- -----------------------------------------------------------------------------------------
Aetna Growth VP:
Annuity contracts in accumulation 25,546,818 28,467,187 66,260,594
Annuity contracts in payment period 1,199,857 4,742,043
- -----------------------------------------------------------------------------------------
Aetna High Yield VP:
Annuity contracts in accumulation (487) 230,386 245,682
- -----------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation 117,244,893 85,248,495 198,210,089
Annuity contracts in payment period 1,829,647 40,863,938
- -----------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Annuity contracts in accumulation 403,520 375,745 866,762
- -----------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Annuity contracts in accumulation (145,065) 969,800 911,313
- -----------------------------------------------------------------------------------------
Aetna International VP:
Annuity contracts in accumulation 1,562,914 1,528,847 4,434,269
Annuity contracts in payment period 2,086 105,507
- -----------------------------------------------------------------------------------------
Aetna Legacy VP:
Annuity contracts in accumulation (7,254,086) 32,331,905 26,597,646
Annuity contracts in payment period 2,822,843 2,972,058
- -----------------------------------------------------------------------------------------
</TABLE>
S-25
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Money Market VP:
Annuity contracts in accumulation $4,806,378 $2,133,321 $330,845
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Annuity contracts in accumulation 79,420 (94,506) (103,018)
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna Small Company VP:
Annuity contracts in accumulation 46,684 495,596 5,053,673
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Annuity contracts in accumulation 571,020 1,109,347 1,089,659
- ---------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation 162,329 218,729 2,092,057
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Growth and Income Fund:
Annuity contracts in accumulation 72,400 84,137 3,729,182
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Growth Fund:
Annuity contracts in accumulation 569,280 91,500 2,699,619
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Value Fund:
Annuity contracts in accumulation 473,993 272,868 4,649,445
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation 369,558 503,031 585,771
- ---------------------------------------------------------------------------------------
Income & Growth Portfolio:
Annuity contracts in accumulation 692,076 1,010,580 3,954,746
- ---------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation 977,173 1,941,955 8,510,988
- ---------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation 626,812 42,756 (373,958)
- ---------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation (80,728) 370,470 2,677,680
- ---------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 221,160 35,903 (6,720)
- ---------------------------------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation 11,655,701 9,006,979 (13,940,497)
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation 417,336 1,150,293 3,009,771
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation (459,868) 1,914,945 17,537,931
- ---------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Money Market VP:
Annuity contracts in accumulation $58,499,955 $149,772,871 $214,710,443
Annuity contracts in payment period 229,509 1,062,436
- -------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Annuity contracts in accumulation 1,076,287 965,259 1,925,817
Annuity contracts in payment period 16,278 13,903
- -------------------------------------------------------------------------------------------
Aetna Small Company VP:
Annuity contracts in accumulation 1,501,029 18,295,242 25,125,952
Annuity contracts in payment period 197,498 463,770
- -------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Annuity contracts in accumulation (4,540,412) 18,689,212 16,918,826
- -------------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation 7,199,232 298,792 9,923,942
Annuity contracts in payment period 0 47,197
- -------------------------------------------------------------------------------------------
Growth and Income Fund:
Annuity contracts in accumulation 19,382,908 221,558 22,700,889
Annuity contracts in payment period 0 789,296
- -------------------------------------------------------------------------------------------
Growth Fund:
Annuity contracts in accumulation 15,273,804 296,860 18,608,980
Annuity contracts in payment period 0 322,083
- -------------------------------------------------------------------------------------------
Value Fund:
Annuity contracts in accumulation 35,726,392 703,970 40,884,392
Annuity contracts in payment period 0 942,276
- -------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation (1,430,177) 6,185,618 6,213,801
- -------------------------------------------------------------------------------------------
Income & Growth Portfolio:
Annuity contracts in accumulation (2,033,469) 15,463,737 19,087,670
- -------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation (3,289,670) 16,971,895 25,112,341
- -------------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation (1,575,541) 4,732,298 3,452,367
- -------------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation (1,259,618) 5,791,227 7,499,031
- -------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 380,705 1,958,082 2,589,130
- -------------------------------------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation (16,005,273) 134,398,144 125,105,874
Annuity contracts in payment period 51,858 61,038
- -------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation (2,848,736) 28,656,460 30,384,515
Annuity contracts in payment period 7,576 8,185
- -------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 234,105 27,450,515 46,677,628
- -------------------------------------------------------------------------------------------
</TABLE>
S-26
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Income Bond Fund II:
Annuity contracts in accumulation $3,429,519 $525,169 $(3,482,849)
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation 232,563 1,197,123 11,869,478
- -------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 284,037 2,223 (2,223)
- -------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 529,521 252,857 (1,085,066)
- -------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 1,703,210 1,436,932 (3,152,728)
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation 5,793,712 7,476,209 (5,035,413)
- -------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 13,956,409 5,777,289 33,718,335
- -------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 4,245,596 (2,480,388) 1,818,996
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 422,796 1,581,304 4,144,886
- -------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 1,230,871 409,194 263,798
- -------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 4,155,125 15,587,326 21,616,930
- -------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 196,112 19,542,751 7,362,436
- -------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation 210,765 70,130 (402,945)
- -------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 2,863,809 27,339,558 92,030,766
- -------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 1,715,618 3,244,252 24,941,102
- -------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 1,138,116 147,199 (1,254,423)
- -------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation (642,536) 7,909,529 44,597,338
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation (3,385,958) 31,635,650 146,254,486
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc.:
Annuity contracts in accumulation (14,369) (266,288) 1,775,730
- -------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Income Bond Fund II:
Annuity contracts in accumulation $(8,553,264) $49,887,731 $41,788,490
Annuity contracts in payment period 0 17,816
- --------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation (1,894,959) 17,521,464 28,925,669
- --------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 306,114 8,067,320 8,657,471
- --------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation (2,937,725) 16,054,824 12,814,411
- --------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation (3,766,513) 30,329,937 26,498,835
Annuity contracts in payment period 7,667 59,670
- --------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation 7,411,679 176,108,721 191,754,908
- --------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 17,013,720 138,516,768 208,982,521
- --------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 9,278,961 49,328,098 61,938,947
Annuity contracts in payment period 503,361 755,677
- --------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation (3,946,889) 17,886,843 20,088,940
- --------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation (799,139) 20,414,738 21,519,462
- --------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 30,664,230 162,974,413 234,998,024
- --------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 1,630,498 141,735,838 170,467,635
- --------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation (1,453,541) 5,695,641 4,120,050
- --------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 95,062,093 57,368,774 274,665,000
- --------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 83,194,454 72,228,489 185,323,915
- --------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation (1,081,920) 20,633,439 19,582,411
- --------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 101,412,913 68,058,273 213,572,309
Annuity contracts in payment period 1,585,189 9,348,397
- --------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 59,587,939 243,902,115 470,413,281
Annuity contracts in payment period 3,724,747 11,305,698
- --------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc.:
Annuity contracts in accumulation (430,469) 1,509,423 2,574,027
- --------------------------------------------------------------------------------------------------
</TABLE>
S-27
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation $(22,165) $(316,185) $772,124
- -----------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation 77,487 7,270 (154,317)
- -----------------------------------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation 1,596,766 1,093,651 (1,983,927)
- -----------------------------------------------------------------------------------------------
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Annuity contracts in accumulation (2,947) 2,524 74,102
- -----------------------------------------------------------------------------------------------
Small Cap Portfolio:
Annuity contracts in accumulation 5,171 (67) 9,469
- -----------------------------------------------------------------------------------------------
Tactical Allocation Portfolio:
Annuity contracts in accumulation 460,824 9,529 35,469
- -----------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation (228,766) 5,655,000 7,045,547
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation 185,519 1,784,568 1,526,756
- -----------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation (134,847) 467,684 7,924,335
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation 572,117 (208,339) (60,353)
Annuity contracts in payment period 0 0 0
- -----------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation (407,825) 15,683,351 44,935,086
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation (1,012,592) 4,690,269 15,357,529
- -----------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 663,657 2,175,318 13,243,961
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 780,667 9,268,050 2,777,929
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 1,255,333 5,270,752 15,908,462
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Total Variable Annuity Account B $312,954,293 $243,088,761 $510,456,415
===============================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation $(1,219,704) $3,954,893 $3,168,963
- ------------------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation (301,164) 2,014,138 1,643,414
- ------------------------------------------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation 11,945,226 38,137,728 50,789,444
- ------------------------------------------------------------------------------------------------------
Mitchell Hutchins Series Trust:
Growth & Income Portfolio:
Annuity contracts in accumulation 736,277 0 809,956
- ------------------------------------------------------------------------------------------------------
Small Cap Portfolio:
Annuity contracts in accumulation 157,949 0 172,522
- ------------------------------------------------------------------------------------------------------
Tactical Allocation Portfolio:
Annuity contracts in accumulation 6,858,373 0 7,364,195
- ------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation 6,541,844 11,917,723 29,291,524
Annuity contracts in payment period 0 1,639,824
- ------------------------------------------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation (1,636,196) 7,653,101 9,513,748
- ------------------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation 12,915,912 35,193,209 56,214,303
Annuity contracts in payment period 0 151,990
- ------------------------------------------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation 6,368,812 12,897,019 19,569,256
Annuity contracts in payment period 27,229 201,581 228,810
- ------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation (9,039,734) 131,150,274 181,712,440
Annuity contracts in payment period 922,555 1,531,267
- ------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation (5,108,995) 88,610,687 102,536,898
- ------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 10,888,326 27,062,849 53,173,898
Annuity contracts in payment period 903,680 1,763,893
- ------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 5,029,371 17,577,310 35,328,550
Annuity contracts in payment period 18,946 123,723
- ------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation (14,489,363) 118,791,854 126,069,747
Annuity contracts in payment period 56,523 723,814
- ------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $1,150,783,141 $3,956,568,422 $6,173,851,032
======================================================================================================
</TABLE>
(1) - Effective May 1, 1999, MFS Worldwide Government Series name changed to
MFS Global Government Series.
(2) - Effective May 1, 1999, Oppenheimer Aggressive Growth Fund/OVAF's name
changed to Oppenheimer Aggressive Growth Fund/VA.
(3) - Effective May 1, 1999, Oppenheimer Global Securities Fund/OVAF's name
changed to Oppenheimer Global Securities Fund/VA.
(4) - Effective May 1, 1999, Oppenheimer Growth and Income Fund/OVAF's name
changed to Oppenheimer Main Street Growth and Income Fund/VA.
(5) - Effective May 1, 1999, Oppenheimer Strategic Bond Fund/OVAF's name
changed to Oppenheimer Strategic Bond Fund/VA.
S-28
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP: (1)
Annuity contracts in accumulation $878,477 $871,974 ($1,238,982)
- -----------------------------------------------------------------------------------------
Aetna Balanced VP: (2)
Annuity contracts in accumulation 28,982,565 4,413,800 (7,474,240)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Bond VP: (3)
Annuity contracts in accumulation 4,385,261 2,012,976 (1,053,158)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Crossroads VP: (4)
Annuity contracts in accumulation 792,688 438,508 (248,169)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Annuity contracts in accumulation 4,701,182 1,466,703 (2,909,123)
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Annuity contracts in accumulation 974,026 1,329,280 288,064
- -----------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Annuity contracts in accumulation 284,442 60 (64,824)
- -----------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5)
Annuity contracts in accumulation 183,021,214 29,084,074 (82,062,430)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Growth VP: (6)
Annuity contracts in accumulation (127,836) (347,867) 4,999,810
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna High Yield VP: (7)
Annuity contracts in accumulation 21,541 42 (38,627)
- -----------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (8)
Annuity contracts in accumulation 3,193,925 3,120,964 8,202,029
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP: (9)
Annuity contracts in accumulation 17,150 (7,168) 25,068
- -----------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP: (10)
Annuity contracts in accumulation 36,190 (33,035) 8,264
- -----------------------------------------------------------------------------------------
Aetna International VP: (11)
Annuity contracts in accumulation 72,618 (50,060) (4,447)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Legacy VP: (12)
Annuity contracts in accumulation 1,112,714 509,928 (325,629)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Money Market VP: (13)
Annuity contracts in accumulation 4,609,417 958,394 4,835
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Real Estate Securities VP: (14)
Annuity contracts in accumulation 45,121 (25,500) (78,505)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
Aetna Small Company VP: (15)
Annuity contracts in accumulation (18,206) (1,755,032) 1,488,099
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP: (1)
Annuity contracts in accumulation $3,942,985 $20,443,736 $24,898,190
- ------------------------------------------------------------------------------------------
Aetna Balanced VP: (2)
Annuity contracts in accumulation 6,148,805 150,761,384 176,154,146
Annuity contracts in payment period 12,080,737 18,758,905
- ------------------------------------------------------------------------------------------
Aetna Bond VP: (3)
Annuity contracts in accumulation 12,050,394 69,236,488 85,100,187
Annuity contracts in payment period 3,681,984 5,213,758
- ------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4)
Annuity contracts in accumulation 8,303,550 20,250,904 28,289,880
Annuity contracts in payment period 69,721 1,317,322
- ------------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Annuity contracts in accumulation (4,718,918) 20,859,924 19,399,768
- ------------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Annuity contracts in accumulation (4,244,458) 10,929,107 9,276,019
- ------------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Annuity contracts in accumulation 89,687,448 0 89,907,126
- ------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5)
Annuity contracts in accumulation (42,142,027) 892,006,381 955,586,320
Annuity contracts in payment period 130,876,769 155,197,661
- ------------------------------------------------------------------------------------------
Aetna Growth VP: (6)
Annuity contracts in accumulation 21,924,027 3,210,344 28,467,187
Annuity contracts in payment period 8,566 1,199,857
- ------------------------------------------------------------------------------------------
Aetna High Yield VP: (7)
Annuity contracts in accumulation 247,430 0 230,386
- ------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (8)
Annuity contracts in accumulation 44,321,436 28,074,705 85,248,495
Annuity contracts in payment period 165,083 1,829,647
- ------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP: (9)
Annuity contracts in accumulation 340,695 0 375,745
- ------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP: (10)
Annuity contracts in accumulation 958,381 0 969,800
- ------------------------------------------------------------------------------------------
Aetna International VP: (11)
Annuity contracts in accumulation 1,512,822 0 1,528,847
Annuity contracts in payment period 0 2,086
- ------------------------------------------------------------------------------------------
Aetna Legacy VP: (12)
Annuity contracts in accumulation 13,863,127 18,710,015 32,331,905
Annuity contracts in payment period 1,284,593 2,822,843
- ------------------------------------------------------------------------------------------
Aetna Money Market VP: (13)
Annuity contracts in accumulation 19,490,597 124,939,137 149,772,871
Annuity contracts in payment period 0 229,509
- ------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP: (14)
Annuity contracts in accumulation 1,040,421 0 965,259
Annuity contracts in payment period 0 16,278
- ------------------------------------------------------------------------------------------
Aetna Small Company VP: (15)
Annuity contracts in accumulation 12,670,750 6,059,783 18,295,242
Annuity contracts in payment period 47,346 197,498
- ------------------------------------------------------------------------------------------
</TABLE>
S-29
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Value Opportunity VP: (16)
Annuity contracts in accumulation $32,768 $(95,362) $2,278,113
- --------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation 4,604 2,342 19,720
- --------------------------------------------------------------------------------------
Growth and Income Fund:
Annuity contracts in accumulation 2,446 3,734 17,765
- --------------------------------------------------------------------------------------
Growth Fund:
Annuity contracts in accumulation 9,531 3,714 12,342
- --------------------------------------------------------------------------------------
Value Fund:
Annuity contracts in accumulation 24,489 5,144 22,553
- --------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation 404,757 212,710 891,394
- --------------------------------------------------------------------------------------
Income & Growth Portfolio:
Annuity contracts in accumulation 1,261,633 1,121,965 1,506,757
- --------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation 428,467 1,178,197 4,993,194
- --------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund:
Annuity contracts in accumulation 528,065 61,039 25,474
- --------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation 304,847 243,131 381,327
- --------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 127,415 119,256 (44,356)
- --------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation 6,762,670 4,643,346 3,051,873
- --------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 9,878,072 5,383,950 19,355,887
- --------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 4,018,324 (478,695) (7,148,373)
Annuity contracts in payment period
- --------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 820,880 787,883 209,050
- --------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 1,361,761 264,591 495,725
- --------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 4,885,888 11,863,324 16,999,643
- --------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 1,707,451 8,567,398 14,655,179
- --------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation 254,649 90,675 90,888
- --------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31, 1998 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Value Opportunity VP: (16)
Annuity contracts in accumulation $12,561,099 $3,912,594 $18,689,212
- ------------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation 272,126 0 298,792
- ------------------------------------------------------------------------------------------
Growth and Income Fund:
Annuity contracts in accumulation 197,613 0 221,558
- ------------------------------------------------------------------------------------------
Growth Fund:
Annuity contracts in accumulation 271,273 0 296,860
- ------------------------------------------------------------------------------------------
Value Fund:
Annuity contracts in accumulation 651,784 0 703,970
- ------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation (979,394) 5,656,151 6,185,618
- ------------------------------------------------------------------------------------------
Income & Growth Portfolio:
Annuity contracts in accumulation (2,575,078) 14,148,460 15,463,737
- ------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation (3,907,972) 14,280,009 16,971,895
- ------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund:
Annuity contracts in accumulation (525,510) 4,643,230 4,732,298
- ------------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation (991,033) 5,852,955 5,791,227
- ------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 784,430 971,337 1,958,082
- ------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation 22,941,092 138,709,740 176,108,721
- ------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 23,497,310 80,401,549 138,516,768
- ------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 18,153,824 35,217,837 49,328,098
Annuity contracts in payment period 68,542 503,361
- ------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 3,064,387 13,004,643 17,886,843
- ------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 6,549,586 11,743,075 20,414,738
- ------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 21,398,116 107,827,442 162,974,413
- ------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 39,819,038 76,986,772 141,735,838
- ------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation (1,318,753) 6,578,182 5,695,641
- ------------------------------------------------------------------------------------------
</TABLE>
S-30
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance Management Series:
American Leaders Fund II:
Annuity contracts in accumulation $6,205,550 $4,799,578 $7,120,071
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation (222,529) 434,027 3,061,727
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 1,093,875 720,386 1,686,112
- ------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation 834,077 852,846 (1,048,315)
- ------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation (216,708) 474,001 2,881,033
- ------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 263,248 0 2,223
- ------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 31,718 275,671 500,178
- ------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 1,351,222 735,614 1,252,242
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation (548,576) 11,062,640 3,512,332
- ------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 1,620,017 1,490,655 11,778,213
- ------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 842,156 316,618 (112,372)
- ------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 2,610,124 7,033,011 6,516,940
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 5,363,231 21,545,989 19,031,176
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Annuity contracts in accumulation 133,353 (350,599) (487,111)
- ------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation 278,095 3,027 (1,444,141)
- ------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series:
Annuity contracts in accumulation 372,500 613,337 1,859,586
- ------------------------------------------------------------------------------------------
Worldwide Government Series:
Annuity contracts in accumulation (5,538) (1,135) 108,229
- ------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund:
Annuity contracts in accumulation 39,364 (225,494) 1,109,442
- ------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance Management Series:
American Leaders Fund II:
Annuity contracts in accumulation $(524,859) $116,800,911 $134,398,144
Annuity contracts in payment period 48,751 51,858
- ----------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation 5,452,240 19,938,571 28,656,460
Annuity contracts in payment period 0 7,576
- ----------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 1,241,036 22,709,106 27,450,515
- ----------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation (3,963,730) 53,212,853 49,887,731
- ----------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation 437,110 13,946,028 17,521,464
- ----------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 271,362 7,530,487 8,067,320
- ----------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 2,050,473 13,196,784 16,054,824
- ----------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 695,668 26,302,858 30,329,937
Annuity contracts in payment period 0 7,667
- ----------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 4,958,453 38,383,925 57,368,774
- ----------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 26,193,826 31,145,778 72,228,489
- ----------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 9,052,449 10,534,588 20,633,439
- ----------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 12,764,560 40,072,928 68,058,273
Annuity contracts in payment period 645,899 1,585,189
- ----------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 39,032,925 160,658,096 243,902,115
Annuity contracts in payment period 1,995,445 3,724,747
- ----------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Annuity contracts in accumulation (619,636) 2,833,416 1,509,423
- ----------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation (1,812,452) 6,930,364 3,954,893
- ----------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series:
Annuity contracts in accumulation 16,318,427 18,973,878 38,137,728
- ----------------------------------------------------------------------------------------------
Worldwide Government Series:
Annuity contracts in accumulation 588,287 1,324,295 2,014,138
- ----------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund:
Annuity contracts in accumulation 7,306,211 3,688,200 11,917,723
- ----------------------------------------------------------------------------------------------
</TABLE>
S-31
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Securities Fund:
Annuity contracts in accumulation $317,658 $(373,983) $786,851
- -----------------------------------------------------------------------------------------------
Growth & Income Fund:
Annuity contracts in accumulation 697,969 126,292 (901,751)
- -----------------------------------------------------------------------------------------------
Strategic Bond Fund:
Annuity contracts in accumulation 37,162 (25,262) 68,836
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation (1,172,488) 8,905,074 20,177,815
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation (1,002,802) 3,344,659 12,179,408
- -----------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation (241,843) 1,430,022 3,549,391
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation (138,109) 2,709,959 668,075
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation (835,041) 1,547,217 23,093,697
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Total Variable Annuity Account B $283,508,891 $143,410,533 $94,282,077
===============================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Securities Fund:
Annuity contracts in accumulation $4,241,638 $2,680,937 $7,653,101
- ------------------------------------------------------------------------------------------------------
Growth & Income Fund:
Annuity contracts in accumulation 22,581,792 12,688,907 35,193,209
- ------------------------------------------------------------------------------------------------------
Strategic Bond Fund:
Annuity contracts in accumulation 9,925,163 3,092,701 12,897,019
Annuity contracts in payment period 0 201,581
- ------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation 8,869,734 94,796,247 131,150,274
Annuity contracts in payment period 496,447 922,555
- ------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation 8,222,292 65,867,130 88,610,687
- ------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 7,801,278 15,049,606 27,062,849
Annuity contracts in payment period 378,075 903,680
- ------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 1,706,168 12,650,163 17,577,310
Annuity contracts in payment period 0 18,946
- ------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 4,872,246 90,170,258 118,791,854
Annuity contracts in payment period 0 56,523
- ------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $512,924,064 $2,922,442,857 $3,956,568,422
======================================================================================================
</TABLE>
(1) - Effective May 1, 1998, Aetna Ascent Variable Portfolio's name changed to
Aetna Ascent VP.
(2) - Effective May 1, 1998, Aetna Investment Advisors Fund's name changed to
Aetna Balanced VP.
(3) - Effective May 1, 1998, Aetna Income Shares began doing business under
the name Aetna Bond VP.
(4) - Effective May 1, 1998, Aetna Crossroads Variable Portfolio's name
changed to Aetna Crossroads VP.
(5) - Effective May 1, 1998, Aetna Variable Fund began doing business under
the name Aetna Growth and Income VP.
(6) - Effective May 1, 1998, Aetna Variable Growth Portfolio's name changed to
Aetna Growth VP.
(7) - Effective May 1, 1998, Aetna High Yield Portfolio's name changed to
Aetna High Yield VP.
(8) - Effective May 1, 1998, Aetna Variable Index Plus Portfolio's name
changed to Aetna Index Plus Large Cap VP.
(9) - Effective May 1, 1998, Aetna Index Plus Mid Cap Portfolio's name changed
to Aetna Index Plus Mid Cap VP.
(10) - Effective May 1, 1998, Aetna Index Plus Small Cap Portfolio's name
changed to Aetna Index Plus Small Cap VP.
(11) - Effective May 1, 1998, Aetna International Portfolio's name changed to
Aetna International VP.
(12) - Effective May 1, 1998, Aetna Legacy Variable Portfolio's name changed to
Aetna Legacy VP.
(13) - Effective May 1, 1998, Aetna Variable Encore Fund began doing business
under the name Aetna Money Market VP.
(14) - Effective May 1, 1998, Aetna Real Estate Securities Portfolio's name
changed to Aetna Real Estate Securities VP.
(15) - Effective May 1, 1998, Aetna Variable Small Company Portfolio's name
changed to Aetna Small Company VP.
(16) - Effective May 1, 1998, Aetna Variable Capital Appreciation Portfolio's
name changed to Aetna Value Opportunity VP.
S-32
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and
Annuity Company and Contract Owners of Variable Annuity Account B:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account B (the "Account") as
of December 31, 1999, and the related statement of operations for the year then
ended, statements of changes in net assets for each of the years in the two-year
period then ended and condensed financial information for the year ended
December 31, 1999. These financial statements and condensed financial
information are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements and
condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1999, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of Aetna Life Insurance and Annuity Company Variable Annuity Account B
as of December 31, 1999, the results of its operations for the year then ended,
changes in its net assets for each of the years in the two-year period then
ended and condensed financial information for the year ended December 31, 1999,
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
February 11, 2000
S-33
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................................ F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended December 31, 1999,
1998 and 1997.................................................................. F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998..................... F-4
Consolidated Statements of Changes in Shareholder's Equity for the Years Ended
December 31, 1999, 1998 and 1997............................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998
and 1997....................................................................... F-6
Notes to Consolidated Financial Statements....................................... F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of income, changes in
shareholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of Aetna Life
Insurance and Annuity Company and Subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
February 7, 2000
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Revenue:
Premiums $ 107.5 $ 79.4 $ 69.1
Charges assessed against policyholders 388.3 324.3 262.0
Net investment income 886.3 871.8 881.7
Net realized capital (losses) gains (21.5) 10.4 29.7
Other income 129.7 100.2 96.8
-------- -------- --------
Total revenue 1,490.3 1,386.1 1,339.3
-------- -------- --------
Benefits and expenses:
Current and future benefits 746.2 714.4 720.4
Operating expenses:
Salaries and related benefits 153.0 141.0 133.5
Other 214.9 200.8 182.8
Amortization of deferred policy acquisition costs 104.9 91.2 66.3
-------- -------- --------
Total benefits and expenses 1,219.0 1,147.4 1,103.0
-------- -------- --------
Income from continuing operations before income
taxes 271.3 238.7 236.3
Income taxes 90.1 66.6 68.4
-------- -------- --------
Income from continuing operations 181.2 172.1 167.9
Discontinued operations, net of tax:
Income from operations -- 61.8 67.8
Amortization of deferred gain on sale 5.7 -- --
Immediate gain on sale -- 59.0 --
-------- -------- --------
Net income $ 186.9 $ 292.9 $ 235.7
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------- --------------
<S> <C> <C>
Assets
Investments:
Debt securities available for sale, at fair value
(amortized cost: $11,657.9 and $11,571.3) $11,410.1 $12,068.2
Equity securities, available for sale:
Nonredeemable preferred stock (cost: $134.7 and $202.6) 130.9 203.3
Investment in affiliated mutual funds (cost: $63.5 and $96.8) 64.1 100.1
Common stock (cost: $6.7 and $1.0) 11.5 2.0
Short-term investments 74.2 48.9
Mortgage loans 6.7 12.7
Policy loans 314.0 292.2
Other investments 13.2 12.7
----------- -----------
Total investments 12,024.7 12,740.1
Cash and cash equivalents 693.3 628.3
Short-term investments under securities loan agreement 232.5 277.3
Accrued investment income 150.7 151.6
Premiums due and other receivables 298.3 61.1
Reinsurance recoverable 3,001.2 2,959.8
Deferred income taxes 150.4 114.3
Deferred policy acquisition costs 1,046.4 893.1
Other assets 96.5 70.4
Separate Accounts assets 38,692.6 29,430.2
----------- -----------
Total assets $56,386.6 $47,326.2
=========== ===========
Liabilities and Shareholder's Equity
Liabilities:
Future policy benefits $ 3,850.4 $ 3,815.9
Unpaid claims and claim expenses 27.3 18.8
Policyholders' funds left with the Company 11,121.7 11,305.6
----------- -----------
Total insurance reserve liabilities 14,999.4 15,140.3
Payables under securities loan agreement 232.5 277.3
Current income taxes 14.7 279.6
Other liabilities 1,063.0 805.5
Separate Accounts liabilities 38,692.6 29,430.2
----------- -----------
Total liabilities 55,002.2 45,932.9
----------- -----------
Shareholder's equity:
Common stock, par value $50 (100,000 shares
authorized; 55,000 shares issued and outstanding) 2.8 2.8
Paid-in capital 431.8 431.8
Accumulated other comprehensive (loss) income (44.8) 104.8
Retained earnings 994.6 853.9
----------- -----------
Total shareholder's equity 1,384.4 1,393.3
----------- -----------
Total liabilities and shareholder's equity $56,386.6 $47,326.2
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Shareholder's equity, beginning of year $1,393.3 $1,852.8 $1,618.3
Comprehensive income:
Net income 186.9 292.9 235.7
Other comprehensive income, net of tax:
Unrealized (losses) gains on securities
($(230.2), $18.2 $49.9, pretax)(1) (149.6) 11.9 32.4
---------- ---------- ----------
Total comprehensive income 37.3 304.8 268.1
---------- ---------- ----------
Capital contribution -- 9.3 (5.0)
Other changes 2.8 2.4 5.7
---------- ---------- ----------
Common stock dividends (49.0) (776.0) (34.3)
---------- ---------- ----------
Shareholder's equity, end of year $1,384.4 $1,393.3 $1,852.8
========== ========== ==========
</TABLE>
(1) Net of reclassification adjustments.
See Notes to Consolidated Financial Statements
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 186.9 $ 292.9 $ 235.7
Adjustments to reconcile net income to net cash (used for) provided by
operating activities:
Net accretion of discount on investments (26.5) (29.5) (66.8)
Amortization of deferred gain on sale ( 5.7) -- --
Immediate gain on sale -- (59.0) --
Net realized capital losses (gains) 21.5 (11.1) (36.0)
Changes in assets and liabilities:
Decrease (increase) in accrued investment income 0.9 11.4 ( 4.0)
Increase in premiums due and other receivables 23.3 (23.7) (30.0)
(Increase) decrease in policy loans (21.8) 177.4 (70.3)
Increase in deferred policy acquisition costs (153.3) (132.8) (155.8)
Decrease in reinsurance loan to affiliate -- 397.2 231.1
Net increase in universal life account balances 55.7 122.9 157.1
Decrease in other insurance reserve liabilities (28.6) (41.8) (120.3)
Decrease in other liabilities and other assets (53.9) (53.6) (74.0)
(Decrease) increase in income taxes (259.8) 106.4 (25.8)
---------- ---------- ----------
Net cash (used for) provided by operating activities (261.3) 756.7 40.9
---------- ---------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 5,890.1 6,790.2 5,311.4
Equity securities 111.2 150.1 103.1
Mortgage loans 6.1 0.3 0.2
Life Business -- 966.5 --
Investment maturities and collections of:
Debt securities available for sale 1,216.5 1,296.3 1,212.7
Short-term investments 80.6 135.3 108.4
Cost of investment purchases in:
Debt securities available for sale (7,099.7) (6,706.4) (6,734.8)
Equity securities (13.0) (125.7) (113.3)
Short-term investments (106.0) (83.9) (167.1)
Increase in property and equipment 5.7 9.0 10.0
Other, net 3.7 (2,725.9) --
---------- ---------- ----------
Net cash provided by (used for) investing activities 95.2 (294.2) (269.4)
---------- ---------- ----------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 2,040.2 1,571.1 1,621.2
Withdrawals of investment contracts (1,680.8) (1,393.1) (1,256.3)
Capital contribution to Separate Account -- -- (25.0)
Return of capital from Separate Account -- 1.7 12.3
Capital contribution from HOLDCO -- 9.3 (5.0)
Dividends paid to shareholder (255.0) (570.0) (34.3)
Other, net 126.7 (34.3) 26.4
---------- ---------- ----------
Net cash provided by (used for) financing activities 231.1 (415.3) 339.3
---------- ---------- ----------
Net increase in cash and cash equivalents 65.0 47.2 110.8
Cash and cash equivalents, beginning of year 628.3 581.1 470.3
---------- ---------- ----------
Cash and cash equivalents, end of year $ 693.3 $ 628.3 $ 581.1
========== ========== ==========
Supplemental cash flow information:
Income taxes paid, net $ 316.5 $ 60.5 $ 130.3
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Aetna Life Insurance and Annuity Company ("ALIAC") and its wholly owned
subsidiaries (collectively, the "Company") are providers of financial products
and services and investment management services in the United States. The
Company has two business segments: Financial Products and Investment Management
Services. On October 1, 1998, the Company sold its individual life insurance
business to Lincoln National Corporation ("Lincoln") and accordingly, it is now
classified as Discontinued Operations (refer to note 3).
Financial Products include annuity contracts that offer a variety of funding
and payout options for individual and employer-sponsored retirement plans
qualified under Internal Revenue Code Sections 401, 403, 408 and 457,
nonqualified annuity contracts and mutual funds. Annuity contracts may be
deferred or immediate ("payout annuities"). These products also include
programs offered to qualified plans and nonqualified deferred compensation
plans that package administrative and recordkeeping services along with a menu
of investment options, including mutual funds (both ALIAC and nonaffiliated
mutual funds), variable and fixed investment options. Financial Products also
include investment advisory services and pension plan administrative services.
Investment Management Services provides: investment advisory services to
affiliated and unaffiliated institutional and retail clients on a
fee-for-service basis; underwriting services to the Aetna Series Fund Inc.;
distribution services for other Aetna products; and trustee, administrative,
and other fiduciary services to retirement plans requiring or otherwise
utilizing a trustee or custodian.
Discontinued Operations include universal life, variable universal life,
traditional whole life and term insurance.
Principles of Consolidation
The consolidated financial statements include ALIAC and its wholly owned
subsidiaries, Aetna Insurance Company of America ("AICA") and Aetna Investment
Adviser Holding Company, Inc. ("IA Holdco"). ALIAC is a wholly owned subsidiary
of Aetna Retirement Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly owned
subsidiary of Aetna Retirement Services, Inc. whose ultimate parent is Aetna
Inc. ("Aetna"). On July 1, 1999, HOLDCO contributed IA Holdco to the Company
(refer to note 2).
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. The contribution of IA Holdco to the
Company was accounted for in a manner similar to that of a pooling-of-interests
and accordingly, the Company's historical consolidated financial statements
have been restated to include the accounts and results of operations of IA
Holdco. Certain reclassifications have been made to 1998 and 1997 financial
information to conform to the 1999 presentation.
F-7
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
New Accounting Standards
Accounting by Insurance and Other Enterprises for Insurance-Related Assesments
As of January 1, 1999, the Company adopted Statement of Position ("SOP") 97-3,
Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments, issued by the American Institute of Certified Public Accountants
("AICPA"). This statement provides guidance for determining when an insurance
or other enterprise should recognize a liability for guaranty-fund and other
insurance-related assessments and guidance for measuring the liability. The
adoption of this standard did not have a material effect on the Company's
financial position or results of operations, as the Company had previously
accounted for guaranty-fund and other insurance-related assessments in a manner
consistent with this standard.
Future Application of Accounting Standards
Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do
Not Transfer Insurance Risk
In October 1998, the AICPA issued SOP 98-7, Deposit Accounting: Accounting for
Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk, which
provides guidance on how to account for all insurance and reinsurance contracts
that do not transfer insurance risk, except for long-duration life and health
insurance contracts. This statement is effective for the Company's financial
statements beginning January 1, 2000. The Company does not expect the adoption
of this standard to have a material effect on its financial position and
results of operations.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. This standard requires companies to record
all derivatives on the balance sheet as either assets or liabilities and
measure those instruments at fair value. The manner in which companies are to
record gains or losses resulting from changes in the values of those
derivatives depends on the use of the derivative and whether it qualifies for
hedge accounting. As amended by FAS No. 137, Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133, this standard is effective for the Company's financial
statements beginning January 1, 2001, with early adoption permitted. The impact
of FAS No. 133 on the Company's financial statements will vary based on certain
factors including future interpretative guidance from the FASB, the extent of
the Company's hedging activities, the types of hedging instruments used and the
effectiveness of such instruments. The Company is evaluating the impact of
adoption of this standard and currently does not believe that it will have a
material effect on its financial position and results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the
F-8
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
financial statements and accompanying notes. Actual results could differ from
reported results using those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity of 90 days or less when purchased.
Investments
Debt and equity securities are classified as available for sale and carried at
fair value. Securities are written down (as realized capital losses) for other
than temporary declines in value. Included in available-for-sale securities are
investments that support experience-rated products.
Experience-rated products are products where the customer, not the Company,
assumes investment (including realized capital gains and losses) and other
risks, subject to, among other things, minimum guarantees. As long as minimum
guarantees are not triggered, the effect of experience- rated products'
investment performance does not impact the Company's results of operations.
Realized and unrealized capital gains and losses on investments supporting
these products are reflected in policyholder's funds left with the Company.
Realized capital gains and losses on all other investments are reflected in the
Company's results of operations. Unrealized capital gains and losses on all
other investments are reflected in shareholders' equity, net of related income
taxes. Purchases and sales of debt and equity securities are recorded on the
trade date. Sales of mortgage loans are recorded on the closing date.
Fair values for debt and equity securities are based on quoted market prices or
dealer quotations. Where quoted market prices or dealer quotations are not
available, fair values are measured utilizing quoted market prices for similar
securities or by using discounted cash flow methods. Cost for mortgage-backed
securities is adjusted for unamortized premiums and discounts, which are
amortized using the interest method over the estimated remaining term of the
securities, adjusted for anticipated prepayments. The Company does not accrue
interest on problem debt securities when management believes the collection of
interest is unlikely.
The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time. Initial
collateral, primarily cash, is required at a rate of 102% of the market value
of a loaned domestic security and 105% of the market value of a loaned foreign
security. The collateral is deposited by the borrower with a lending agent, and
retained and invested by the lending agent according to the Company's
guidelines to generate additional income. The market value of the loaned
securities is monitored on a daily basis with additional collateral obtained or
refunded as the market value of the loaned securities fluctuates. At December
31, 1999 and 1998, the Company loaned securities (which are reflected as
invested assets) with a fair value of approximately $232.5 million and $277.3
million, respectively.
The investment in affiliated mutual funds represents an investment in Aetna
managed mutual funds which have been seeded by the Company, and is carried at
fair value.
F-9
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Mortgage loans and policy loans are carried at unpaid principal balances, net
of impairment reserves.
Short-term investments, consisting primarily of money market instruments and
other debt issues purchased with an original maturity of 91 days to one year,
are considered available for sale and are carried at fair value, which
approximates amortized cost.
The Company utilizes futures contracts for other than trading purposes in order
to hedge interest rate risk (i.e. market risk, refer to note 5.)
Futures contracts are carried at fair value and require daily cash settlement.
Changes in the fair value of futures contracts allocable to experience rated
contracts are deducted from capital gains and losses with an offsetting amount
reported in future policy benefits. Changes in the fair value of futures
contracts allocable to non-experienced-rated contracts that qualify as hedges
are deferred and recognized as an adjustment to the hedged asset or liability.
Deferred gains or losses on such futures contracts are amortized over the life
of the acquired asset or liability as a yield adjustment or through net
realized capital gains or losses upon disposal of an asset. Changes in the fair
value of futures contracts that do not qualify as hedges are recorded in net
realized capital gains or losses. Hedge designation requires specific asset or
liability identification, a probability at inception of high correlation with
the position underlying the hedge, and that high correlation be maintained
throughout the hedge period. If a hedging instrument ceases to be highly
correlated with the position underlying the hedge, hedge accounting ceases at
that date and excess gains or losses on the hedging instrument are reflected in
net realized capital gains or losses.
Included in common stock are warrants which represent the right to purchase
specific securities. Upon exercise, the cost of the warrants is added to the
basis of the securities purchased.
On occasion, the Company sells call options written on underlying securities
which are carried at fair value. Changes in fair value of these options are
recorded in net realized capital gains or losses.
Deferred Policy Acquisition Costs
Certain costs of acquiring certain insurance business are deferred. These
costs, all of which vary with and are primarily related to the production of
new and renewal business, consist principally of commissions, certain expenses
of underwriting and issuing contracts, and certain agency expenses. For certain
annuity and pension contracts, such costs are amortized in proportion to
estimated gross profits and adjusted to reflect actual gross profits over the
life of the contracts (up to 20 years for annuity and pension contracts.)
Periodically, modifications may be made to deferred annuity contract features,
such as shortening the surrender charge period or waiving the surrender charge,
changing the mortality and expense fees, etc. Unamortized deferred policy
acquisition costs associated with these modified contracts are not written off,
but rather, continue to be associated with the original block of business to
F-10
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
which these costs were previously recorded. Such costs are amortized based on
revised estimates of expected gross profits based upon the contract after the
modification. Unamortized deferred policy acquisition costs related to deferred
annuity products were approximately $1.0 billion and $893 million as of
December 31, 1999 and 1998, respectively.
Deferred policy acquisition costs are written off to the extent that it is
determined that future policy premiums and investment income or gross profits
are not adequate to cover related expenses.
Insurance Reserve Liabilities
Future policy benefits include reserves for universal life, immediate annuities
with life contingent payouts and traditional life insurance contracts. Reserves
for universal life products are equal to cumulative deposits less withdrawals
and charges plus credited interest thereon. Reserves for traditional life
insurance contracts represent the present value of future benefits to be paid
to or on behalf of policyholders and related expenses less the present value of
future net premiums.
Reserves for immediate annuities with life contingent payouts contracts are
computed on the basis of assumed investment yield, mortality, and expenses,
including a margin for adverse deviations. Such assumptions generally vary by
plan, year of issue and policy duration. Reserve interest rates range from
1.50% to 11.25% for all years presented. Investment yield is based on the
Company's experience. Mortality and withdrawal rate assumptions are based on
relevant Aetna experience and are periodically reviewed against both industry
standards and experience.
Because the sale of the domestic individual life insurance business was
substantially in the form of an indemnity reinsurance agreement, the Company
reported an addition to its reinsurance recoverable approximating the Company's
total individual life reserves at the sale date.
Policyholders' funds left with the Company include reserves for deferred
annuity investment contracts and immediate annuities without life contingent
payouts. Reserves on such contracts are equal to cumulative deposits less
charges and withdrawals plus credited interest thereon (rates range from 1.50%
to 11.25% for all years presented) net of adjustments for investment experience
that the Company is entitled to reflect in future credited interest. These
reserves also include unrealized gains/losses related to FAS No. 115. Reserves
on contracts subject to experience rating reflect the rights of
contractholders, plan participants and the Company.
Unpaid claims for all lines of insurance include benefits for reported losses
and estimates of benefits for losses incurred but not reported.
Revenue Recognition
For certain annuity contracts, charges assessed against policyholders' funds
for the cost of insurance, surrender charges, actuarial margin and other fees
are recorded as revenue in charges assessed against policyholders. Other
amounts received for these contracts are reflected as deposits
F-11
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
and are not recorded as revenue. Related policy benefits are recorded in
relation to the associated premiums or gross profit so that profits are
recognized over the expected lives of the contracts. When annuity payments with
life contingencies begin under contracts that were initially investment
contracts, the accumulated balance in the account is treated as a single
premium for the purchase of an annuity and reflected as an offsetting amount in
both premiums and current and future benefits in the Consolidated Statements of
Income.
Separate Accounts
Separate Accounts assets and liabilities generally represent funds maintained
to meet specific investment objectives of contractholders who bear the
investment risk, subject, in some cases, to minimum guaranteed rates.
Investment income and investment gains and losses generally accrue directly to
such contractholders. The assets of each account are legally segregated and are
not subject to claims that arise out of any other business of the Company.
Separate Accounts assets supporting variable options under universal life and
annuity contracts are invested, as designated by the contractholder or
participant under a contract (who bears the investment risk subject, in limited
cases, to minimum guaranteed rates) in shares of mutual funds which are managed
by the Company, or other selected mutual funds not managed by the Company.
Separate Accounts assets are carried at fair value. At December 31, 1999 and
1998 , unrealized losses of $8.0 million and unrealized gains of $10.0 million,
respectively, after taxes, on assets supporting a guaranteed interest option
are reflected in shareholder's equity. Separate Accounts liabilities are
carried at fair value, except for those relating to the guaranteed interest
option. Reserves relating to the guaranteed interest option are maintained at
fund value and reflect interest credited at rates ranging from 3.70% to 12.00%
in 1999 and 3.00 to 8.10% in 1998.
Separate Accounts assets and liabilities are shown as separate captions in the
Consolidated Balance Sheets. Deposits, investment income and net realized and
unrealized capital gains and losses of the Separate Accounts are not reflected
in the Consolidated Financial Statements (with the exception of realized and
unrealized capital gains and losses on the assets supporting the guaranteed
interest option). The Consolidated Statements of Cash Flows do not reflect
investment activity of the Separate Accounts.
Reinsurance
The Company utilizes indemnity reinsurance agreements to reduce its exposure to
large losses in all aspects of its insurance business. Such reinsurance permits
recovery of a portion of losses from reinsurers, although it does not discharge
the primary liability of the Company as direct insurer of the risks reinsured.
The Company evaluates the financial strength of potential reinsurers and
continually monitors the financial condition of reinsurers. Only those
reinsurance recoverable deemed probable of recovery are reflected as assets on
the Company's Consolidated Balance Sheets. Of the reinsurance recoverable on
the Consolidated Balance Sheets at December 31, 1999 and 1998, $2,989 million
and $2,946 million, respectively, is related to the reinsurance recoverable
from Lincoln arising from the sale of the domestic life insurance business.
(Refer to note 3)
F-12
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company is included in the consolidated federal income tax return of Aetna.
The Company is taxed at regular corporate rates after adjusting income reported
for financial statement purposes for certain items. Deferred income tax
expenses/benefits result from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and liabilities.
2. Contribution of IA Holdco from HOLDCO
On July 1, 1999, HOLDCO contributed IA Holdco to the Company. The primary
operating subsidiary of IA Holdco is Aeltus Investment Management, Inc.
("Aeltus") which has two wholly-owned operating subsidiaries: Aeltus Capital,
Inc. ("ACI"), a broker dealer, and Aeltus Trust Company ("ATC"), a limited
purpose banking entity. Aeltus is a registered investment advisor under the
Investment Advisers Act of 1940 and provides investment advisory services to
institutional and retail clients on a fee-for-service basis. In addition,
Aeltus, through its ACI subsidiary, provides distribution services for certain
Aetna mutual funds and other Aetna products. Aeltus' ATC subsidiary provides
trustee, administrative, and other fiduciary services to retirement plans
requiring or otherwise utilizing a trustee or custodian.
3. Discontinued Operations-Individual Life Insurance
On October 1, 1998, the Company sold its domestic individual life insurance
business to Lincoln for $1 billion in cash. The transaction was generally in
the form of an indemnity reinsurance arrangement, under which Lincoln
contractually assumed from the Company certain policyholder liabilities and
obligations, although the Company remains directly obligated to policyholders.
Assets related to and supporting the life policies were transferred to Lincoln
and the Company recorded a reinsurance recoverable from Lincoln. The
transaction resulted in an after-tax gain on the sale of approximately $117
million, of which $57.7 million was deferred and was being recognized over
approximately 15 years. The remaining portion of the gain is recognized
immediately in net income and was largely attributed to access to the agency
sales force and brokerage distribution channel. Approximately $5.2 million
(after tax) of the deferred gain was recognized during 1999. During the fourth
quarter of 1999, the Company refined certain accrual and tax estimates which
had been established in connection with the recording of the deferred gain. As
a result, the deferred gain was increased by $12.9 million (after tax) to $65.4
million at December 31, 1999. The remaining deferred gain will be recognized
over approximately 14 years. The unamortized portion of the deferred gain is
presented in other liabilities on the Consolidated Balance Sheets.
The operating results of the domestic individual life insurance business are
presented as Discontinued Operations. All prior year income statement data has
been restated to reflect the presentation as Discontinued Operations. Revenues
for the individual life segment were $652.2 million and $620.4 million for 1998
and 1997. Premiums ceded and reinsurance recoveries made in 1999 totaled $476.5
million and $513.4 million, respectively, and in 1998 totaled $153.4 million
and $70.5 million, respectively.
F-13
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Investments
Debt securities available for sale as of December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1999 (Millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and government agencies
and authorities $ 1,087.2 $ 4.6 $ 22.1 $ 1,069.7
States, municipalities and political subdivisions 0.3 -- -- 0.3
U.S. corporate securities:
Utilities 514.5 5.6 12.7 507.4
Financial 1,869.8 8.2 44.7 1,833.3
Transportation/capital goods 623.4 .9 39.0 585.3
Health care/consumer products 1,138.7 9.3 51.3 1,096.7
Natural resources 424.6 1.3 15.4 410.5
Other corporate securities 214.0 1.0 14.9 200.1
- ----------------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 4,785.0 26.3 178.0 4,633.3
- ----------------------------------------------------------------------------------------------------------------
Foreign securities:
Government, including political subdivisions 364.6 17.1 11.9 369.8
Utilities 196.4 7.3 .4 203.3
Other 748.2 8.9 34.3 722.8
- ----------------------------------------------------------------------------------------------------------------
Total foreign securities 1,309.2 33.3 46.6 1,295.9
- ----------------------------------------------------------------------------------------------------------------
Residential mortgage-backed securities:
Pass-throughs 1,055.9 19.8 17.6 1,058.1
Collateralized mortgage obligations 1,683.1 25.1 37.7 1,670.5
- ----------------------------------------------------------------------------------------------------------------
Total residential mortgage-backed securities 2,739.0 44.9 55.3 2,728.6
- ----------------------------------------------------------------------------------------------------------------
Commercial/Multifamily mortgage-backed
securities 1,031.5 3.4 48.7 986.2
Other asset-backed securities 705.7 0.3 9.9 696.1
- ----------------------------------------------------------------------------------------------------------------
Total debt securities $ 11,657.9 $ 112.8 $ 360.6 $ 11,410.1
================================================================================================================
</TABLE>
F-14
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
Debt securities available for sale as of December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1998 (Millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and government agencies
and authorities $ 718.9 $ 60.4 $ 0.2 $ 779.1
States, municipalities and political subdivisions 0.3 -- -- 0.3
U.S. corporate securities:
Utilities 615.2 29.8 4.1 640.9
Financial 2,260.2 94.6 5.6 2,349.2
Transportation/capital goods 580.8 33.0 1.1 612.7
Healthcare/consumer products 1,328.2 69.8 4.8 1,393.2
Natural resources 254.5 6.9 2.3 259.1
Other corporate securities 261.7 5.8 7.4 260.1
- ----------------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 5,300.6 239.9 25.3 5,515.2
- ----------------------------------------------------------------------------------------------------------------
Foreign securities:
Government, including political subdivisions 507.6 30.4 32.9 505.1
Utilities 147.0 32.4 -- 179.4
Other 511.2 14.9 1.8 524.3
- ----------------------------------------------------------------------------------------------------------------
Total foreign securities 1,165.8 77.7 34.7 1,208.8
- ----------------------------------------------------------------------------------------------------------------
Residential mortgage-backed securities:
Pass-throughs 671.9 38.4 2.9 707.4
Collateralized mortgage obligations 1,879.6 119.7 10.4 1,988.9
- ----------------------------------------------------------------------------------------------------------------
Total residential mortgage-backed securities 2,551.5 158.1 13.3 2,696.3
- ----------------------------------------------------------------------------------------------------------------
Commercial/Multifamily mortgage-backed
securities 1,114.9 30.9 9.8 1,136.0
Other asset-backed securities 719.3 13.8 0.6 732.5
- ----------------------------------------------------------------------------------------------------------------
Total debt securities $ 11,571.3 $ 580.8 $ 83.9 $ 12,068.2
================================================================================================================
</TABLE>
F-15
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
At December 31, 1999 and 1998, net unrealized (depreciation) appreciation of
$(247.8) million and $496.9 million, respectively, on available-for-sale debt
securities included $(189.7) million and $355.8 million, respectively, related
to experience-rated contracts, which were not reflected in shareholder's equity
but in insurance reserves.
The amortized cost and fair value of debt securities for the year ended
December 31, 1999 are shown below by contractual maturity. Actual maturities
may differ from contractual maturities because securities may be restructured,
called, or prepaid.
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
- -------------------------------------------------------------------------
<S> <C> <C>
Due to mature:
One year or less $ 266.4 $ 266.5
After one year through five years 2,838.4 2,798.7
After five years through ten years 1,718.0 1,674.6
After ten years 2,351.4 2,250.1
Mortgage-backed securities 3,776.5 3,722.3
Other asset-backed securities 707.2 697.9
- -------------------------------------------------------------------------
Total $ 11,657.9 $ 11,410.1
=========================================================================
</TABLE>
At December 31, 1999 and 1998, debt securities carried at fair value of $8.7
million and $8.8 million, respectively, were on deposit as required by
regulatory authorities.
The Company did not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10% of
the Company's shareholder's equity at December 31, 1999.
Included in the Company's debt securities were residential collateralized
mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1999 1998
----------------------------- --------------------------
Amortized Fair Amortized Fair
(Millions) Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total residential CMOs (1) $ 1,683.1 $ 1,670.5 $ 1,879.6 $ 1,988.9
=====================================================================================================
Percentage of total:
Supporting experience rated products 80.7% 81.7%
Supporting remaining products 19.3% 18.3%
- -----------------------------------------------------------------------------------------------------
100.0% 100.0%
=====================================================================================================
</TABLE>
(1) At December 31, 1999 and 1998, approximately 81% and 66%, respectively, of
the Company's residential CMO holdings were backed by government agencies
such as GNMA, FNMA, FHLMC.
F-16
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
There are various categories of CMOs which are subject to different degrees of
risk from changes in interest rates and, for CMO's that are not agency-backed,
defaults. The principal risks inherent in holding CMOs are prepayment and
extension risks related to dramatic decreases and increases in interest rates
resulting in the repayment of principal from the underlying mortgages either
earlier or later than originally anticipated. At December 31, 1999 and 1998,
approximately 1% and 2%, respectively, of the Company's CMO holdings were
invested in types of CMOs which are subject to more prepayment and extension
risk than traditional CMOs (such as interest- or principal-only strips).
Investments in equity securities available for sale as of December 31 were as
follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998
- ----------------------------------------------------
<S> <C> <C>
Amortized Cost $ 204.9 $ 300.4
Gross unrealized gains 12.5 13.1
Gross unrealized losses 10.9 8.1
- ----------------------------------------------------
Fair Value $ 206.5 $ 305.4
====================================================
</TABLE>
5. Financial Instruments
Estimated Fair Value
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------- ----------------------
Carrying Fair Carrying Fair
(Millions) Value Value Value Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Mortgage loans $ 6.7 $ 6.8 $ 12.7 $ 12.3
Liabilities:
Investment contract liabilities:
With a fixed maturity 1,055.3 991.0 1,063.9 984.3
Without a fixed maturity 10,066.4 9,452.8 10,241.7 9,686.2
- ------------------------------------------------------------------------------------------
</TABLE>
Fair value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument, such as
estimates of timing and amount of future cash flows. Such estimates do not
reflect any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial instrument, nor do
they consider the tax impact of the realization of unrealized gains or losses.
In many cases, the fair value estimates cannot be substantiated by comparison
to independent markets, nor can the disclosed value be realized in immediate
settlement of the instrument. In evaluating the Company's management of
interest rate, price and liquidity risks, the fair values of all assets and
liabilities should be taken into consideration, not only those presented above.
F-17
<PAGE>
Notes to Consolidated Financial Statements (continued)
5. Financial Instruments (continued)
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Mortgage loans: Fair values are estimated by discounting expected mortgage loan
cash flows at market rates which reflect the rates at which similar loans would
be made to similar borrowers. The rates reflect management's assessment of the
credit quality and the remaining duration of the loans.
Investment contract liabilities (included in Policyholders' funds left with the
Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Off-Balance-Sheet and Other Financial Instruments
Without a fixed maturity: Fair value is estimated as the amount payable to the
contractholder upon demand. However, the Company has the right under such
contracts to delay payment of withdrawals which may ultimately result in paying
an amount different than that determined to be payable on demand.
Futures Contracts:
Futures contracts are used to manage interest rate risk in the Company's bond
portfolio. Futures contracts represent commitments to either purchase or sell
securities at a specified future date and at a specified price or yield.
Futures contracts trade on organized exchanges and, therefore, have minimal
credit risk. Cash settlements are made daily based on changes in the prices of
the underlying assets. The notional amounts, carrying values and estimated fair
values of the Company's open treasury futures as of December 31, 1998 were
$250.9 million, $.1 million, and $.1 million, respectively. There were no open
treasury futures as of December 31, 1999.
Warrants:
Included in common stocks are warrants which are instruments giving the Company
the right, but not the obligation to buy a security at a given price during a
specified period. The carrying values and estimated fair values of the
Company's warrants to purchase equity securities as of December 31, 1999 were
both $6.5 million. The carrying values and estimated fair values as of December
31, 1998 were both $1.5 million.
Options:
During 1999, the Company earned $0.4 million of investment income for writing
call options on underlying securities. The Company did not write any call
options in 1998. As of December 31, 1999 and 1998, there were no option
contracts outstanding.
F-18
<PAGE>
Notes to Consolidated Financial Statements (continued)
5. Financial Instruments (continued)
Debt Instruments with Derivative Characteristics:
The Company also had investments in certain debt instruments with derivative
characteristics, including those whose market value is at least partially
determined by, among other things, levels of or changes in domestic and/or
foreign interest rates (short- or long-term), exchange rates, prepayment rates,
equity markets or credit ratings/spreads. The amortized cost and fair value of
these securities, included in the debt securities portfolio, as of December 31,
1999 was as follows:
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Residential collateralized mortgage obligations $ 1,683.1 $ 1,670.5
Principal-only strips (included above) 9.2 9.7
Interest-only strips (included above) 10.7 14.6
Other structured securities with derivative
characteristics (1) 81.7 67.2
- --------------------------------------------------------------------------------
</TABLE>
(1) Represents non-leveraged instruments whose fair values and credit risk are
based on underlying securities, including fixed income securities and
interest rate swap agreements.
6. Net Investment Income
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 823.3 $ 798.8 $ 814.6
Nonredeemable preferred stock 17.1 18.4 12.9
Investment in affiliated mutual funds 2.4 6.6 3.8
Mortgage loans 1.1 0.6 0.3
Policy loans 7.7 7.2 5.7
Reinsurance loan to affiliate -- 2.3 5.5
Cash equivalents 39.0 46.1 40.2
Other 15.3 13.2 16.1
- --------------------------------------------------------------------------------
Gross investment income 905.9 893.2 899.1
Less: investment expenses (19.6) (21.4) (17.4)
- --------------------------------------------------------------------------------
Net investment income $ 886.3 $ 871.8 $ 881.7
================================================================================
</TABLE>
Net investment income includes amounts allocable to experience rated
contractholders of $659.6 million, $655.6 million and $673.8 million for the
years ended December 31, 1999, 1998 and 1997, respectively. Interest credited
to contractholders is included in current and future benefits.
F-19
<PAGE>
Notes to Consolidated Financial Statements (continued)
7. Dividend Restrictions and Shareholder's Equity
The Company paid $255.0 million, $570.0 million and $34.3 million in cash
dividends to HOLDCO in 1999,1998 and 1997, respectively. Of the $255.0 million
paid in 1999, $206 million was accrued for in 1998. Of the $776.0 million
dividends paid or accrued in 1998, $756.0 million (all of which was approved by
the Insurance Commissioner of the State of Connecticut) was attributable to
proceeds from the sale of the domestic individual life insurance business.
The Department recognizes as net income and shareholder's capital and surplus
those amounts determined in conformity with statutory accounting practices
prescribed or permitted by the Department, which differ in certain respects
from generally accepted accounting principles. Statutory net income was $133.9
million, $148.1 million and $80.5 million for the years ended December 31,
1999, 1998 and 1997, respectively. Statutory capital and surplus was $845.2
million and $773.0 million as of December 31, 1999 and 1998, respectively.
As of December 31, 1999, the Company does not utilize any statutory accounting
practices which are not prescribed by state regulatory authorities that,
individually or in the aggregate, materially affect statutory capital and
surplus.
8. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying value
and sale proceeds of specific investments sold.
Net realized capital (losses) gains on investments were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ (23.6) $ 7.4 $ 21.1
Equity securities 2.1 3.0 8.6
- ----------------------------------------------------------------------------------
Pretax realized capital (losses) gains $ (21.5) $ 10.4 $ 29.7
==================================================================================
After-tax realized capital (losses) gains $ (14.0) $ 7.3 $ 19.2
==================================================================================
</TABLE>
Net realized capital (losses) gains of $(36.7) million, $15.0 million and $83.7
million for 1999, 1998 and 1997, respectively, allocable to experience rated
contracts, were deducted from net realized capital gains and an offsetting
amount was reflected in Policyholders' funds left with the Company. Net
unamortized gains allocable to experienced-rated contractholders were $68.5
million and $118.6 million at December 31, 1999 and 1998, respectively.
F-20
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Capital Gains and Losses on Investment Operations (continued)
Proceeds from the sale of available-for-sale debt securities and the related
gross gains and losses were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds on sales $ 5,890.1 $ 6,790.2 $ 5,311.3
Gross gains 10.5 98.8 23.8
Gross losses 34.1 91.4 2.7
- ------------------------------------------------------------------
</TABLE>
Changes in shareholder's equity related to changes in accumulated other
comprehensive income (unrealized capital gains and losses on securities,
excluding those related to experience-rated contractholders) were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ (199.2) $ 18.9 $ 44.3
Equity securities (3.4) (16.1) 5.6
Other (27.6) 15.4 --
- -------------------------------------------------------------------------------------
Subtotal (230.2) 18.2 49.9
(Decrease) increase in deferred income taxes
(Refer to note 9) (80.6) 6.3 17.5
- -------------------------------------------------------------------------------------
Net changes in accumulated other
comprehensive (loss) income $ (149.6) $ 11.9 $ 32.4
=====================================================================================
</TABLE>
Net unrealized capital (losses) gains allocable to experience-rated contracts
of $(189.7) and $355.8 million at December 31, 1999 and December 31, 1998
respectively, are reflected on the Consolidated Balance Sheets in
Policyholders' funds left with the Company and are not included in
shareholder's equity.
F-21
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Capital Gains and Losses on Investment Operations (continued)
Shareholder's equity included the following accumulated other comprehensive
(loss) income, which is net of amounts allocable to experience-rated
contractholders, at December 31:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities:
Gross unrealized capital gains $ 18.6 $ 157.3 $ 140.6
Gross unrealized capital losses (76.7) (16.2) (18.4)
- -----------------------------------------------------------------------------------
(58.1) 141.1 122.2
- -----------------------------------------------------------------------------------
Equity securities:
Gross unrealized capital gains 12.5 13.1 21.2
Gross unrealized capital losses (10.9) (8.1) (0.1)
- -----------------------------------------------------------------------------------
1.6 5.0 21.1
- -----------------------------------------------------------------------------------
Other:
Gross unrealized capital gains 1.3 17.1 --
Gross unrealized capital losses (13.7) (1.8) --
- -----------------------------------------------------------------------------------
(12.4) 15.3 --
- -----------------------------------------------------------------------------------
Deferred income taxes (Refer to note 9) (24.1) 56.6 50.4
- -----------------------------------------------------------------------------------
Net accumulated other comprehensive (loss)
income $ (44.8) $ 104.8 $ 92.9
===================================================================================
</TABLE>
Changes in accumulated other comprehensive income related to changes in
unrealized gains (losses) on securities (excluding those related to
experience-rated contractholders) were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized holding (losses) gains arising
during the year (1) $ (146.3) $ 38.3 $ 99.2
Less: reclassification adjustment for gains and
other items included in net income (2) 3.3 26.4 66.8
========================================================================================
Net unrealized (losses) gains on securities $ (149.6) $ 11.9 $ 32.4
========================================================================================
</TABLE>
(1) Pretax unrealized holding (losses) gains arising during the year were
$(225.2) million, $58.8 million and $152.7 million for 1999, 1998 and
1997, respectively.
(2) Pretax reclassification adjustments for gains and other items included in
net income were $5.0 million, $40.6 million and $102.8 million for 1999,
1998 and 1997, respectively.
F-22
<PAGE>
Notes to Consolidated Financial Statements (continued)
9. Income Taxes
The Company is included in the consolidated federal income tax return, the
combined New York return, and Illinois unitary state income tax return of
Aetna. Aetna allocates to each member, as permitted under a tax sharing
arrangement, an amount approximating the tax it would have incurred were it not
a member of the consolidated group, and credits the member for the use of its
tax saving attributes in the consolidated federal income tax return.
Income taxes from continuing operations consist of the following:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes (benefits):
Federal $ 63.8 $ 257.4 $ 40.0
State 2.5 3.0 3.3
Net realized capital (losses) gains (20.1) 16.8 39.1
- -----------------------------------------------------------------------------
46.2 277.2 82.4
- -----------------------------------------------------------------------------
Deferred taxes (benefits):
Federal 31.3 (196.7) 14.3
Net realized capital gains (losses) 12.6 (13.9) (28.3)
- -----------------------------------------------------------------------------
43.9 (210.6) (14.0)
- -----------------------------------------------------------------------------
Total $ 90.1 $ 66.6 $ 68.4
=============================================================================
</TABLE>
Income taxes were different from the amount computed by applying the federal
income tax rate to income from continuing operations before income taxes for
the following reasons:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations before
income taxes $ 271.3 $ 238.7 $ 236.3
Tax rate 35% 35% 35%
- ------------------------------------------------------------------------------------
Application of the tax rate 95.0 83.5 82.7
Tax effect of:
State income tax, net of federal benefit 1.6 2.0 2.1
Excludable dividends (6.1) (17.1) (15.6)
Other, net (0.4) (1.8) (0.8)
- ------------------------------------------------------------------------------------
Income taxes $ 90.1 $ 66.6 $ 68.4
=====================================================================================
</TABLE>
F-23
<PAGE>
Notes to Consolidated Financial Statements (continued)
9. Income Taxes (continued)
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
(Millions) 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 323.1 $ 324.1
Unrealized gains allocable to experience rated contracts -- 124.5
Net unrealized capital losses 90.5 --
Investment losses 1.3 --
Postretirement benefits other than pensions 24.8 27.6
Deferred compensation 42.5 37.3
Sale of individual life 44.9 48.9
Other 20.2 20.4
- ---------------------------------------------------------------------------------------
Total gross assets 547.3 582.8
- ---------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs 324.0 282.9
Market discount 6.5 4.5
Net unrealized capital gains -- 181.1
Unrealized losses allocable to experience rated contracts 66.4 --
- ---------------------------------------------------------------------------------------
Total gross liabilities 396.9 468.5
- ---------------------------------------------------------------------------------------
Net deferred tax asset $ 150.4 $ 114.3
=======================================================================================
</TABLE>
Net unrealized capital gains and losses are presented in shareholder's equity
net of deferred taxes.
Management believes that it is more likely than not that the Company will
realize the benefit of the net deferred tax asset. The Company expects
sufficient taxable income in the future to realize the net deferred tax asset
because of the Company's long-term history of having taxable income, which is
projected to continue.
The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that has
not been subject to taxation. As of December 31, 1983, no further additions
could be made to the Policyholders' Surplus Account for tax return purposes
under the Deficit Reduction Act of 1984. The balance in such account was
approximately $17.2 million at December 31, 1999. This amount would be taxed
only under certain conditions. No income taxes have been provided on this
amount since management believes under current tax law the conditions under
which such taxes would become payable are remote.
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1994. Discussions are
being held with the Service with respect to proposed adjustments. Management
believes there are adequate defenses against, or sufficient reserves to provide
for, any such adjustments. The Service has commenced its examinations for the
years 1995 through 1997.
F-24
<PAGE>
Notes to Consolidated Financial Statements (continued)
10. Benefit Plans
Aetna has noncontributory defined benefit pension plans covering substantially
all employees. Aetna's accrued pension cost has been allocated to its
subsidiaries, including the Company, under an allocation based on eligible
salaries. Data on a separate company basis regarding the proportionate share of
the projected benefit obligation and plan assets is not available. The
accumulated benefit obligation and plan assets are recorded by Aetna. As of the
measurement date (September 30), fair value of plan assets exceed projected
benefit obligations. Allocated pretax charges to operations for the pension
plan (based on the Company's total salary cost as a percentage of Aetna's total
salary cost) were $6.6 million and $3.0 million for the years ended December
31, 1999 and 1997, respectively. There were no charges in 1998 due to favorable
plan asset performance.
Effective January 1, 1999, the Company, in conjunction with Aetna, changed the
formula from the previous final average pay formula to a cash balance formula,
which will credit employees annually with an amount equal to a percentage of
eligible pay based on age and years of service as well as an interest credit
based on individual account balances. The formula also provides for a
transition period until December 1, 2006, which allows certain employees to
receive vested benefits at the higher of the final average pay or cash balance
formula. The changing of this formula did not have a material effect on the
Company's results of operations, liquidity or financial condition.
In addition to providing pension benefits, Aetna currently provides certain
health care and life insurance benefits for retired employees. A comprehensive
medical and dental plan is offered to all full-time employees retiring at age
45 with 10 years of service. The company provides subsidized benefits to
employees whose sum of age and service is at least equal to 65. There is a cap
on the portion of the cost paid by the Company relating to medical and dental
benefits. The costs to the Company associated with the Aetna postretirement
plans for 1999, 1998 and 1997 were $2.1 million, $1.0 million and $2.4 million,
respectively.
The Company, in conjunction with Aetna, has a non-qualified pension plan
covering certain agents. The plan provides pension benefits based on annual
commission earnings. As of the measurement date (September 30), accumulated
benefit obligations exceeded fair value of plan assets.
The Company, in conjunction with Aetna, also provides certain postretirement
health care and life insurance benefits for certain agents. The costs to the
Company associated with the agents' postretirement plans for 1999, 1998 and
1997 were $2.1 million, $1.4 million and $0.6 million, respectively.
Incentive Savings Plan--Substantially all employees are eligible to participate
in a savings plan under which designated contributions, which may be invested
in common stock of Aetna or certain other investments, are matched, up to 5% of
compensation, by Aetna. Pretax charges to operations for the incentive savings
plan were $7.7 million, $5.3 million and $5.0 million in 1999, 1998 and 1997,
respectively.
Stock Plans--Aetna has a stock incentive plan that provides for stock options,
deferred contingent common stock or equivalent cash awards or restricted stock
to employees. Executive, middle
F-25
<PAGE>
Notes to Consolidated Financial Statements (continued)
10. Benefit Plans (continued)
management and non-management employees may be granted options to purchase
common stock of Aetna at or above the market price on the date of grant.
Options generally become 100% vested three years after the grant is made, with
one-third of the options vesting each year. Aetna does not recognize
compensation expense for stock options granted at or above the market price on
the date of grant under its stock incentive plans. In addition, executives may,
from time to time, be granted incentive units which are rights to receive
common stock or an equivalent value in cash. The incentive units may vest
within a range from 0% to 175% at the end of a four year period based on the
attainment of performance goals. The costs to the Company associated with the
Aetna stock plans for 1999, 1998 and 1997, were $0.4 million, $4.2 million and
$2.9 million, respectively.
11. Related Party Transactions
Investment Advisory and Other Fees
The Company serves as investment advisor to the Aetna managed mutual funds and
variable funds (collectively, the Funds). Under the advisory agreements, the
Funds pay the Company a daily fee which, on an annual basis, ranged, depending
on the fund, from 0.25% to 0.95% of their average daily net assets. The Company
is also compensated by the Separate Accounts (variable funds) for bearing
mortality and expense risks pertaining to variable life and annuity contracts.
Under the insurance and annuity contracts, the Separate Accounts pay the
Company a daily fee which, on an annual basis is, depending on the product, up
to 2.15% of their average daily net assets. The amount of compensation and fees
received from the Funds and Separate Accounts, included in charges assessed
against policyholders and other income, amounted to $424.2 million, $349.0
million and $271.2 million in 1999, 1998 and 1997, respectively.
Reinsurance Transactions
Effective December 31, 1988, the Company entered into a modified coinsurance
reinsurance agreement ("MODCO") with Aetna Life Insurance Company ("Aetna
Life"), an affiliate company, in which substantially all of the
non-participating individual life and annuity business written by Aetna Life
prior to 1981 was assumed by the Company. Effective January 1, 1997, this
agreement was amended to transition (based on underlying investment rollover in
Aetna Life) from a modified coinsurance arrangement to a coinsurance agreement.
As a result of this change, reserves were ceded to the Company from Aetna Life
as investment rollover occurred. Effective October 1, 1998, this agreement was
fully transitioned to a coinsurance arrangement and this business along with
the Company's direct individual non-participation life insurance business was
sold to Lincoln. (Refer to note 3).
The operating results of the domestic individual life business are presented as
Discontinued Operations. Premiums of $17.9 million, $336.3 million and $176.7
million and current and future benefits of $8.6 million, $341.1 million and
$183.9 million, were assumed in 1999, 1998 and 1997, respectively. Investment
income of $17.0 million and $37.5 million was generated from a reinsurance loan
to affiliate for the years ended December 31, 1998 and 1997, respectively.
Prior to the sale of the domestic individual life insurance business to Lincoln
on October 1, 1998, the Company's retention limit per individual life was $2.0
million and amounts in excess of this
F-26
<PAGE>
Notes to Consolidated Financial Statements (continued)
11. Related Party Transactions (continued)
limit, up to a maximum of $8.0 million on any new individual life business was
reinsured with Aetna Life on a yearly renewable term basis. Premium amounts
related to this agreement were $2.0 million and $5.9 million for 1998 and 1997,
respectively. This agreement was terminated effective October 1, 1998.
Effective October 1, 1997, the Company entered into a reinsurance agreement
with Aetna Life to assume amounts in excess of $0.2 million for certain of its
participating life insurance, on a yearly renewable term basis. Premium amounts
related to this agreement were $4.4 million in1998. The business assumed under
this agreement was retroceded to Lincoln effective October 1, 1998.
On December 16, 1988, the Company assumed $25.0 million of premium revenue from
Aetna Life for the purchase and administration of a life contingent single
premium variable payout annuity contract. In addition, the Company is also
responsible for administering fixed annuity payments that are made to
annuitants receiving variable payments. Reserves of $115.3 million and $87.8
million were maintained for this contract as of December 31, 1999 and 1998,
respectively.
Capital Transactions
The Company received no capital contributions in 1999. In 1998, the Company
received a capital contribution of $9.3 million in cash from HOLDCO. In 1997,
the Company returned capital of $5.0 million to HOLDCO.
Refer to note 7 for dividends paid to HOLDCO.
Other
Premiums due and other receivables include $10.5 million and $1.6 million due
from affiliates in 1999 and 1998, respectively. Other liabilities include $1.9
million and $2.2 million due to affiliates for 1999 and 1998, respectively.
Aetna transferred to the Company $0.8 million, $1.7 million and $3.8 million
based on its decision not to settle state tax liabilities for the years 1999,
1998 and 1997, respectively, as permitted under the tax sharing arrangement,
which is reported in other changes in retained earnings.
Substantially all of the administrative and support functions of the Company
are provided by Aetna and its affiliates. The financial statements reflect
allocated charges for these services based upon measures appropriate for the
type and nature of service provided.
12. Reinsurance
On October 1, 1998, the Company sold its domestic individual life insurance
business to Lincoln for $1 billion in cash. The transaction is generally in the
form of an indemnity reinsurance arrangement, under which Lincoln contractually
assumed from the Company certain policyholder liabilities and obligations,
although the Company remains directly obligated to policyholders. (Refer to
note 3)
F-27
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Reinsurance (continued)
Effective January 1, 1998, 90% of the mortality risk on substantially all
individual universal life product business written from June 1, 1991 through
October 31, 1997 was reinsured externally. Beginning November 1, 1997, 90% of
new business written on these products was reinsured externally. Effective
October 1, 1998 this agreement was assigned from the third party reinsurer to
Lincoln.
The following table includes premium amounts ceded/assumed as discussed in note
11.
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
(Millions) Amount Companies Companies Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
----
Premiums:
Discontinued Operations $ 460.1 $ 478.0 $ 17.9 $ --
Accident and Health Insurance 33.4 33.4 -- --
Annuities 111.5 4.9 .9 107.5
- ---------------------------------------------------------------------------------------
Total earned premiums $ 605.0 $ 516.3 $ 18.8 $ 107.5
=======================================================================================
1998
----
Premiums:
Discontinued Operations $ 166.8 $ 165.4 $ 340.6 $ 342.0
Accident and Health Insurance 16.3 16.3 -- --
Annuities 80.8 2.9 1.5 79.4
- ---------------------------------------------------------------------------------------
Total earned premiums $ 263.9 $ 184.6 $ 342.1 $ 421.4
=======================================================================================
1997
----
Premiums:
Discontinued Operations $ 35.7 $ 15.1 $ 177.4 $ 198.0
Accident and Health Insurance 5.6 5.6 -- --
Annuities 67.9 -- 1.2 69.1
- ---------------------------------------------------------------------------------------
Total earned premiums $ 109.2 $ 20.7 $ 178.6 $ 267.1
=======================================================================================
</TABLE>
F-28
<PAGE>
Notes to Consolidated Financial Statements (continued)
13. Segment Information
Summarized financial information for the Company's principal operations was as
follows:
<TABLE>
<CAPTION>
Investment
Year ended December 31, Financial Management Discontinued
1999 (Millions) Products (1) Services (1) Operations (1) Other (1) Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from external
customers $ 551.1 $ 118.3 -- $ (43.9) $ 625.5
Net investment income 881.5 1.5 -- 3.3 886.3
- ---------------------------------------------------------------------------------------------------------
Total revenue excluding net
realized capital losses $ 1,432.6 $ 119.8 -- $ (40.6) $ 1,511.8
=========================================================================================================
Amortization of deferred policy
acquisition costs $ 93.4 $ 11.5 $ 104.9
- ---------------------------------------------------------------------------------------------------------
Income taxes (benefits) $ 87.0 $ 16.5 $ (13.4) $ 90.1
- ---------------------------------------------------------------------------------------------------------
Operating earnings (losses) (2) $ 192.1 $ 28.1 -- $ (7.5) $ 212.7
Other item (3) -- -- (17.5) (17.5)
Net realized capital losses,
net of tax (14.0) -- -- (14.0)
- ---------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations 178.1 28.1 -- (25.0) 181.2
Discontinued operations,
net of tax:
Amortization of deferred
gain on sale -- $ 5.7 -- 5.7
- ---------------------------------------------------------------------------------------------------------
Net income (loss) $ 178.1 $ 28.1 $ 5.7 $ (25.0) $ 186.9
=========================================================================================================
Segment assets $ 53,324.4 $ 73.2 $ 2,989.0 $ 56,386.6
- ---------------------------------------------------------------------------------------------------------
Expenditures for long-lived
assets (4) -- -- -- $ 5.7 $ 5.7
- ---------------------------------------------------------------------------------------------------------
Balance of long-lived assets -- -- -- $ 16.5 $ 16.5
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Financial Products include: deferred and immediate annuity contracts,
mutual funds, programs offered to qualified plans and nonqualified
deferred compensation plans that package administrative and recordkeeping
services along with a menu of investment options, investment advisory
services and pension plan administrative services. Investment Management
Services include the following services: investment advisory to affiliated
and unaffiliated institutional and retail clients, underwriting,
distribution for Company products and trustee, administrative and other
fiduciary services to retirement plans. (Refer to notes 1 and 2.)
Discontinued operations include life insurance products. (Refer to note
3.) Other includes consolidating adjustments and Year 2000 costs.
(2) Operating earnings is comprised of net income (loss) excluding net
realized capital gains and losses and any other items. While operating
earnings is the measure of profit or loss used by the Company's management
when assessing performance or making operating decisions, it does not
replace operating income or net income as a measure of profitability.
(3) Other item excluded from operating earnings represents after-tax Year 2000
costs of $17.5 million
(4) Expenditures of long-lived assets represents additions to property and
equipment not allocable to business segments.
F-29
<PAGE>
Notes to Consolidated Financial Statements (continued)
13. Segment Information (continued)
<TABLE>
<CAPTION>
Investment
Year ended December 31, Financial Management Discontinued
1998 (Millions) Products (1) Services (1) Operations (1) Other (1) Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from external
customers $ 445.6 $ 96.7 -- $ (38.4) $ 503.9
Net investment income 865.3 1.5 -- 5.0 871.8
- --------------------------------------------------------------------------------------------------------
Total revenue excluding net
realized capital gains $ 1,310.9 $ 98.2 -- $ (33.4) $ 1,375.7
========================================================================================================
Amortization of deferred policy
acquisition costs $ 80.3 -- -- $ 10.9 $ 91.2
- --------------------------------------------------------------------------------------------------------
Income Taxes (benefits) $ 67.7 $ 14.7 -- $ (15.8) $ 66.6
- --------------------------------- ---------- ------- -- ------- ----------
Operating earnings (2) $ 170.3 $ 24.0 -- $ (7.1) $ 187.2
Other item (3) -- -- -- (22.4) (22.4)
Net realized capital gains,
net of tax 7.3 -- -- -- 7.3
- --------------------------------------------------------------------------------------------------------
Income from continuing
operations 177.6 24.0 -- (29.5) 172.1
Discontinued operations,
net of tax:
Income from operations -- -- $ 61.8 -- 61.8
Immediate gain on sale -- -- 59.0 -- 59.0
- --------------------------------------------------------------------------------------------------------
Net income (loss) $ 177.6 $ 24.0 $ 120.8 $ (29.5) $ 292.9
========================================================================================================
Segment assets $ 44,366.4 $ 13.4 $ 2,946.4 $ 47,326.2
- --------------------------------------------------------------------------------------------------------
Expenditures for long-lived
assets (4) -- -- -- $ 9.0 $ 9.0
- --------------------------------------------------------------------------------------------------------
Balance of long-lived assets $ 14.8 $ 14.8
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Financial products include: deferred and immediate annuity contracts,
mutual funds, programs offered to qualified plans and nonqualified
deferred compensation plans that package administrative and recordkeeping
services along with a menu of investment options, investment advisory
services and pension plan administrative services. Investment Management
Services include the following services: investment advisory to affiliated
and unaffiliated institutional and retail clients, underwriting,
distribution for Company products and trustee, administrative and other
fiduciary services to retirement plans. (Refer to notes 1 and 2.)
Discontinued operations include life insurance products. (Refer to note
3.) Other includes consolidating adjustments and Year 2000 costs.
(2) Operating earnings is comprised of net income (loss) excluding net
realized capital gains and losses and any other items. While operating
earnings is the measure of profit or loss used by the Company's management
when assessing performance or making operating decisions, it does not
replace operating income or net income as a measure of profitability.
(3) Other item excluded from operating earnings represents after-tax Year 2000
costs of $22.4 million
(4) Expenditures of long-lived assets represents additions to property and
equipment not allocable to business segments.
F-30
<PAGE>
Notes to Consolidated Financial Statements (continued)
13. Segment Information (continued)
<TABLE>
<CAPTION>
Investment
Year ended December 31, Financial Management Discontinued
1997 (Millions) Products (1) Services (1) Operations (1) Other (1) Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from external
customers $ 371.5 $80.3 -- $(23.9) $ 427.9
Net investment income 876.7 1.4 -- 3.6 881.7
- --------------------------------------------------------------------------------------------------------
Total revenue excluding net
realized capital gains $ 1,248.2 $81.7 -- $(20.3) $ 1,309.6
========================================================================================================
Amortization of deferred policy
acquisition costs $ 57.2 -- -- $ 9.1 $ 66.3
- --------------------------------------------------------------------------------------------------------
Income Taxes (benefits) $ 59.7 $11.9 -- $ (3.2) $ 68.4
- --------------------------------------------------------------------------------------------------------
Operating earnings (2) $ 134.9 $19.7 -- $ (5.9) $ 148.7
Net realized capital gains,
net of tax 19.2 -- -- -- 19.2
- --------------------------------------------------------------------------------------------------------
Income from continuing
operations 154.1 $19.7 -- (5.9) 167.9
Discontinued operations,
net of tax:
Income from operations -- -- $ 67.8 -- 67.8
Deferred gain on sale -- -- -- -- --
- --------------------------------------------------------------------------------------------------------
Net income (loss) $ 154.1 $19.7 $ 67.8 $ (5.9) $ 235.7
========================================================================================================
Segment assets $ 36,379.5 $17.9 $ 3,792.5 -- $ 40,189.9
- --------------------------------------------------------------------------------------------------------
Expenditures for long-lived
assets (3) -- -- -- $ 10.0 $ 10.0
- --------------------------------------------------------------------------------------------------------
Balance of long-lived assets $ 12.7 $ 12.7
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Financial products include: deferred and immediate annuity contracts,
mutual funds, programs offered to qualified plans and nonqualified
deferred compensation plans that package administrative and recordkeeping
services along with a menu of investment options, investment advisory
services and pension plan administrative services. Investment Management
Services include the following services: investment advisory to affiliated
and unaffiliated institutional and retail clients, underwriting,
distribution for Company products and trustee, administrative and other
fiduciary services to retirement plans. (Refer to notes 1 and 2.)
Discontinued operations include life insurance products. (Refer to note
3.) Other includes consolidating adjustments and Year 2000 costs.
(2) Operating earnings is comprised of net income (loss) excluding net
realized capital gains and losses and any other items. While operating
earnings is the measure of profit or loss used by the Company's management
when assessing performance or making operating decisions, it does not
replace operating income or net income as a measure of profitability.
(3) Expenditures of long-lived assets represents additions to property and
equipment not allocable to business segments.
F-31
<PAGE>
Notes to Consolidated Financial Statements (continued)
14. Commitments and Contingent Liabilities
Commitments
Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a specified
future date and at a specified price or yield. The inability of counterparties
to honor these commitments may result in either higher or lower replacement
cost. Also, there is likely to be a change in the value of the securities
underlying the commitments. At December 31,1998, the Company had off-balance
sheet commitments to purchase investments of $68.7 million with an estimated
fair value of $68.9 million. At December 31, 1999, there were no off-balance
sheet commitments.
Litigation
The Company is involved in numerous lawsuits arising, for the most part, in the
ordinary course of its business operations. While the ultimate outcome of
litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related reserves
established, it is not expected to result in liability for amounts material to
the financial condition of the Company, although it may adversely affect
results of operations in future periods.
F-32
<PAGE>
Form No. SAI.75998-00 ALIAC Ed. May 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, 1999
- Statement of Operations for the year ended December 31, 1999
- Statements of Changes in Net Assets for the years ended
December 31, 1999 and 1998
- Condensed Financial Information for the year ended December 31,
1999
- Notes to Financial Statements
- Independent Auditors' Report
Financial Statements of the Depositor:
- Independent Auditors' Report
- Consolidated Statements of Income for the years ended December
31, 1999, 1998 and 1997
- Consolidated Balance Sheets as of December 31, 1999 and 1998
- Consolidated Statements of Changes in Shareholder's Equity for
the years
ended December 31, 1999, 1998 and 1997
- Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
- Notes to Consolidated Financial Statements
(b) Exhibits
(1) Resolution of the Board of Directors of Aetna Life Insurance and
Annuity Company establishing Variable Annuity Account B(1)
(2) Not applicable
(3.1) Broker-Dealer Agreement(2)
(3.2) Alternative Form of Wholesaling Agreement and Related Selling
Agreement(3)
(4.1) Variable Annuity Contract (IA-CDA-IA)(4)
(4.2) Variable Annuity Contract (I-CDA-HD)(5)
(4.3) Endorsement (EIGET-IC(R)) to Contracts IA-CDA-IA and I-CDA-HD(6)
(4.4) Endorsement EGET(99) to Contracts IA-CDA-IA and I-CDA-HD(7)
(5) Variable Annuity Contract Application (713.00.1(C))(8)
(6.1) Certificate of Incorporation of Aetna Life Insurance and Annuity
Company(9)
(6.2) Amendment of Certificate of Incorporation of Aetna Life Insurance
and Annuity Company(5)
(6.3) By-Laws as amended September 17, 1997 of Aetna Life Insurance and
Annuity Company(10)
(7) Not applicable
<PAGE>
(8.1) 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)
(8.2) 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(11)
(8.3) Second Amendment dated December 31, 1999 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 Portfolio, Inc., on behalf of
each of its series, and Aeltus Investment Management, Inc., dated
as of May 1, 1998 and amended on November 9, 1998(12)
(8.4) Third Amendment dated February 11, 2000 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 Portfolio, Inc., on behalf of
each of its series, and Aeltus Investment Management, Inc., dated
as of May 1, 1998, amended on November 9, 1998 and December 31,
1999(13)
(8.5) Fourth Amendment dated May 1, 2000 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 and amended on November 9, 1998, December 31,
1999 and February 11, 2000(13)
(8.6) 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(2)
(8.7) 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
<PAGE>
and Aetna Variable Portfolios, Inc. on behalf of each of its
series dated as of May 1, 1998(11)
(8.8) Second Amendment dated February 11, 2000 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 and
November 4, 1998(13)
(8.9) Third Amendment dated May 1, 2000 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, November 4, 1998 and
February 11, 2000(13)
(8.10) 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(5)
(8.11) Fifth Amendment dated as of May 1, 1997 to the Fund Participation
Agreement between Aetna Life Insurance and Annuity Company,
Variable Insurance Products Fund 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(14)
(8.12) 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(15)
(8.13) 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)
(8.14) Eighth Amendment dated December 1, 1999 to 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, November 6, 1997 and May 1, 1998(12)
(8.15) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund II and Fidelity
Distributors
<PAGE>
Corporation dated February 1, 1994 and amended on December 15,
1994, February 1, 1995, May 1, 1995, January 1, 1996 and March
1, 1996(5)
(8.16) 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(14)
(8.17) Sixth Amendment dated as of January 20, 1998 to the Fund
Participation Agreement between Aetna Life Insurance and Annuity
Company, Variable Insurance Products Fund II and Fidelity
Distributors Corporation dated February 1, 1994 and amended on
December 15, 1994, February 1, 1995, May 1, 1995, January 1,
1996, March 1, 1996 and May 1, 1997(16)
(8.18) 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)
(8.19) Eighth Amendment dated December 1, 1999 to 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, January 20, 1998 and May 1, 1998(12)
(8.20) Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investments Institutional Operations Company
dated as of November 1, 1995(17)
(8.21) 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(14)
(8.22) Service Contract between Fidelity Distributors Corporation and
Aetna Life Insurance and Annuity Company dated May 2, 1997(11)
(8.23) Fund Participation Agreement among Janus Aspen Series and Aetna
Life Insurance and Annuity Company and Janus Capital Corporation
dated December 8, 1997(18)
(8.24) 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(11)
(8.25) Second Amendment dated December 1, 1999 to Fund Participation
Agreement among Janus Aspen Series and Aetna Life Insurance and
Annuity Company and Janus Capital Corporation dated December 8,
1997 and amended on October 12, 1998(12)
(8.26) Service Agreement between Janus Capital Corporation and Aetna
Life Insurance and Annuity Company dated December 8, 1997(18)
(9) Opinion and Consent of Counsel
<PAGE>
(10) Consent of Independent Auditors
(11) Not applicable
(12) Not applicable
(13) Schedule for Computation of Performance Data(19)
(14.1) Powers of Attorney(13)
(14.2) Authorizations 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 Post-Effective Amendment No. 14 to Registration
Statement on Form N-4 (File No. 33-75964), as filed on July 29, 1997.
5. 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.
6. Incorporated by reference to Post-Effective Amendment No. 8 to Registration
Statement on Form N-4 (File No. 33-75964), as filed on August 30, 1996.
7. Incorporated by reference to Post-Effective Amendment No. 13 to Registration
Statement on Form N-4 (File No. 333-01107), as filed on April 7, 1999.
8. Incorporated by reference to Post-Effective Amendment No. 7 to Registration
Statement on Form N-4 (File No. 33-75998), as filed on August 21, 1997.
9. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 33-60477), as filed on April 15, 1996.
10. 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.
11. 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.
12. Incorporated by reference to Post-Effective Amendment No. 19 to Registration
Statement on Form N-4 (File No. 333-01107), as filed on February 16, 2000.
13. Incorporated by reference to Post-Effective Amendment No. 20 to Registration
Statement on Form N-4 (File No. 333-01107), as filed on April 4, 2000.
14. 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.
15. 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.
16. 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.
17. 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.
18. 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.
<PAGE>
19. Incorporated by reference to Post-Effective Amendment No. 8 to Registration
Statement on Form N-4 (File No. 33-75998), as filed on April 17, 1998.
<PAGE>
Item 25. Directors and Officers of the Depositor
Name and Principal
Business Address* Positions and Offices with Depositor
- ----------------- ------------------------------------
Thomas J. McInerney Director and President
Shaun P. Mathews Director and Senior Vice President
Director, Chief Financial Officer and
Catherine H. Smith Senior Vice President
Vice President, Corporate Controller,
Deborah Koltenuk and Assistant Treasurer
Vice President and Chief Compliance
Therese M. Squillacote Officer
Senior Vice President, General
Kirk P. Wickman Counsel and Corporate Secretary
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated herein by reference to Item 24 of Post-Effective Amendment
No. 38 to the Registration Statement on Form N-1A (File No. 33-41694), as filed
on February 23, 2000.
Item 27. Number of Contract Owners
As of February 29, 2000, there were 99,953 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 reasonable expenses incurred with respect to a proceeding) when
(1) a determination is made
<PAGE>
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 Life Account C of
Aetna, Variable Annuity Account C of Aetna and Variable Annuity
Account G of Aetna (separate accounts of Aetna registered as unit
investment trusts under the 1940 Act). Aetna is also the principal
underwriter for Variable Annuity Account I of Aetna Insurance Company
of America (AICA) (a separate account of AICA registered as a unit
investment trust under the 1940 Act).
(b) See Item 25 regarding the Depositor.
<PAGE>
(c) Compensation as of December 31, 1999:
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation
Principal Discounts and on Redemption Brokerage
Underwriter Commissions or Annuitization Commissions Compensation*
- ----------- ----------- ---------------- ----------- ------------
Aetna Life $1,170,405 $60,339,195
Insurance and
Annuity Company
* 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) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(e) Aetna Life Insurance and Annuity Company represents that the fees and
charges deducted under the contracts covered by this registration
statement, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks
assumed by the insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Variable Annuity Account B of Aetna Life Insurance and
Annuity Company, certifies that it meets the requirements of Securities Act Rule
485(b) for effectiveness of this Post-Effective Amendment to its Registration
Statement on Form N-4 (File No. 33-75998) and has caused this Post-Effective
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hartford, State of Connecticut, on the 12th day of
April, 2000.
VARIABLE ANNUITY ACCOUNT B OF AETNA
LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)
By: AETNA LIFE INSURANCE AND ANNUITY COMPANY
(Depositor)
By: /s/ Thomas J. McInerney*
------------------------------------------
Thomas J. McInerney
President
As required by the Securities Act of 1933, this Post-Effective Amendment No.
14 to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Thomas J. McInerney* Director and President )
- -------------------------- (principal executive officer) )
Thomas J. McInerney )
)
Shaun P. Mathews* Director ) April
- -------------------------- )
Shaun P. Mathews ) 12, 2000
)
Catherine H. Smith* Director and Chief Financial Officer )
- -------------------------- )
Catherine H. Smith )
)
Deborah Koltenuk* Vice President, Corporate Controller, )
- -------------------------- and Assistant Treasurer )
Deborah Koltenuk )
<PAGE>
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 Logo] Aetna Inc.
Financial Services 151 Farmington Avenue
[Aetna Letterhead] Hartford, CT 06156-8975
Julie E. Rockmore
Counsel
AFS Law, TS31
April 12, 2000 (860) 273-4686
Fax: (860) 273-0385
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Aetna Life Insurance and Annuity Company and its Variable Annuity Account B
Post-Effective Amendment No. 14 to Registration Statement on Form N-4
Prospectus Title: Individual Nonqualified Variable Annuity Contracts
File Nos. 33-75998 and 811-2512
Dear Sir or Madam:
The undersigned serves as counsel to Aetna Life Insurance and Annuity Company, a
Connecticut life insurance company (the "Company"). It is my understanding that
the Company, as depositor, has registered an indefinite amount of securities
(the "Securities") under the Securities Act of 1933 (the "Securities Act") as
provided in Rule 24f-2 under the Investment Company Act of 1940 (the "Investment
Company Act").
In connection with this opinion, I 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. 14. I have also examined
originals or copies, certified or otherwise identified to my satisfaction, of
such documents, trust records and other instruments I have deemed necessary or
appropriate for the purpose of rendering this opinion. For purposes of such
examination, I have assumed the genuineness of all signatures on original
documents and the conformity to the original of all copies.
I am admitted to practice law in Connecticut, and do not purport to be an expert
on the laws of any other state. My opinion herein as to any other law is based
upon a limited inquiry thereof which I have deemed appropriate under the
circumstances.
<PAGE>
Based upon the foregoing, and, assuming the Securities are sold in accordance
with the provisions of the prospectus, I am of the opinion that the Securities
being registered will be legally issued and will represent binding obligations
of the Company.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Julie E. Rockmore
Julie E. Rockmore
Counsel
The Board of Directors of Aetna Life Insurance and Annuity Company and
Contract Owners of Variable Annuity Account B:
We consent to the use of our report dated February 7, 2000, relating to the
consolidated financial statements of Aetna Life Insurance and Annuity Company
and our report dated February 11, 2000, relating to the financial statements of
Variable Annuity Account B, which are included in this Post-Effective Amendment
No. 14 to Registration Statement (File No. 33-75998) on Form N-4 and to
references to our firm under the heading "Condensed Financial Information" in
the prospectus and "Independent Auditors" in the statement of additional
information.
/s/ KPMG LLP
KPMG LLP
Hartford, Connecticut
April 12, 2000
