As filed with the Securities and Exchange Registration No. 333-09515
Commission on April 19, 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. 9 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
FORM N-4 LOCATION - PROSPECTUS
ITEM NO. PART A (PROSPECTUS) DATED MAY 1, 2000
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
5 General Description of Registrant,
Depositor, and Portfolio Companies.. Other Topics - The Company;
Variable Annuity Account B;
Appendix II - Description of
Underlying Funds
6 Deductions and Expenses............. Fee Table; Fees
7 General Description of Variable
Annuity Contracts................... Contract Overview; Other
Topics
8 Annuity Period...................... Income Payments
9 Death Benefit....................... Death Benefit
10 Purchases and Contract Value........ Purchase; Calculating
Variable Income Payments
11 Redemptions......................... Right to Cancel
12 Taxes............................... Taxation
13 Legal Proceedings................... Other Topics - Legal Matters
and Proceedings
14 Table of Contents of the Statement
of Additional Information........... Statement of Additional
Information - Table of
Contents
<PAGE>
LOCATION - STATEMENT OF
FORM N-4 PART B (STATEMENT OF ADDITIONAL ADDITIONAL INFORMATION
ITEM NO. INFORMATION) DATED MAY 1, 2000
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 Payments
23 Financial Statements................ Financial Statements
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>
Aetna Immediate Annuity Prospectus - May 1, 2000
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The Funds
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 Growth VP
o Aetna Variable Fund d/b/a Aetna Growth and Income VP
o Aetna Index Plus Large Cap VP
o Aetna International VP
o Aetna Legacy VP
o Aetna Variable Encore Fund d/b/a Aetna Money Market VP
o Aetna Real Estate Securities VP*
o Aetna Small Company VP
o AIM V.I. Capital Appreciation Fund
o AIM V.I. Growth Fund
o AIM V.I. Growth and Income Fund
o AIM V.I. Value Fund
o Fidelity Variable Insurance Products Fund (VIP) High Income Portfolio
o Janus Aspen Growth Portfolio
o Janus Aspen Worldwide Growth Portfolio
o Oppenheimer Aggressive Growth Fund/VA
o Oppenheimer Main Street Growth & Income Fund/VA
o Oppenheimer Strategic Bond Fund/VA
o Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (formerly
PPI MFS Value Equity Portfolio)
o Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio
o Portfolio Partners, Inc. (PPI) Scudder International Growth Portfolio
o Portfolio Partners, Inc. (PPI) T. Rowe Price Growth Equity Portfolio
The Contract. The contract described in this prospectus is a fixed or variable,
group or individual immediate annuity contract issued by Aetna Life Insurance
and Annuity Company (the Company, we, us, our). It is issued to you, the
contract holder as either a nonqualified contract, or as a qualified contract
for use with a traditional Individual Retirement Annuity (IRA) under section
408(b) of the Internal Revenue Code of 1986, as amended (Tax Code) or with
retirement plans qualifying under Tax Code sections 401, 403(b) or 457.
Contracts sold in New York are not available for 457 plans.
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Why Reading this Prospectus is Important. This prospectus contains facts about
the contract and its investment options that you should know before purchasing.
The information will help you decide if the contract is right for you. Please
read this prospectus carefully.
Table of Contents . . . page 3
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Investment Options. The contract offers variable investment options and a fixed
dollar option. When you purchase the contract, your purchase payment will be
applied to the investment options you select. Some investment options may be
unavailable through your contract, your plan or in your state.
Variable Income Payments. If you select variable income payments, the amount of
your income payments will vary based on the performance of the variable
investment options that you select. 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 (funds) listed on this page. Subaccount performance will vary depending
upon the performance of its underlying fund. You do not invest directly in or
hold shares of the funds.
Risks Associated with Investing in the Funds. Information about the risks of
investing in the funds is located in the "Investment Options" section on page
16, 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) about the separate account by indicating your
request on your application or calling us at 1-800-238-6273. 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 35 of this prospectus. The SAI is
incorporated into this prospectus by reference.
Additional Disclosure Information. Neither the SEC, nor any state securities
commission, has approved or disapproved the securities offered through this
prospectus or passed on the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense. We do not intend for this
prospectus to be an offer to sell or a solicitation of an offer to buy these
securities in any state that does not permit their sale. We have not authorized
anyone to provide you with information that is different than that contained in
this prospectus.
*Effective May 15, 2000, transfers or deposits are not allowed into the
subaccount investing in this fund. See "Important Information Regarding the
Aetna Real Estate Securities VP Subaccount."
<PAGE>
Prospectus - May 1, 2000 (continued)
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Fixed Income Payments. If you select fixed payments, your purchase payment will
be applied to the fixed dollar option and your payment amount will not vary.
Except as specifically mentioned, this prospectus describes only the variable
investment options. However, we describe the fixed dollar option in Appendix I
of this prospectus.
Important Information Regarding the Aetna Real Estate Securities VP Subaccount
Subaccount to be Closed to New Investments. Effective May 15, 2000, the Aetna
Real Estate Securities VP subaccount will no longer be available for new
investments.
Fund Shares to be Substituted with Shares of Aetna Money Market VP
Plan of Substitution. On or before September 1, 2000, subject to applicable
regulatory approvals and the requisite vote of shareholders of the applicable
fund, any existing balance in Aetna Real Estate Securities VP will be invested
in (substituted with) shares of Aetna Money Market VP. You will not incur any
fees or charges as a result of the substitution. In addition, on and after
September 1, 2000, all investment allocations then being directed to the Aetna
Real Estate Securities VP subaccount will be redirected to the Aetna Money
Market VP subaccount. We do not believe that the substitution will create any
tax liability.
Transfer Rights. At any time prior to the date of substitution, you may transfer
your accumulated values from the subaccount investing in substituted funds into
any other investment option available under your contract and no transfer fees
or other charges will be imposed. From and after the date of substitution, you
may, if you had values transferred from a subaccount as a result of a
substitution, transfer among any of the remaining investment options in
accordance with the terms of your contract and free of any transfer fees and
charges. Any such transfer will not be counted as one of the free transfers
permitted under your contract, provided that the transfer occurs prior to, or
within 90 days after, the substitution.
Surrender Rights. If you had shares substituted and elect to make a surrender
under the contract (if permitted by applicable tax law and the contract) within
30 days after the date of the substitution, we will waive any early withdrawal
charge on amounts transferred as a result of the substitution. This offer to
waive the early withdrawal charge will not apply to amounts transferred after
April 10, 2000 from the other investment options to the Aetna Real Estate
Securities VP subaccount. If you exercise this surrender right, you may incur
income tax liability and a tax penalty. See the "Taxation" section of this
prospectus for a discussion of tax consequences resulting from surrender. You
should seek qualified tax advice before exercising your surrender rights.
The contract is not a deposit with, obligation of or guaranteed or endorsed by
any bank, nor is it insured by the FDIC. The contract is subject to investment
risk, including the possible loss of the principal amount of your investment.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Contract Overview ...................................................... 4
Contract Design
Who's Who
Contract Rights
The Contract and Retirement Plans
Contract Facts
Questions: Contacting the Company (sidebar)
Sending Forms and Written Requests in Good Order (sidebar)
- --------------------------------------------------------------------------------
Fee Table ............................................................... 6
Condensed Financial Information ......................................... 11
Purchase ................................................................ 11
Right to Cancel ......................................................... 12
Income Payments ......................................................... 12
Calculating Variable Income Payments .................................... 15
Investment Options ...................................................... 16
Fees .................................................................... 19
Death Benefit ........................................................... 22
Withdrawals ............................................................. 23
Taxation ................................................................ 24
Other Topics ............................................................ 31
The Company -- Variable Annuity Account B -- Contract Distribution -- Payment
Delay or Suspension -- Performance Reporting -- Voting Rights -- Contract
Modification -- Transfer of Ownership -- Legal Matters and Proceedings --
Financial Statements
Contents of the Statement of Additional Information ..................... 35
Appendix I Fixed Dollar Option .......................................... 36
Appendix II Description of Underlying Funds ............................. 39
Appendix III Condensed Financial Information ............................ 54
</TABLE>
3
<PAGE>
Contract Overview
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The following is intended as a summary. Please read each section of this
prospectus for additional detail.
[SIDE BAR]
Questions: Contacting the Company
To answer your questions,
contact your sales
representative or write or call
our Home Office at:
Aetna Financial Services
Attention: AFS Settlements
151 Farmington Avenue
Hartford, CT 06156
1-800-238-6273
Sending Forms and Written
Requests in Good Order
If you are writing to change
your beneficiary, request a
withdrawal, or for any other
purpose, contact your sales
representative or write or call
us to learn what information
is required for the request to
be in "good order." We can
only act upon requests that
are received in good order.
[END SIDE BAR]
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Contract Design
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The contract described in this prospectus is a fixed or variable, group or
individual immediate annuity contract. It is designed for individuals who would
like regular income payments from an annuity contract. The term "contract" in
this prospectus refers to individual contracts and to certificates issued under
group contracts.
- --------------------------------------------------------------------------------
Who's Who
- --------------------------------------------------------------------------------
Contract Holder (you/your): The person to whom we issue an individually owned
contract or the participant under a group contract.
Participant: The individual who participates in a group contract, generally in
connection with a retirement plan.
The Company (we, us, our): Aetna Life Insurance and Annuity Company. We issue
the contract.
- --------------------------------------------------------------------------------
Contract Rights
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Contract holders hold the rights under the contract. Generally, the contract
holder is either an individual to whom we issue an individual contract or a
participant under a group contract. For contracts issued in connection with 457
plans, the plan sponsor is the contract holder and holds the rights under the
contract. Section 457 plan sponsors may allow their participants to exercise
certain limited contract rights. For example, the section 457 plan sponsor has
the right to make investment selections, but may permit their individual
participants to exercise that right.
- --------------------------------------------------------------------------------
The Contract and Retirement Plans
- --------------------------------------------------------------------------------
We may offer this contract to employees or other individuals in connection with
a retirement plan.
Plan Type. We refer to a retirement plan by the Tax Code section under which it
qualifies. For example: a "457 plan" is a plan that qualifies for tax treatment
under Tax Code section 457. We are not a party to the plan, so the terms and
the conditions of the contract and the plan may differ.
- --------------------------------------------------------------------------------
Contract Facts
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Income Payment Options. You may select from a number of features for your
payments including but not limited to: duration, number of payees, payments to
beneficiaries, guaranteed minimum payment amount, and variable or fixed
payments. Some features require payment of additional fees. See "Income
Payments."
Free Look/Right to Cancel. You may cancel the contract no later than ten days of
receipt (some states require more than ten days). Participants in 403(b) plans
and some 401 plans may cancel their participation in the contract no later than
ten days after they receive evidence of participation in the contract. See
"Right to Cancel."
4
<PAGE>
Death Benefit. If any guaranteed income payments remain to be paid at the time
of the death of the annuitant or both annuitants, if applicable, they may be
paid to your beneficiary. See "Death Benefit."
Withdrawals. Some income payment options allow you to withdraw a portion or all
of any remaining guaranteed payments. An early withdrawal charge may apply. See
"Withdrawals."
Fees. Certain fees associated with the contract will reduce income payments.
See "Fee Table" and "Fees."
Taxation. The Tax Code has certain rules that apply to amounts distributed
under the contract. Tax penalties may apply if rules are not followed. See
"Taxation."
5
<PAGE>
[SIDE BAR]
In This Section:
> Maximum Transaction Fees
> Maximum Fees Deducted
from the Subaccounts
> Fees Deducted by the Funds
> Hypothetical Examples
Also see "Fees" for:
> How, When and Why Fees
are Deducted
> Premium and Other Taxes
> Reduction or Elimination
of Certain Fees
[END SIDE BAR]
Fee Table
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The tables and examples in this section show the fees that may affect the amount
of variable income payments. For fees applicable to fixed income payments, see
Appendix I. See "Fees" for additional information. The fees shown below do not
reflect any premium tax that may apply.
Maximum Transaction Fees
Early Withdrawal Charge
(As a percentage of the present value of remaining guaranteed income payments
withdrawn.(1))
Maximum Early Withdrawal Charge Schedule
<TABLE>
<CAPTION>
Number of Years from
Contract Effective Date* Early Withdrawal Charge
------------------------ -----------------------
<S> <C>
Fewer than 1 7%
1 or more but fewer than 2 6%
2 or more but fewer than 3 5%
3 or more but fewer than 4 4%
4 or more but fewer than 5 3%
5 or more but fewer than 6 2%
6 or more but fewer than 7 1%
7 or more 0%
</TABLE>
* For participants under a group contract, the early withdrawal charge will be
calculated based upon the number of years from the certificate effective date.
Maximum Fees Deducted from the Subaccounts
(Daily deductions, equal to the following percentages on an annual basis, from
amounts invested in the subaccounts.)
For Contracts Without the Guaranteed Minimum Income Feature:
<TABLE>
<S> <C>
Mortality and Expense Risk Charge ........................ 1.25%
Administrative Expense Charge ............................ 0.00%-0.25%(2)
--------------
Total Separate Account Expenses .......................... 1.25%-1.50%
==============
For Contracts With the Guaranteed Minimum Income Feature:
Mortality and Expense Risk Charge ........................ 1.25%
Administrative Expense Charge ............................ 0.00%-0.25%(2)
Guaranteed Minimum Income Charge ......................... 1.00%
--------------
Total Separate Account Expenses .......................... 2.25%-2.50%
==============
</TABLE>
(1) Although the maximum early withdrawal charge is 7% of the remaining
guaranteed income payments withdrawn, the total early withdrawal charge
deducted will not exceed 8.5% of your purchase payment to the contract.
See "Fees--Early Withdrawal Charge."
(2) We currently do not impose an administrative expense charge; however, we
reserve the right to impose this charge for new contracts and to deduct a
daily charge from the subaccounts equivalent to not more than 0.25%
annually.
6
<PAGE>
Fees Deducted by the Funds and Fund Expense Table
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 directly from your income
payments. When a subaccount purchases shares of a fund, the fees are reflected
in that purchase price, so income payments based on investments in that
subaccount will be impacted indirectly by the fund fees. 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, unless otherwise noted.
Fund Expense Table
<TABLE>
<CAPTION>
Total Fund Net Fund
Investment Annual Expenses Total Annual Expenses
Advisory Other Without Waivers Waivers and After Waivers
Fund Name Fees(1) Expenses or Reductions Reductions or 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 VP(2) 0.60% 0.11% 0.71% 0.00% 0.71%
Aetna Growth and Income VP 0.50% 0.08% 0.58% -- 0.58%
Aetna Index Plus Large Cap VP(2) 0.35% 0.10% 0.45% 0.00% 0.45%
Aetna International VP(2) 0.85% 0.77% 1.62% 0.47% 1.15%
Aetna 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 Real Estate Securities VP(2) 0.75% 0.74% 1.49% 0.54% 0.95%
Aetna Small Company VP(2) 0.75% 0.13% 0.88% 0.00% 0.88%
AIM V.I. Capital Appreciation Fund 0.62% 0.11% 0.73% -- 0.73%
AIM V.I. Growth Fund 0.63% 0.10% 0.73% -- 0.73%
AIM V.I. Growth and Income Fund 0.61% 0.16% 0.77% -- 0.77%
AIM V.I. Value Fund 0.61% 0.15% 0.76% -- 0.76%
Fidelity VIP High Income Portfolio(3) 0.58% 0.11% 0.69% -- 0.69%
Janus Aspen Growth Portfolio(4) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Worldwide Growth Portfolio(4) 0.65% 0.05% 0.70% 0.00% 0.70%
Oppenheimer Aggressive Growth Fund/VA 0.66% 0.01% 0.67% -- 0.67%
Oppenheimer Main Street Growth & Income Fund/VA 0.73% 0.05% 0.78% -- 0.78%
Oppenheimer Strategic Bond Fund/VA 0.74% 0.04% 0.78% -- 0.78%
PPI MFS Capital Opportunities Portfolio(5) 0.65% 0.25% 0.90% 0.00% 0.90%
PPI MFS Emerging Equities Portfolio(5) 0.67% 0.13% 0.80% 0.00% 0.80%
PPI Scudder International Growth Portfolio(5) 0.80% 0.20% 1.00% 0.00% 1.00%
PPI T. Rowe Price Growth Equity Portfolio(5) 0.60% 0.15% 0.75% 0.00% 0.75%
</TABLE>
continued >
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.
For the AIM Funds, the reimbursements may be paid out of fund assets in an
amount up to 0.25% annually. Any such reimbursements paid from the AIM
Funds' assets are included in the "Other Expenses" column.
(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) 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.
(4) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for Growth and
Worldwide Growth Portfolios. All expenses are shown without the effect of
expense offset arrangements.
(5) 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 (For contracts without the guaranteed minimum income
feature)
Fees You May Incur Over Time. The following hypothetical examples show
the fees that you would pay if you invested $1,000 in a subaccount, assuming the
subaccount earned a 5% annual return. For the purpose of these examples, we
deducted total annual fund expenses and the maximum charges under the contract
(i.e., a maximum mortality and expense risk charge of 1.25% annually and an
administrative expense charge of 0.25% annually) and assume you have selected
the "nonlifetime-guaranteed payments" income payment option for a 15 year period
with a 3-1/2% assumed annual net return rate. The total annual fund expenses
used are those shown in the column "Total Fund Annual Expenses Without Waivers
or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- ---------------------------------------------
> These examples are purely hypothetical.
> They should not be considered a
representation of past or future fees or
expected returns.
> Actual expenses and/or returns may be
more or less than those shown in these
examples.
- ---------------------------------------------
EXAMPLE A EXAMPLE B
---------------------------------------- --------------------------------------
If you withdraw your remaining If you do not withdraw your remaining
guaranteed payments at the end of the guaranteed payments, you would pay
periods shown, you would pay the the following fees at the end of the
following fees, including any applicable periods shown (no early withdrawal
early withdrawal charge: 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 $78 $ 94 $109 $155 $22 $61 $ 95 $155
Aetna Balanced VP, Inc. $77 $ 90 $103 $145 $20 $57 $ 89 $145
Aetna Bond VP $76 $ 88 $ 99 $139 $19 $55 $ 85 $139
Aetna Crossroads VP $78 $ 94 $109 $155 $22 $61 $ 95 $155
Aetna Growth VP $78 $ 93 $108 $153 $21 $60 $ 94 $153
Aetna Growth and Income VP $77 $ 90 $103 $145 $20 $57 $ 89 $145
Aetna Index Plus Large Cap VP $76 $ 87 $ 98 $137 $19 $54 $ 83 $137
Aetna International VP $86 $116 $143 $208 $30 $84 $130 $208
Aetna Legacy VP $78 $ 94 $110 $156 $22 $62 $ 96 $156
Aetna Money Market VP $75 $ 84 $ 93 $129 $18 $51 $ 79 $129
Aetna Real Estate Securities VP $85 $113 $138 $201 $29 $81 $125 $201
Aetna Small Company VP $79 $ 98 $115 $164 $23 $65 $101 $164
AIM V.I. Capital Appreciation Fund $78 $ 94 $109 $154 $22 $61 $ 95 $154
AIM V.I. Growth Fund $78 $ 94 $109 $154 $22 $61 $ 95 $154
AIM V.I. Growth and Income Fund $78 $ 95 $110 $157 $22 $62 $ 96 $157
AIM V.I. Value Fund $78 $ 95 $110 $156 $22 $62 $ 96 $156
Fidelity VIP High Income Portfolio $78 $ 93 $107 $152 $21 $60 $ 93 $152
Janus Aspen Growth Portfolio $78 $ 92 $106 $151 $21 $59 $ 92 $151
Janus Aspen Worldwide Growth Portfolio $78 $ 93 $108 $152 $21 $60 $ 94 $152
Oppenheimer Aggressive Growth Fund/VA $78 $ 92 $106 $151 $21 $59 $ 92 $151
Oppenheimer Main Street Growth &
Income Fund/VA $79 $ 95 $111 $157 $22 $62 $ 97 $157
Oppenheimer Strategic Bond Fund/VA $79 $ 95 $111 $157 $22 $62 $ 97 $157
PPI MFS Capital Opportunities Portfolio $80 $ 98 $116 $165 $23 $65 $102 $165
PPI MFS Emerging Equities Portfolio $79 $ 96 $112 $159 $22 $63 $ 98 $159
PPI Scudder International Growth Portfolio $81 $101 $119 $171 $24 $68 $106 $171
PPI T. Rowe Price Growth Equity Portfolio $78 $ 94 $110 $156 $22 $62 $ 96 $156
</TABLE>
continued >
9
<PAGE>
Hypothetical Examples (For contracts with the guaranteed minimum income feature)
Fees You May Incur Over Time. The following hypothetical examples show the fees
that you would pay if you invested $1,000 in a subaccount, assuming the
subaccount earned a 5% annual return. For the purpose of these examples, we
deducted total annual fund expenses and the maximum charges under the contract
(i.e., a maximum mortality and expense risk charge of 1.25% annually, an
administrative expense charge of 0.25% annually, and the guaranteed minimum
income charge of 1.00% annually) and assume you are a 65 year old male and have
selected the "life income--guaranteed payments" income payment option with
payments guaranteed for 15 years and a 3-1/2% assumed annual net return rate.
The total annual fund expenses used are those shown in the column "Total Fund
Annual Expenses Without Waivers or Reductions" in the Fund Expense Table.
<TABLE>
<CAPTION>
- ---------------------------------------------
> These examples are purely hypothetical.
> They should not be considered a
representation of past or future fees or
expected returns.
> Actual expenses and/or returns may be
more or less than those shown in these
examples.
- ---------------------------------------------
EXAMPLE A EXAMPLE B
---------------------------------------- --------------------------------------
If you withdraw your remaining If you do not withdraw your
guaranteed payments at the end of remaining guaranteed payments, you
the periods shown, you would pay the would pay the following fees at the
following fees, including any end of the periods shown (no early
applicable early withdrawal charge: 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 Index Plus Large Cap VP Not Applicable. Withdrawals are $29 $83 $133 $238
not allowed if you elect the
guaranteed minimum income
feature.
</TABLE>
10
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
Understanding Condensed Financial Information. In Appendix III of this
prospectus, we provide condensed financial information about the Variable
Annuity Account B (the Separate Account) subaccounts you may invest in through
the contract. The numbers show the year-end unit values of the subaccounts from
the time purchase payments were first received in the subaccounts under the
contract.
Purchase
- --------------------------------------------------------------------------------
Contracts Available for Purchase. The contract is designed for persons who would
like to receive regular income payments from an annuity contract. It is
available as either a nonqualified contract or as a qualified contract for use
with a traditional IRA under section 408(b) of the Tax Code or with retirement
plans qualifying under Tax Code sections 401, 403(b) or 457. Contracts sold in
New York are not available for 457 plans. Availability as a group contract is
subject to state approval. We reserve the right to limit purchase of an
individual contract to natural persons.
ERISA Notification. We must be notified by the employer or plan trustee if the
contract is offered in connection with a 403(b) or 401 plan that is subject to
Title I of the Employee Retirement Income Security Act of 1974 (ERISA), as
amended.
How to Purchase. You may purchase the contract by submitting your purchase
payment and the required application or enrollment forms to us.
Purchase Payment Amount. To purchase a contract you must make one payment of at
least $10,000. After your initial payment, no additional purchase payments may
be made. We reserve the right to lower the minimum required payment, to
establish a maximum payment amount and to reject any payment exceeding the
maximum.
Acceptance or Rejection. We must accept or reject your application or enrollment
materials within two business days of receipt. If the forms are incomplete, we
may hold any forms and accompanying purchase payment for five business days
pending completion. In all cases, we may hold a purchase payment for longer
periods with your permission and if we deposit the payment in the Aetna Money
Market VP subaccount until the forms are completed (or for a maximum of 105
days). If we reject your application or enrollment, we will return the forms and
any purchase payment.
Age Requirements. The maximum issue age is between 75 and 90, depending upon the
income payment option and features selected. We reserve the right to modify the
maximum issue age.
Allocation of Your Purchase Payment to the Investment Options. We will allocate
your purchase payment, less any applicable premium taxes, among the investment
options you select. You may select up to four of the available variable
investment options at any one time. You may also select the fixed dollar option
and allocate all or a portion of your purchase payment to the general account.
See "Investment Options." Allocations must be in whole percentages. Any purchase
payment received before we accept the application or enrollment materials will
be invested as of the day we do accept them.
11
<PAGE>
Right to Cancel
- --------------------------------------------------------------------------------
When and How to Cancel. You may cancel your contract within ten days of receipt
(some states require more than ten days) by returning it, or the document
showing your participation under a group contract, to our Home Office along with
a written notice of cancellation. For contracts issued in connection with 457
plans, the contract holder may follow these procedures on behalf of the
participant.
Refunds. On the day we receive the request for cancellation in good order, we
will calculate your contract value. Your refund will equal that value and will
reflect deduction of any income payments made. This amount may be more or less
than your purchase payment. In certain states (or if you have purchased the
contract as an IRA), we may be required to return your entire purchase payment.
We will issue your refund within seven days of our receipt of your request in
good order.
[SIDE BAR]
Terms to understand:
Annuitant(s): The person(s)
whose life or life
expectancy(ies) determines
the amount or continuation of
lifetime income payments or
whose death results in
payment of death benefits.
Beneficiary(ies): The
person(s) or entity(ies)
entitled to receive a death
benefit under the contract.
[END SIDE BAR]
Income Payments
- --------------------------------------------------------------------------------
Under the contract, we will make regular income payments to you or to a payee
you designate in writing.
Initiating Payments. To initiate income payments, you must make the following
selections on your application or enrollment form:
o Payment start date;
o Payment frequency (i.e., monthly, quarterly, semi-annually or annually);
o Income payment option and any special features, such as a right to withdraw
or the guaranteed minimum income feature;
o Fixed, variable or a combination of both fixed and variable payments;
o The subaccounts to allocate your purchase payment among (only if variable
payments are elected); and
o An assumed annual net return rate (only if variable payments are elected).
Your sales representative can help you consider what selections may be
appropriate for your financial goals. Generally, your selections may not be
changed after the contract is issued. Some changes, such as transfers among
subaccounts, may be allowed.
What Affects Income Payment Amounts? Some of the factors that may affect the
amount of your income payments include your age, gender, the amount of your
purchase payment, the income payment option selected, the number of guaranteed
income payments selected (if any), whether you select fixed, variable or a
combination of both fixed and variable payments, and, for variable payments, the
assumed annual net return rate selected.
Payment Due Dates. You will generally receive your first income payment on the
last day of the selected payment period. For example, if you elect to receive
one payment a year, we will make the payment on the day before the anniversary
of the contract effective date. An alternative first payment date may be elected
subject to our approval and in compliance with IRS regulations.
Minimum Payment Amounts. For all payment options, the initial income payment
must be at least $50 per month, or total yearly payments of at least $250.
12
<PAGE>
Assumed Annual Net Return Rate. If you select variable income payments, you
must also select an assumed annual net return rate of either 5% or 3-1/2%.
If you select a 5% rate, your first income 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 payment will be lower, but
subsequent payments will increase more rapidly and decline more slowly depending
upon the investment performance of the subaccounts you selected.
For more information about selecting an assumed annual net return rate, call us
for a copy of the SAI. See "Contract Overview--Questions: Contacting the
Company."
- --------------------------------------------------------------------------------
Guaranteed Minimum Income Feature
If you elect this feature, we guarantee that your variable payment will never
be less than the guaranteed minimum payment amount shown in your contract. The
guaranteed minimum payment amount equals 90% of your initial payment (or
estimated initial payment if the first payment is deferred).
Estimated Initial Payment Amount. If you elect this feature and your first
payment is deferred, on the date we issue your contract we estimate the amount
of your initial payment based on the value of the annuity units your payment
purchases on that date. See "Calculating Variable Income Payments--Annuity
Units." Your guaranteed minimum payment amount will equal 90% of this estimated
amount.
This feature requires that you select:
o A lifetime payment option (with or without guaranteed payments);
o 100% variable payments;
o Aetna Index Plus Large Cap VP as the only subaccount into which your
purchase payment is allocated; and
o The 3-1/2% assumed annual net return rate.
In addition to other contract charges, a guaranteed minimum income charge will
apply. See "Fees." There is no right to withdraw and no right to transfer if
you select this income feature.
- --------------------------------------------------------------------------------
Delay of Start Date. The contract is designed to be viewed as an immediate
annuity contract under the Tax Code; however, you may elect to delay your income
payment start date for up to 12 months following purchase of the contract. See
"Taxation" for rules applicable where death occurs before the annuity starting
date under a nonqualified annuity. Consult a tax adviser before electing a
delay.
Taxation. The Tax Code has rules regarding income payments. For example, for
qualified contracts, guaranteed payments may not extend beyond (a) the estimated
life expectancy of the annuitant or (b) the joint life expectancies of the
annuitant and beneficiary. Payments must comply with the minimum distribution
requirements of Tax Code section 401(a)(9). In some cases tax penalties will
apply if rules are not followed. For tax rules that may apply to the contract
see "Taxation."
13
<PAGE>
Payment Options
The following table lists the income payment options and their accompanying
death benefits and rights to withdraw. See "Death Benefit," "Withdrawals," and
Appendix I for additional detail. We may offer additional income payment options
under the contract from time to time.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Lifetime Payment Options
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Length of Payments: For as long as the annuitant lives. It is possible that no payment will be made
if the annuitant dies prior to the first payment's due date.
Life Income Death Benefit--None: All payments end upon the annuitant's death.
Right to Withdraw--None.
- ---------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as the annuitant lives, with payments guaranteed for your choice
of 5-30 years (or other periods we may make available at the time you select this option).
Life Income-- Death Benefit--Payment to the Beneficiary: If the annuitant dies before we have made all the
Guaranteed guaranteed payments, payments will continue to the beneficiary.
Payments Right to Withdraw: At the time of purchase, you may elect the right to withdraw all or a portion
of any remaining guaranteed payments (some restrictions apply, see "Withdrawals").
- ---------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as either annuitant lives. It is possible that no payment will be
made if both the annuitant and joint annuitant die before the first payment's due date.
Continuing Payments: When you select this option you will also choose either:
(a) Full or reduced payments to continue to the surviving annuitant after the first annuitant's
death; or
(b) 100% of the payment to continue to the annuitant on the joint annuitant's death, and a
Life Income-- reduced payment to continue to the joint annuitant on the annuitant's death.
Two Lives In either case, payments cease upon the death of the surviving annuitant. Any reduction in payment
will result in a corresponding reduction to the amount of the guaranteed minimum income payment,
if applicable.
Death Benefit--None: All payments end upon the death of both annuitants.
Right to Withdraw--None.
- ---------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as either annuitant lives, with payments guaranteed for your
choice of 5-30 years (or other periods we may make available at the time you select this option.)
Continuing Payments: 100% of the payment will continue to the surviving annuitant after the first
Life Income-- annuitant's death.
Two Lives-- Death Benefit--Payment to the Beneficiary: If both annuitants die before the guaranteed
Guaranteed payments have all been paid, payments will continue to the beneficiary.
Payments Right to Withdraw: At the time of purchase, you may elect the right to withdraw all or a portion
of any remaining guaranteed payments (some restrictions apply, see "Withdrawals").
- ---------------------------------------------------------------------------------------------------------------------
Nonlifetime Payment Option
- ---------------------------------------------------------------------------------------------------------------------
Length of Payments: Payments will continue for your choice of 5-30 years (or other periods we may
make available at the time you select this option).
Death Benefit -- Payment to the Beneficiary: If the annuitant dies before we make all the
guaranteed payments, payment will continue to the beneficiary.
Nonlifetime-- Right to Withdraw:
Guaranteed (a) If you are receiving variable income payments you may withdraw all or a portion of any
Payments remaining guaranteed payments at any time.
(b) If you elect to receive fixed income payments at the time of purchase, you may elect the right
to withdraw all or a portion of any remaining guaranteed payments (some restrictions apply,
see "Withdrawals").
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Calculating Variable Income Payments
- --------------------------------------------------------------------------------
The amount of any variable income payment is determined by multiplying the
number of annuity units that you hold by an annuity unit value (AUV) for each
unit.
Annuity Units. When you select variable income payments, your initial purchase
payment purchases annuity units of the Variable Annuity Account B subaccounts
corresponding to the funds you select. The number of units purchased is based on
your purchase payment amount and the value of each unit on the day the purchase
payment is invested. Generally, the number of units will not vary over the life
of the contract, but the value of each unit will vary daily based on the
performance of the underlying fund and deduction of fees. Some events may reduce
the number of units, including transfers among subaccounts, withdrawals, or
death of an annuitant if a reduction in payment to a surviving annuitant was
selected.
Annuity Unit Value (AUV). The value of each annuity unit in a subaccount is
called the annuity unit value or AUV. The AUV varies daily in relation to the
underlying fund's investment performance. The value also reflects daily
deductions for fund fees and expenses, the mortality and expense risk charge,
the administrative expense charge (if any) and the guaranteed minimum income
charge (if applicable). 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 return factor of the subaccount,
and by a factor to reflect the assumed annual net return rate. The net return
factor measures the investment performance of the subaccount from one valuation
to the next. The assumed annual net return rate will be either 3-1/2% or 5% as
you selected.
Current AUV = Prior AUV x Net Return Factor x
Assumed Annual Net Return Rate Factor
Net Return Factor. The net return factor for a subaccount between two
consecutive valuations equals the sum of 1.0000 plus the net return rate.
The net return 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, the
administrative expense charge (if any) and the guaranteed minimum income
charge (if applicable). See "Fees."
The net return rate may be either positive or negative.
15
<PAGE>
Investment Options
- --------------------------------------------------------------------------------
When you purchase the contract, your purchase payment (less any applicable
premium tax) will be applied to the investment options you select. If you select
variable investment options, you will receive variable income payments. If you
select the fixed dollar option, you will receive fixed income payments. If you
select one or more variable investment options and the fixed dollar option, a
portion of your payment will vary and a portion will remain fixed.
Variable Income Payments. If you select variable income payments, the amount of
your income payments will vary based on the performance of the variable
investment options that you select. 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 (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's Public Reference Room.
Fixed Income Payments. If you select fixed payments, your purchase payment will
be applied to the fixed dollar option and the amount of your payments will not
vary. Except where noted, this prospectus describes only the variable investment
options. The fixed dollar option is described in Appendix I.
Number of Options You May Select. You may select up to four subaccounts and/or
the fixed dollar option at any one time.
- --------------------------------------------------------------------------------
Selecting Investment Options
o Choose options appropriate for you. Your sales representative can help you
evaluate which investment options may be appropriate for your financial
goals.
o Understand the risks associated with the options you choose. Some subaccounts
invest in funds that are considered riskier than others. Funds with
additional risks are expected to have values that rise and fall more rapidly
and to a greater degree than other funds. For example, funds investing in
foreign or international securities are subject to risks not associated with
domestic investments, and their investment performance may vary accordingly.
Also, funds using derivatives in their investment strategy may be subject to
additional risks.
o Be informed. Read this prospectus, the fund prospectuses and the Fixed Dollar
Option appendix in this prospectus.
- --------------------------------------------------------------------------------
16
<PAGE>
Additional Risks of Investing in the Funds (Mixed and Shared Funding)
"Shared funding" occurs when shares of a fund, which the subaccounts buy for
variable annuity contracts, are also bought by other insurance companies for
their variable annuity contracts.
"Mixed funding" occurs when shares of a fund, which the subaccounts buy for
variable annuity contracts, are bought for variable life insurance contracts
issued by us or other insurance companies.
> Shared--bought by more than one company.
> Mixed--bought for annuities and life insurance.
It is possible that a conflict of interest may arise due to mixed and/or shared
funding, which could adversely impact the value of a fund. For example, if a
conflict of interest occurred and one of the subaccounts withdrew its investment
in a fund, the fund may be forced to sell its securities at disadvantageous
prices, causing its share value to decrease. Each fund's board of directors or
trustees will monitor events to identify any conflicts which may arise and to
determine what action, if any, should be taken to address such conflicts.
Limits on Availability of Options. Some funds may be unavailable through your
contract or plan or in some states. We may add, withdraw or substitute funds,
subject to the conditions in your contract and in compliance with regulatory
requirements.
Limits Imposed by the Underlying Fund. Orders for the purchase of fund shares
may be subject to acceptance or rejection 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 its corresponding fund is not
accepted by the fund for any reason.
Transfers Among Variable Investment Options. You may transfer amounts among the
available subaccounts. The Company reserves the right to limit such transfers to
12 in any calendar year and to establish a minimum transfer amount. Transfers
are not allowed into or out of the fixed dollar option.
Transfer Requests. Requests may be made, after the contract is issued, in
writing, by telephone or, where applicable, electronically.
Limits on Frequent Transfers. The contract is not designed to serve as a vehicle
for frequent trading in response to short-term fluctuations in the market. Such
frequent trading can disrupt management of a fund and raise its expenses. This
in turn can have an adverse effect on fund performance. Accordingly,
organizations or individuals that use market-timing investment strategies and
make frequent transfers should not purchase the contract.
We reserve the right to restrict, in our sole discretion and without prior
notice, transfers initiated by a market-timing organization or individual or
other party authorized to give transfer instructions on behalf of multiple
contract holders. Such restrictions could include: (1) not accepting transfer
instructions from an agent acting on behalf of more than one contract holder;
and (2) not accepting preauthorized transfer forms from market timers or other
entities acting on behalf of more than one contract holder at a time.
We further reserve the right to impose, without prior notice, restrictions on
any transfers that we determine, in our sole discretion, will disadvantage or
potentially hurt the rights or interests of other contract holders.
17
<PAGE>
Telephone and Electronic Transactions: Security Measures. To prevent fraudulent
use of telephone and electronic transactions (including, but not limited to,
internet transactions), we have established security procedures. These include
recording calls on our toll-free telephone lines and requiring use of a personal
identification number (PIN) to execute transactions. You are responsible for
keeping your PIN and account information confidential. If we fail to follow
reasonable security procedures, we may be liable for losses due to unauthorized
or fraudulent telephone or other electronic transactions. We are not liable for
losses resulting from telephone or electronic instructions we believe to be
genuine. If a loss occurs when we rely on such instructions, you will bear the
loss.
18
<PAGE>
[SIDE BAR]
Types of Fees
There are four types of fees and deductions associated with the contract that
may affect the amount of your variable income payments. For fees applicable to
fixed payments see Appendix I.
> Transaction Fee
o Early Withdrawal Charge
> Fees Deducted from Investments in the Separate Account
o Mortality and Expense
Risk Charge
o Administrative Expense
Charge
o Guaranteed Minimum
Income Charge
> Fees Deducted by the Funds
> Premium and Other Taxes
[END SIDEBAR]
Fees
- --------------------------------------------------------------------------------
The following repeats and adds to information provided under "Fee Table." Please
review both sections for information on fees.
Transaction Fee
Early Withdrawal Charge
Withdrawals of all or a portion of the present value of remaining guaranteed
income payments may be subject to an early withdrawal charge. Not all contracts
permit withdrawals. See "Withdrawals."
Amount: The charge is a percentage of the present value of any remaining
guaranteed payments that you withdraw. The percentage will be determined by the
early withdrawal charge schedule applicable to your contract. Although the
maximum early withdrawal charge is 7% of the remaining guaranteed payments
withdrawn, the total early withdrawal charge will never be more than 8-1/2% of
your purchase payment to the contract.
Early Withdrawal Charge Schedules
Schedule A: Subject to state approval, Schedule A applies to contracts issued on
or after May 3, 1999.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Schedule A
- ----------------------------------------------------------
Number of Years from
Contract Effective Date* Early Withdrawal Charge
<S> <C>
Fewer than 1** 7%
1 or more but fewer than 2 6%
2 or more but fewer than 3 5%
3 or more but fewer than 4 4%
4 or more but fewer than 5 3%
5 or more but fewer than 6 2%
6 or more but fewer than 7 1%
7 or more 0%
- ----------------------------------------------------------
</TABLE>
Schedule B: Schedule B applies to contracts issued prior to May 3, 1999. It also
applies to contracts issued on or after May 3, 1999 in states where Schedule A
is not approved as of the contract effective date.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Schedule B
- ---------------------------------------------------------
Number of Years from
Contract Effective Date* Early Withdrawal Charge
<S> <C>
Fewer than 1** 5%
1 or more, but fewer than 2 5%
2 or more, but fewer than 3 4%
3 or more, but fewer than 4 4%
4 or more, but fewer than 5 3%
5 or more, but fewer than 6 2%
6 or more, but fewer than 7 1%
7 or more 0%
- ---------------------------------------------------------
</TABLE>
* For participants under a group contract, the early withdrawal charge will be
calculated based on the number of years from the certificate effective date.
** Certain contracts do not allow withdrawals during the first contract year.
When/How. At the time of withdrawal we deduct this charge from the amount
withdrawn.
19
<PAGE>
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.
Fees Deducted from Investments in the Separate Account
Mortality and Expense Risk Charge
Maximum Amount: 1.25% annually of values invested in the subaccounts.
When/How. We deduct this charge daily from the subaccounts corresponding to the
funds you select.
Purpose. This charge compensates us for the mortality and expense risks we
assume under the contract.
> The mortality risks are those risks associated with our promise to make
lifetime income payments based on annuity rates specified in the contract.
> The expense risk is the risk that the actual expenses we incur under the
contract will exceed the maximum costs that we can charge.
If the amount we deduct for this charge is not enough to cover our mortality
costs and expenses under the contract, we will bear the loss. We may use any
excess to recover distribution costs relating to the contract and as a source of
profit. We expect to make a profit from this charge.
Administrative Expense Charge
Maximum Amount. We currently do not charge an administrative expense charge. We
reserve, however, the right to charge up to 0.25% annually of values invested
in the subaccounts.
When/How. If imposed, we deduct this charge daily from the subaccounts
corresponding to the funds you select.
Purpose. This charge helps defray our administrative expenses. This charge is
not intended to exceed the average expected cost of administering the contract.
We do not expect to make a profit from this charge.
Guaranteed Minimum Income Charge
This is assessed only if you select the guaranteed minimum income feature.
Maximum Amount. 1.00% annually of values invested in the subaccounts.
When/How. We deduct this charge daily from the subaccounts corresponding to the
funds you select.
Purpose. This charge compensates us for the additional mortality and expense
risks we assume by guaranteeing minimum income payments. For additional
information regarding those risks, see "Mortality and Expense Risk
Charge--Purpose" in this section.
Reduction or Elimination of Certain Fees
When sales of the contract are made to individuals or a group of individuals in
a manner that results in savings of sales or administration expenses, we may
reduce or eliminate the early withdrawal charge or mortality and expense risk
charge. Our decision to reduce or eliminate either of these charges will be
20
<PAGE>
based on one or more of the following:
> The size and type of group of individuals to whom the contract is issued;
> A prior or existing relationship with the Company, such as being an employee
or former employee of the Company or one of its affiliates, receiving
distributions or making transfers from other contracts issued by us or one of
our affiliates, or transferring amounts held under qualified plans sponsored
by the Company or an affiliate; or
> The type and frequency of administrative and sales services to be provided.
The reduction or elimination of any of these charges will not be unfairly
discriminatory against any person and will be done according to our rules in
effect at the time the contract is issued. We reserve the right to change these
rules from time to time. The right to reduce or eliminate any of these charges
may be subject to state approval.
Fees Deducted by the Funds
Maximum Amount. Each fund's advisory fees and expenses are different. They are
set forth in the "Fees Deducted by the Funds" table (see "Fee Table") and are
described in more detail in each fund prospectus.
When/How. Fund fees and expenses are reflected in the daily value of fund
shares. These values affect the daily value of the subaccounts.
Purpose. These fees and expenses help to pay the fund's investment adviser and
operating expenses.
Premium and Other Taxes
Maximum Amount. Some states and municipalities charge a premium tax on
annuities. These taxes currently range from 0% to 4%, depending upon the
jurisdiction.
When/How. Our current practice is to reflect the cost of premium taxes in our
income payment rates. We reserve the right, however, to deduct premium taxes
from your purchase payment on the contract effective date. We also reserve the
right, under certain circumstances, not to deduct premium taxes where the
purchase payment is provided through an internal transfer from an annuity or
other contract issued by us (or one of our affiliates) under which we previously
deducted a premium tax.
21
<PAGE>
Death Benefit
- --------------------------------------------------------------------------------
The following describes the death benefit applicable to variable income
payments. These are also outlined under "Income Payments--Payment Options." For
information on the death benefit applicable to the fixed dollar option, refer to
Appendix I.
See "Income Payments" for a definition of annuitant and beneficiary as used in
this section.
Payment of Death Benefit. Upon the death of the annuitant and any surviving
joint annuitant, if applicable, a death benefit may be payable if your contract
is issued under any of the following income payment options:
1. Life Income -- Guaranteed Payments;
2. Life Income -- Two Lives -- Guaranteed Payments; or
3. Nonlifetime -- Guaranteed Payments.
Any death benefit will be paid in the form specified in the contract and will be
distributed at least as rapidly as under the method of distribution in effect
upon the date of death. See "Taxation" for rules where you have elected to delay
your payment start date under a nonqualified annuity and you die before the
income payment start date. Under payment options 1 and 2 above, a lump-sum
payment of the present value of any death benefit may be requested within six
months following the date of death. A lump-sum payment may be requested at any
time (even after the six month period) if you had elected the right to withdraw.
Under payment option 3 above, a lump-sum payment of the present value of any
death benefit may be requested at any time. If a lump-sum payment is requested,
no early withdrawal charge is applied and payment will be sent within seven days
following our receipt of your request in good order.
Calculation of Lump-Sum Payment of the Death Benefit. The value of the lump-sum
payment of the death benefit will equal the present value of any remaining
guaranteed income payments, calculated using the same rate we used to calculate
the income payments (i.e., the 3-1/2% or 5% assumed annual net return rate used
for variable payments). We will calculate this value on the next valuation date
following our receipt of proof of death acceptable to us and payment request in
good order. Such value will reflect any payments made after the date of death.
See Appenix I--Fixed Dollar Option for information on calculation of a lump-sum
payment of the death benefit applicable to the fixed dollar option.
Who Receives Death Benefit Proceeds? The beneficiary is the person entitled to
receive any death benefit proceeds. We will pay any death benefit proceeds based
on the last written beneficiary designation on file at our Home Office as of the
date of death.
Changes in Beneficiary Designations. The designated beneficiary may be changed
at any time during the lifetime of the annuitant and the joint annuitant (if
applicable). Such change must be submitted to us in writing, and except for
contracts issued in New York, will become effective as of the date written
notice of the change is received and recorded by us. For contracts issued in New
York, the change will become effective as of the date the notice is signed.
However, our obligation to pay death benefits will be fully discharged upon
payment to the beneficiary named in the written notice of beneficiary
designation that we last received as of the date of such payment.
Some restrictions may apply to beneficiary changes under qualified contracts.
22
<PAGE>
Withdrawals
- --------------------------------------------------------------------------------
Withdrawals of Variable Income Payments
You may make partial or full withdrawals of the present value of any remaining
guaranteed variable income payments if you are receiving payments under either
one of the following:
> A lifetime payment option with guaranteed payments and you elected a right to
make withdrawals. In this circumstance withdrawals are allowed once each
year, beginning after the first contract year (subject to state approval).
> The nonlifetime payment option.
Partial withdrawals are allowed only if each remaining guaranteed payment will
be at least $50. If you select the guaranteed minimum income feature, you may
not make any withdrawals.
Withdrawals of Fixed Income Payments
(For additional detail see Appendix I--Fixed Dollar Option.)
You may make partial or full withdrawals of the present value of any remaining
fixed income payments if you are receiving payments under either one of the
following:
> A lifetime payment option with guaranteed payments and you elected a right to
make withdrawals. In this circumstance withdrawals are allowed once each
year, beginning after the first contract year (subject to state approval).
> The nonlifetime payment option and you elected a right to make withdrawals.
In this circumstance withdrawals are allowed once each year, beginning after
the first contract year.
Partial withdrawals are allowed only if each remaining guaranteed payment will
be at least $50.
Amount Available for Withdrawal
Variable Income Payments. For any withdrawal of remaining variable guaranteed
income payments, the amount available for withdrawal is equal to the present
value of any remaining guaranteed variable payments (less any applicable early
withdrawal charge) calculated using the same rate we used to calculate the
income payments (i.e., the 3-1/2% or 5% assumed annual net return rate stated in
your contract). Withdrawal values are determined as of the valuation date
following our receipt of your written request in good order at our Home Office.
Fixed Income Payments. See Appendix I for details regarding withdrawals of
fixed payments.
Early Withdrawal Charge
Withdrawals may be subject to an early withdrawal charge as described in
"Fees--Early Withdrawal Charge."
Reduction of Remaining Payments
Any withdrawal will result in a proportionate reduction of any remaining
guaranteed payments. Additionally, the withdrawal amount will be taken from the
subaccounts proportionately, unless you designate otherwise. For lifetime income
payment options, any payments to be made beyond the guaranteed payment period
will be unaffected by any withdrawals.
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[SIDE BAR]
In This Section:
> Introduction
> Contract Type
> Withdrawals and Other
Distributions
> 10% Penalty Tax
> Withholding for Federal
Income Tax Liability
> Rules Specific to Certain
Plans
> Nonqualified Contracts
> Diversification
> Assignment of Right to
Payments
> Delay of Start Date
> Taxation of the Company
When consulting a tax adviser,
be certain that he or she has
expertise in the Tax Code
sections applicable to your tax
concerns.
[END SIDE BAR]
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 a
transaction involving the contract; and
> Contract holder means the person to whom we issue an individually owned
contract or the participant under a group contract.
- --------------------------------------------------------------------------------
We do not intend this information to be tax advice. For advice about the effect
of federal income taxes or any other taxes on amounts held or paid out under
the contract, consult a tax adviser.
- --------------------------------------------------------------------------------
Contract Type
The contract is designed for use on a non-tax qualified basis as a nonqualified
contract, or as a qualified contract under certain retirement arrangements under
Tax Code sections 401, 403(b), 408(b) or 457.
Tax Rules. The tax rules vary according to whether the contract is a
nonqualified contract or qualified contract used with a qualified retirement
arrangement. If used under a qualified retirement arrangement, you need to know
the Tax Code section under which your arrangement qualifies. Contact your plan
sponsor, sales representative or the Company to learn which Tax Code section
applies to your arrangement.
The Contract. Contract holders are responsible for determining that
contributions, distributions and other transactions satisfy applicable laws.
Legal counsel and a tax adviser should be consulted regarding the suitability of
the contract. If the contract is purchased in conjunction with a retirement
plan, the plan is not a part of the contract and we are not bound by the plan's
terms or conditions.
Withdrawals and Other Distributions
Certain tax rules apply to distributions from the contract. A distribution is
any amount taken from the contract including income payments, full or partial
withdrawals of the value of remaining payments (if permitted under the
contract), rollovers, exchanges and death benefit proceeds.
We report the taxable portion of all distributions to the Internal Revenue
Service (IRS).
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Nonqualified Contracts. A full withdrawal of the present value of any remaining
guaranteed payments under a nonqualified contract is taxable to the extent that
the amount received exceeds any remaining investment in the contract.
If a partial withdrawal of the present value of any remaining payments is made
and the continuing payments you receive are reduced because of the partial
withdrawal, a part of the withdrawal may not be taxable. The part that is not
taxable is equal to any remaining investment in the contract multiplied by a
fraction. The numerator (top part of the fraction) is the reduction in each
payment because of the partial withdrawal. The denominator (bottom part of the
fraction) is the full amount of each payment originally provided.
For income 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 payments, in general, there is no tax on the portion of each
payment which represents the same ratio that the investment in the contract
bears to the total dollar amount of the expected payments as defined in Tax Code
section 72(c). The entire annuity payment will be taxable once the recipient has
recovered the investment in the contract.
For variable income payments, an equation is used to establish a specific dollar
amount of each payment that is not taxed. The dollar amount is determined by
dividing the investment in the contract by the total number of expected periodic
payments. The entire payment will be taxable once the recipient has recovered
the investment in the contract.
401 and 403(b) Plans. All distributions from these plans are taxed as received
unless either of the following is true:
> The distribution is an eligible rollover distribution and is rolled over to
another plan of the same type or to a traditional individual retirement
annuity/account (IRA) in accordance with the Tax Code; or
> You made after-tax contributions to the plan. In this case, depending upon
the type of distribution, the amount will be taxed according to the rules
detailed in the Tax Code.
A payment can be an eligible rollover distribution only if it is both of the
following:
> Made under a nonlifetime payment option with a period of less than ten years;
and
> Only to the extent it is not attributable to after-tax contributions and/or
is not a required minimum distribution under Tax Code section 401(a)(9).
408(b) IRAs. All distributions from a traditional IRA are taxed as received
unless either one of the following is true:
> The distribution is rolled over to another traditional IRA or, if the IRA
contains only amounts previously rolled over from a 401(a), 401(k), or 403(b)
plan, the distribution is transferred to another plan of the same type; or
> You made after-tax contributions to the plan. In this case, the distribution
will be taxed according to rules detailed in the Tax Code.
A payment can be rolled over only if it is one or more of the following:
> Not attributable to after-tax contributions; or
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> Not a required minimum distribution under Tax Code section 401(a)(9).
There are limitations on the number of rollovers that may be made in any one
year period. You should consult a tax adviser prior to making a rollover.
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.
457 Plans. All amounts received under a 457(b) plan are includible in taxable
income when paid or otherwise made available to you or your beneficiary.
10% Penalty Tax
Under certain circumstances, the Tax Code may impose a 10% penalty tax on the
taxable portion of any distribution from a nonqualified contract or from a
contract used with a 401, 403(b) or 408(b) arrangement. The 10% penalty tax does
not apply to a distribution from a 457 plan.
An exception to the 10% penalty tax discussed below requires that the payment or
distribution be part of a series of substantially equal periodic payments. If
you select an increasing annuity or an early withdrawal of the value of
remaining income payments, the payment or distribution may be subject to the 10%
penalty tax unless one of the other exceptions applies. You should consult with
a tax adviser to determine how this will affect your tax liability.
Nonqualified Contracts. There is an exception to the 10% penalty tax if payment
is made under an immediate annuity contract. An immediate annuity is defined as
a contract to which all of the following apply:
> Is purchased with a single premium;
> Has an annuity starting date, as defined by the Tax Code, no later than one
year from date of purchase; and
> Provides for a series of substantially equal periodic payments to be made no
less frequently than annually.
For purposes of determining whether the contract qualifies as an immediate
annuity, the IRS has ruled that where an immediate annuity is received in
exchange for a deferred annuity contract in a Tax Code section 1035 exchange,
the purchase date of the contract will be deemed to be the date the deferred
annuity was purchased. This might cause the contract to fail to qualify as an
immediate annuity and the contract will be subject to the 10% penalty tax unless
one of the other exceptions to the penalty applies.
In addition to the immediate annuity exception, the 10% penalty tax does not
apply to the taxable portion of distributions made under certain exceptions,
including one or more of the following:
> You have attained age 59-1/2;
> You have become disabled as defined in the Tax Code;
> You have died; or
> 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.
Modification of the series of payments prior to the later of age 59-1/2 or five
years may result in an additional tax in the year of modification equal to the
penalty which would have been imposed, plus interest, if the exception had not
applied.
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<PAGE>
401 and 403(b) Plans. The 10% penalty tax applies to the taxable portion of a
distribution from a 401 or a 403(b) plan, unless certain exceptions, including
one or more of the following have occurred:
> You have attained age 59-1/2;
> You have become disabled as defined in the Tax Code;
> You have died;
> You have separated from service with the plan sponsor at or after age 55;
> The distribution is rolled over into another plan of the same type or to an
IRA in accordance with the Tax Code;
> You have separated from service with the plan sponsor and the distribution is
made in substantially equal periodic payments (at least annually) over your
life or life expectancy or the joint lives or joint life expectancies of you
and your beneficiary;
> The distribution is equal to unreimbursed medical expenses that qualify for a
deduction as specified in the Tax Code; or
> The distribution is due to an IRS levy upon your account.
408(b) IRAs. In general, except for the exception relating to separation from
service with the plan sponsor at or after age 55, the exceptions listed above
for 401 and 403(b) plans also apply to distributions from an IRA. The penalty
tax is also waived on a distribution made from an IRA to pay for health
insurance premiums for certain unemployed individuals or used for a qualified
first-time home purchase or for higher education expenses.
Withholding for Federal Income Tax Liability
Any distributions under the contract are generally subject to withholding.
Federal income tax liability rates vary according to the type of distribution
and the recipient's tax status.
Nonqualified Contracts. Generally, you or a beneficiary may elect not to have
tax withheld from distributions.
401 and 403(b) Plans. Generally, distributions from these plans are subject to a
mandatory 20% federal income tax withholding. However, mandatory withholding
will not be required if you elect a direct rollover of the distributions or in
the case of certain distributions described in the Tax Code.
408(b) IRAs. Generally, you or a beneficiary may elect not to have tax withheld
from distributions.
457 Plans. All distributions from a 457 plan, except death benefit proceeds, are
subject to mandatory federal income tax withholding as wages. No withholding is
required on payments to beneficiaries.
Non-resident Aliens. If you or a 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.
Rules Specific to Certain Plans
401 Plans. Tax Code section 401(a) permits certain employers to establish
various types of retirement plans for employees, and permits self-employed
individuals to establish various types of retirement plans for themselves and
for their employees. These retirement plans may permit the purchase of the
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<PAGE>
contracts to accumulate retirement savings under the plans.
> Assignment or Transfer of Contracts. Adverse tax consequences to the 401(a)
plan and/or to you may result if your beneficial interest in the contract is
assigned or transferred to persons other than:
o A plan participant as a means to provide benefit payments;
o An alternate payee under a qualified domestic relations order in
accordance with Tax Code section 414(p); or
o To the Company as collateral for a loan.
> Exclusion From Gross Income. The Tax Code imposes a maximum limit on annual
payments to your 401(a) account(s) that may be excluded from gross income.
The employer must calculate this limit under the plan in accordance with Tax
Code section 415. This limit is generally the lesser of 25% of your
compensation or $30,000. Compensation means your compensation from the
employer sponsoring the plan and, for years beginning after December 31,
1997, includes any elective deferrals under Tax Code section 402(g) and any
amounts not includable in gross income under Tax Code sections 125 or 457.
The limit applies to your contributions as well as any contributions made by
your employer on your behalf. In addition, payments to your account(s) will
be excluded from your gross income only if the plan meets certain
nondiscrimination requirements.
403(b) Plans. Under Tax Code section 403(b), contributions made by public school
systems or nonprofit healthcare organizations and other Tax Code section
501(c)(3) tax exempt organizations to purchase annuity contracts for their
employees are generally excludable from the gross income of the employee.
> Assignment or Transfer of Contracts. Adverse tax consequences to the plan
and/or to you may result if your beneficial interest in the contract is
assigned or transferred to any person except to an alternate payee under a
qualified domestic relations order in accordance with Tax Code section
414(p).
> Restrictions on Distributions. Tax Code section 403(b)(11) restricts the
distribution under 403(b) contracts of the following:
o Salary reduction contributions made after December 31, 1988;
o Earnings on those contributions; and
o Earnings during such period on amounts held as of December 31, 1988.
Distribution of those amounts may only occur upon your death, attainment of age
59-1/2, separation from service, disability, or financial hardship. Income
attributable to salary reduction contributions and credited on or after January
1, 1989 may not be distributed in the case of hardship.
408(b) IRAs. Tax Code section 408(b) permits eligible individuals to contribute
to a traditional IRA on a pre-tax (deductible) basis. Employers may establish
Simplified Employee Pension (SEP) plans and contribute to a traditional IRA
owned by the employee.
> Assignment or Transfer of Contracts. Adverse tax consequences may result if
you assign or transfer your interest in the contract to persons other than
your spouse incident to a divorce.
> Rollovers and Transfers. Rollovers and direct transfers are permitted from a
401, 403(a) or a 403(b) arrangement to a traditional IRA.
457(b) Plans. Tax Code section 457(b) provides for certain deferred compensation
plans. These plans may be offered by state governments, local
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<PAGE>
governments, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and non-government tax exempt entities. The plan
may permit participants to specify the form of investment for their deferred
compensation account.
> Trust Requirement. 457(b) plans maintained by state or local governments,
their political subdivisions, agencies, instrumentalities and certain
affiliates are required to hold all assets and income of the plan in trust
for the exclusive benefit of plan participants and their beneficiaries. For
purposes of meeting this requirement, custodial accounts and annuity
contracts are treated as trusts.
> Contributions Excluded from Gross Income. If your employer's plan is a 457(b)
plan, the Tax Code imposes a maximum limit on annual contributions to your
account(s) that may be excluded from your gross income. For section 457(b)
plan participants, such limit is generally the lesser of $8,000, as adjusted
to reflect changes in the cost of living, or 33% of your includable
compensation (25% of gross compensation).
> Restrictions on Distributions. Under a 457(b) plan, amounts may not be made
available to you earlier than (1) the calendar year you attain age 70-1/2,
(2) when you separate from service with the employer or (3) when you are
faced with an unforeseeable emergency. A 457(b) plan may permit a one-time
in-service distribution if the total amount payable to the participant does
not exceed $5,000 and no amounts have been deferred by the participant during
the 2-year period ending on the date of distribution.
Nonqualified Contracts
Non-Natural Holders of a Nonqualified Contract. If you are not a natural person,
a nonqualified contract generally is not treated as an annuity for income tax
purposes and the income on the contract for the taxable year is currently
taxable as ordinary income. This rule does not apply to an immediate annuity
which is defined in the same way as for penalty tax purposes (see "10% Penalty
Tax--Nonqualified Contracts" in this section) or to contracts held by a trust or
other entity as agent for a natural person. Therefore, if you elect an
increasing annuity or elect to receive an early withdrawal of all or a portion
of the value of any remaining payments, you should consult with a tax adviser to
determine how this will affect your tax liability. A non-natural person exempt
from federal income taxes should consult with its tax adviser regarding
treatment of income on the contract for purposes of the unrelated business
income tax.
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 contract to qualify as an annuity contract under federal tax
law. The separate account, through the funds, intends to comply with the
diversification requirements prescribed by the Treasury in Reg. Sec. 1.817-5,
which affects how the funds' assets may be invested.
Additionally, the Internal Revenue Service (IRS) has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of investment control over the
assets. In these circumstances income and gains from the separate account assets
would be currently includible in the variable contract owner's gross income. The
Treasury announced that it will issue guidance regarding the
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<PAGE>
extent to which owners could direct their investments among subaccounts without
being treated as owners of the underlying assets of the separate account. It is
possible that the Treasury's position, when announced, may adversely affect the
tax treatment of existing contracts. The Company therefore reserves the right to
modify the contract as necessary to attempt to prevent the contract owner from
being considered the federal tax owner of a pro rata share of the assets of the
separate account.
Assignment of Right to Payments
A transfer of the right to payments under a nonqualified contract or the
exchange of a contract may have tax consequences. Generally, if you direct
payment to another party, the payment will be tax reported to you. Anyone
contemplating any such assignment or exchange should contact a tax adviser
regarding the potential tax effects of such a transaction.
Delay of Start Date
If you have elected to delay your annuity starting date, as defined below, and
you die before the annuity starting date, specific rules for payment of any
death benefit apply.
The annuity starting date is defined by the Tax Code to mean the first day of
the period (month, quarter, half year, year depending upon whether payments will
be made monthly, quarterly, semi-annually or annually) which ends on the date of
the first annuity payment.
A delayed annuity starting date occurs any time a monthly payment begins later
than one month, a quarterly payment begins later than three months or a
semi-annual payment begins later than six months from date of purchase. For
example, if you purchase the contract on June 1 with monthly payments to begin
October 1, your annuity starting date is September 1, and would be considered a
delayed annuity starting date.
For nonqualified contracts, if you die before a delayed annuity starting date,
the entire interest in the account must be paid within five years of the date of
death, or payments may be made over the life or over a period not extending
beyond the life expectancy of the beneficiary or payee, as applicable, provided
such payments begin not later than one year after the date of death. This rule
does not apply if the beneficiary or payee is your spouse.
For qualified contracts, if your death occurs before a delayed annuity starting
date, your interest in the account must be distributed by December 31 of the
calendar year containing the fifth anniversary of the date of your death.
However, if distributions begin by December 31 of the calendar year following
the calendar year of your death, then payments may be made over the life of the
beneficiary or over a period not extending beyond the life expectancy of the
beneficiary.
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,
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<PAGE>
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
account value invested in the subaccounts.
Other Topics
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The Company
We issue the contract described in this prospectus and are responsible for
providing each contract's insurance and annuity benefits.
We are a stock life insurance company organized under the insurance laws of the
State of Connecticut in 1976 and an indirect wholly-owned subsidiary of Aetna,
Inc. Through a merger our operations include the business of Aetna Variable
Annuity Life Insurance Company (formerly known as Participating Annuity Life
Insurance Company, an Arkansas life insurance company organized in 1954).
We are engaged in the business of issuing life insurance and annuities. Our
principal executive offices are located at:
151 Farmington Avenue
Hartford Connecticut 06156
Variable Annuity Account B
We established Variable Annuity Account B (the separate account) in 1976 as a
segregated asset account to fund our variable annuity contracts. The separate
account is registered as a unit investment trust under the Investment Company
Act of 1940. It also meets the definition of separate account under the federal
securities laws.
The separate account is divided into subaccounts. These subaccounts invest
directly in shares of a pre-assigned fund.
Although we hold title to the assets of the separate account, such assets are
not chargeable with the liabilities of any other business that we conduct.
Income, gains or losses of the separate account are credited to or charged
against the assets of the separate account without regard to other income, gains
or losses of the Company. All obligations arising under the contract are
obligations of the Company.
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Contract Distribution
We serve as the principal underwriter for the securities sold by this prospectus
and as the distributor of the contract. 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 Exchange Act of 1934, and must be licensed as
insurance agents to sell variable annuity contracts.
Compensation will be paid to distributors who sell the contract. Distributors
will be paid commissions up to an amount currently equal to 7.0% of purchase
payment to a contract or as a combination of a certain percentage amount of the
purchase payment to a contract at time of sale and a trail commission as a
percentage of assets. Under the latter arrangement, commission payments may
exceed 7.0% of purchase payment to the contract over the life of the contract.
In limited circumstances, we also pay certain of these distributors
compensation, overrides or reimbursement for expenses associated with the
distribution of the contract. At times the Company may offer certain
distributors an enhanced commission for a limited period of time. In addition,
some sales personnel may receive various types of non-cash compensation such 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.
The names of the broker-dealer and the registered representative responsible for
your contract are set forth on your application. Commissions and sales related
expenses are paid by the Company and are not deducted from your payment to the
contract. To the extent that the early withdrawal charge is insufficient to
cover the actual costs of distribution, the Company may use any of its corporate
assets, including any profit from the mortality and expense risk charge, to make
up any difference.
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Payment Delay or Suspension
We reserve the right to suspend or postpone the date of any payment of benefits
or values under the following circumstances:
> On any valuation date when the New York Stock Exchange is closed (except
customary holidays or weekends 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 determine the value of the subaccount's assets; or
> During any other periods the SEC permits for the protection of investors.
The conditions under which restricted trading or an emergency exists shall be
determined by the rules and regulations of the SEC.
Performance Reporting
We may illustrate the hypothetical values of income payments made from each of
the subaccounts over certain periods of time based on historical net asset
values of the funds. These numbers will reflect the mortality and expense risk
charge, the administrative expense charge (if any), any applicable guaranteed
minimum income charge and the advisory fees and other expenses of the funds.
We may also 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 subaccount
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 returns reflect deduction of all recurring charges during each period
(e.g., mortality and expense risk charges, administrative expense charges (if
any), any applicable guaranteed minimum income charges 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 charges. If we
reflected these charges in the calculation, they would decrease the level of
performance reflected by the calculation. Non-standardized returns may also
include performance from the fund's inception date, if that date is earlier than
the one we use for standardized returns.
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, request an SAI 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
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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 instructions have not been received in the same proportion as those for
which we received instructions. Each person who has a voting interest in the
separate account will receive periodic reports relating to the funds in which he
or she has an interest, as well as any proxy materials and a form on which to
give voting instructions. Voting instructions will be solicited by a written
communication at least 14 days before the meeting.
The number of votes (including fractional votes) you are entitled to direct will
be determined as of the record date set by any fund you invest in through the
subaccounts. 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. In addition, we may, upon 30 days' written notice to
the group contract holder, make other changes to a group contract that would
apply only to individuals who become participants under that contract after the
effective date of such changes. If a group contract holder does not agree to a
change, we reserve the right to refuse to establish new accounts under the
contract. Certain changes will require the approval of appropriate state or
federal regulatory authorities.
Transfer of Ownership
Ownership of the contract may be changed to the extent permitted by law. You
should immediately notify the Company, in writing, of any change in ownership.
No such ownership change will be binding until such notification is received and
recorded at our Home Office. We reserve the right to reject transfer of
ownership to a non-natural person. A transfer of ownership may have tax
consequences and you should consult with a qualified tax adviser before
transferring ownership of the contract.
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.
34
<PAGE>
Financial Statements
The consolidated financial statements of the Company and the financial
statements of the separate account have been included in the Statement of
Additional Information (SAI). Request an SAI at the number listed in "Contract
Overview--Questions: Contacting the Company."
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. A list of the contents of the SAI is set
forth below:
General Information and History............................ 2
Variable Annuity Account B................................. 2
Offering and Purchase of Contracts......................... 3
Performance Data........................................... 3
Income 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 Company at the number listed in "Contract
Overview--Questions: Contacting the Company."
35
<PAGE>
Appendix I
Fixed Dollar Option
- --------------------------------------------------------------------------------
The following summarizes material information concerning the fixed dollar
option. You may choose to allocate all or a portion of your purchase payment to
the fixed dollar option. If you choose the fixed dollar option, your income
payments will generally remain fixed as specified in your contract over the term
of the contract. Your fixed payment may vary due to factors including your
selection of an increasing annuity or your election and use of a right to
withdraw. In certain cases, you may elect a right to withdraw any remaining
guaranteed payments, (see "Withdrawals" in this appendix). Amounts allocated to
the fixed dollar option are held in the Company's general account that supports
general insurance and annuity obligations.
Interests in the fixed dollar option have not been registered with the SEC in
reliance upon exemptions under the Securities Act of 1933, as amended.
Disclosure in this prospectus regarding the fixed dollar option may, however, be
subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of such statements. Disclosure in
this appendix regarding the fixed dollar option has not been reviewed by the
SEC.
Payment Options
All of the payment options described under "Income Payments" in this prospectus
are available for the fixed dollar option. If you allocate all of your purchase
payment to the fixed dollar option, you may also elect one of the following
features in connection with your fixed income payments:
(a) A Cash Refund Feature. (Only available if you select 100% fixed payments.)
With this feature, if the annuitant or both annuitants (as applicable) die,
then the beneficiary will receive a lump-sum payment equal to the purchase
payment allocated to the fixed dollar option less any premium tax and less
the total amount of fixed income payments paid prior to such death. The cash
refund feature may be elected only with a "life income" or "life income-two
lives" payment option that has no reduction in payment to the survivor, see
"Income Payments--Payment Options." You may not elect a right to withdraw or
elect an increasing annuity with this feature.
(b) An Increasing Annuity. (Only available if you select 100% fixed payments.)
With this feature you may elect for your payments to increase by either one,
two, or three percent, compounded annually. The higher your percentage, the
lower your initial payment will be. This is available with any payment
option, except for those with a reduction in payment to the survivor, see
"Income Payments--Payment Options." You may not elect a right to withdraw or
elect the cash refund feature with an increasing annuity. This feature is
not available under contracts purchased in conjunction with Section 457
deferred compensation plans.
Fixed Income Payment Amounts
The amount of each payment depends upon (1) the purchase payment that you
allocate to the fixed dollar option, less any premium tax, and (2) the payment
option and features chosen.
Withdrawals
Withdrawal Amount--Lifetime Payment Options. If you select a lifetime payment
option with a right to withdraw, the withdrawal amount available from any fixed
portion of remaining guaranteed payments is equal to the present value of the
remaining fixed portion of guaranteed payments calculated using the contract
rate adjusted by the change in the constant maturity ten year Treasury note rate
from your contract effective date to the date we calculate the withdrawal
amount. Any applicable early withdrawal charge will be deducted.
Withdrawal Amount--Nonlifetime Payment Options. If you select a nonlifetime
payment option with a right to withdraw, the withdrawal amount available from
any fixed portion of remaining guaranteed payments is equal to the present value
of the remaining fixed portion of guaranteed payments calculated using the
adjusted contract rate. The calculation is presented below. Any applicable early
withdrawal charge will be deducted.
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<PAGE>
The adjusted contract rate equals (Rate of Return) + WY - IY, where:
Rate of Return is the fixed annuity present value interest rate shown in your
contract
WY is the withdrawal yield
IY is the issue yield
WY is determined as follows:
(1) WY is the average of the yields, as published in the Wall Street Journal on
the Friday before the date of the withdrawal, of the three (or more if the
Company deems necessary) noncallable, noninflation adjusted Treasury Notes
or Bonds maturing on or closest to the withdrawal duration date.
(2) The withdrawal duration date is the date (month and year) obtained when the
withdrawal duration is added to the date of the withdrawal.
(3) Withdrawal duration equals 1 plus the number of whole years from the date of
the withdrawal until the final guaranteed payment is due, divided by 2. Any
resulting fraction will be rounded up to the next whole number.
IY is determined as follows:
(1) IY is the average of the yields, as published in the Wall Street Journal on
the Friday before the contract effective date shown in your contract, of the
three (or more if the Company deems necessary) noncallable, noninflation
adjusted Treasury Notes or Bonds maturing on or closest to the issue
duration date.
(2) The issue duration date (month and year) is obtained when the issue duration
is added to the contract effective date.
(3) Issue duration equals 1 plus the number of whole years from issue until the
final payment is due, divided by 2. Any resulting fraction will be rounded
up to the next whole number.
Early Withdrawal Charge
Withdrawals may be subject to an early withdrawal charge. The charge is a
percentage of the amount that you withdraw. The percentage will be determined by
the early withdrawal charge schedule applicable to your contract:
Schedule A: Subject to state approval, Schedule A applies to contracts issued on
or after May 3, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Schedule A
- ------------------------------------------------------------------
Number of Years from
Contract Effective Date* Early Withdrawal Charge
<S> <C>
1 or more, but fewer than 2 6%
2 or more, but fewer than 3 5%
3 or more, but fewer than 4 4%
4 or more, but fewer than 5 3%
5 or more, but fewer than 6 2%
6 or more, but fewer than 7 1%
7 or more 0%
- ------------------------------------------------------------------
</TABLE>
Schedule B applies to contracts issued prior to May 3, 1999. It also applies to
contracts issued on or after May 3, 1999 in states where Schedule A is not
approved as of the contract effective date.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Schedule B
- ------------------------------------------------------------------
Number of Years from
Contract Effective Date* Early Withdrawal Charge
<S> <C>
1 or more, but fewer than 2 5%
2 or more, but fewer than 3 4%
3 or more, but fewer than 4 4%
4 or more, but fewer than 5 3%
5 or more, but fewer than 6 2%
6 or more, but fewer than 7 1%
7 or more 0%
- ------------------------------------------------------------------
</TABLE>
*For participants under a group contract, the early withdrawal charge will be
calculated based on the number of years from the certificate effective date.
37
<PAGE>
The early withdrawal charge, in effect, is a deferred sales charge imposed to
reimburse the Company for unrecovered acquisition and distribution costs.
Reduction or Elimination of the Early Withdrawal Charge. We may reduce or
eliminate the early withdrawal charge when sales of the contract are made to
individuals or a group of individuals in such a manner that results in savings
of sales expenses. The entitlement to such a reduction in the early withdrawal
charge will be based on one or more of the following criteria:
(a) The size and type of group of individuals to whom the contract is offered;
(b) The type and frequency of administrative and sales services to be provided;
or
(c) Whether there is a prior or existing relationship with the Company such as
being an employee or former employee of the Company or one of its affiliate;
receiving distributions or making internal transfers from other contracts
issued by the Company or one of its affiliates; or making transfers of
amounts held under qualified plans sponsored by the Company or an affiliate
Any reduction or elimination of the early withdrawal charge will not be unfairly
discriminatory against any person.
Death Benefit
If the annuitant or both annuitants, as applicable, die before all guaranteed
payments are paid, payments will continue to the beneficiary in the manner
stated in your contract.
Payment of Death Benefit. Any death benefit will be paid in the form specified
in the contract and will be distributed at least as rapidly as under the method
of distribution in effect upon the date of death. See "Taxation" for rules that
apply if you have elected to delay your payment start date under a nonqualified
annuity and you die before the annuity starting date. A lump-sum payment of any
death benefit may be requested within six months following the date of death. If
a lump-sum payment is requested, no early withdrawal charge is applied and
payment will be sent within seven days following our receipt of request in good
order. A lump-sum payment may be requested at anytime (even after the six month
period) if you had elected the right to withdraw. If a cash refund feature was
elected, the death benefit will be paid in one lump sum to the beneficiary.
If the contract holder who is not the annuitant dies, income payments will
continue to be paid to the payee in the form specified in the contract. If no
payee survives the death of the contract holder, income payments will be made to
the annuitant. Such payments will be paid at least as rapidly as under the
method of distribution then in effect.
Death Benefit Amount. If you elect a right to withdraw, the death benefit value
will be determined as described under "Withdrawal Amount" in this appendix. No
early withdrawal charge will apply. If the contract is issued with guaranteed
payments and with no right to withdraw, the rate used to determine the value of
the remaining guaranteed payments will be the fixed annuity present value
interest rate shown in the contract.
The value of the death benefit will be determined as of the next valuation
following the Company's receipt at its Home Office of proof of death acceptable
to us and a request for payment in good order.
38
<PAGE>
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.
39
<PAGE>
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.
40
<PAGE>
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 the investment
adviser's ongoing evaluation of the expected returns and risks of each asset
class relative to other classes. May invest up to 15% of total assets in
high-yield bonds.
The benchmark portfolio is 80% equities and 20% fixed income under neutral
market conditions.
Risks
The success of the fund's strategy depends significantly on the investment
adviser's skill in choosing investments and in allocating assets among the
different investment classes. Principal risks are those generally attributable
to stock and bond investing. For stock investments, risks include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile. Risks associated with real estate securities include
periodic declines in the value of real estate, generally, 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 instruments. The investment adviser has instituted both a benchmark
percentage allocation and a fund level
41
<PAGE>
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 and market regulations tend to
be less standardized in certain foreign countries. These risks are usually
higher for
42
<PAGE>
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 Growth VP
Investment Objective
Seeks growth of capital through investment in a diversified portfolio consisting
primarily of common stocks and securities convertible into common stocks
believed to offer growth potential.
Policies
Under normal market conditions, invests at least 65% of total assets in common
stocks and securities convertible into common stock. Tends to emphasize stocks
of larger companies, although may invest in companies of any size. Uses
internally developed quantitative computer models to evaluate the financial
characteristics of approximately 1,000 companies. The investment adviser
analyzes these characteristics in an attempt to identify companies it believes
have strong growth characteristics or demonstrate a positive trend in earnings
estimates, but whose full value is not reflected in the stock price. Focuses on
companies that the investment adviser believes have strong, sustainable and
improving earnings growth, and established market positions in a particular
industry.
Risks
Principal risks are those generally attributable to stock investing. They
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. Growth-oriented stocks typically
sell at relatively high valuations as compared to other types of stocks. If a
growth stock does not exhibit the consistent level of growth expected, its price
may drop sharply. Historically, growth-oriented stocks have been more volatile
than value-oriented stocks.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP
Investment Objective
Seeks to outperform the total return performance of the Standard & Poor's 500
Composite Index (S&P 500), while maintaining a market level of risk.
Policies
Invests at least 80% of net assets in stocks included in the S&P 500 (other than
Aetna Inc. common stock). The investment adviser attempts to achieve the
objective by overweighting those stocks in the S&P 500 that the investment
adviser believes will outperform the index, and underweighting (or avoiding
altogether) those stocks that the investment adviser believes will underperform
the index. In determining stock weightings, uses internally developed
quantitative computer models to evaluate various criteria, such as the financial
strength of each company and its potential for strong, sustained earnings
growth. At any one time, the fund's portfolio generally includes approximately
400 of the stocks included in the S&P 500. Although the fund will not hold all
the stocks in the S&P 500, the investment adviser expects that there will be a
close correlation between the performance of the fund and that of the S&P 500 in
both rising and falling markets.
Risks
Principal risks are those generally attributable to stock investing. These risks
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. The success of the fund's
strategy depends significantly on the investment adviser's skill in determining
which securities to overweight, underweight or avoid altogether.
Investment Adviser: Aeltus Investment Management, Inc.
43
<PAGE>
Aetna Variable Portfolios, Inc.-Aetna International VP
Investment Objective
Seeks long-term capital growth primarily though investment in a diversified
portfolio of common stocks principally traded in countries outside of the United
States. The fund will not target any given level of current income.
Policies
Under normal market conditions, invests at least 65% of total assets in
securities principally traded in three or more countries outside of the United
States. These securities may include common stocks as well as securities
convertible into common stock. Diversifies the fund by investing in a mix of
stocks that the investment adviser believes have the potential for long-term
growth, as well as stocks that appear to be trading below their perceived value.
Allocates assets among several geographic regions and individual countries,
investing primarily in those areas that the investment adviser believes have the
greatest potential for growth as well as stable exchange rates. Invests
primarily in established foreign securities markets, although may invest in
emerging markets as well. Uses internally developed quantitative computer models
to evaluate the financial characteristics of over 2,000 companies in an attempt
to select companies with long-term sustainable growth characteristics. Employs
currency hedging strategies to protect from adverse effects on the U.S. dollar.
Risks
Principal risks are those generally attributable to stock investing which
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. Stocks of foreign companies tend
to be less liquid and more volatile than their U.S. counterparts. Accounting
standards and market regulations tend to be less standardized in certain foreign
countries, and economic and political climates tend to be less stable. Stocks of
foreign companies may be denominated in foreign currency. Exchange rate
fluctuations may reduce or eliminate gains or create losses. Hedging strategies
intended to reduce this risk may not perform as expected. Investments in
emerging markets are subject to the same risks applicable to foreign investments
generally, although those risks may be increased due to conditions in such
countries.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.-Aetna Real Estate Securities VP
Investment Objective
Seeks maximum total return primarily through investment in a diversified
portfolio of equity securities of real estate companies, the majority of which
are real estate investment trusts (REITs).
Policies
Under normal market conditions, invests at least 65% of total assets in stocks,
convertible securities and preferred stocks of companies principally engaged in
the real estate industry. These companies may invest in, among other things,
shopping malls, healthcare facilities, office parks and apartment communities,
or may provide real estate management and development services. In selecting
investments, uses internally developed quantitative models to forecast the
returns of each security. Evaluates real estate companies based on their
earnings history and long-term growth prospects, analyst estimates of future
earnings, safety and growth in dividends, balance sheet strength and quality of
management. The investment adviser also considers whether the securities appear
to be trading below their real value. Allocates assets among property types and
economic and geographic regions. Attempts to construct the fund's portfolio so
that the overall level of risk is not in excess of its benchmark index, the
National Association of Real Estate Investment Trusts Equity (NAREIT) Index.
Risks
Concentrating in stocks of real estate-related companies presents certain risks
that are more closely associated with investing in real estate directly than
with investing in the stock market generally. Those risks include: periodic
declines in the value of real estate, generally, or in the rents and other
income generated by real estate; periodic over-building, which creates gluts in
the market, as well as changes in laws (such as zoning laws) that impair the
44
<PAGE>
property rights of real estate owners; adverse developments in the real estate
industry, which may have a greater impact on this fund than on a fund that is
more broadly diversified. Performance also may be adversely affected by sudden
and unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Although the fund is subject to the risks
generally attributable to stock investing, because the fund has concentrated its
assets in one industry it may be subject to more abrupt swings in value than
would a fund that does not concentrate its assets in one industry.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Small Company VP
Investment Objective
Seeks growth of capital primarily through investment in a diversified portfolio
of common stocks and securities convertible into common stocks of companies with
smaller market capitalizations.
Policies
Under normal market conditions, invests at least 65% of total assets in common
stocks and securities convertible into common stock of small-capitalization
companies, defined as: the 2,000 smallest of the 3,000 largest U.S. companies
(as measured by market capitalization); all companies not included above that
are included in the Standard & Poor's SmallCap 600 Index or the Russell 2000
Index; and companies with market capitalizations lower than any companies
included in the first two categories. For purposes of the 65% policy, the
largest company in this group in which the fund intends to invest currently has
a market capitalization of approximately $1.5 billion. Invests in stocks that
the investment adviser believes have the potential for long-term growth, as well
as those that appear to be trading below their perceived value. Uses internally
developed quantitative computer models to evaluate financial characteristics of
over 2,000 companies in an attempt to identify companies whose perceived value
is not reflected in the stock price. Considers the potential of each company to
create or take advantage of unique product opportunities, its potential to
achieve long-term sustainable growth and the quality of its management.
Risks
Principal risks are those generally attributable to stock investing which
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. Stocks of smaller companies carry
higher risks than stocks of larger companies. This is because smaller companies
may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In many
instances, the frequency and volume of trading in small cap stocks are
substantially less than of stocks of larger companies. As a result, the stocks
of smaller companies may be subject to wider price fluctuations and/or may be
less liquid. When selling a large quantity of a particular stock, the fund may
have to sell at a discount from quoted prices or may have to make a series of
small sales over an extended period of time due to the more limited trading
volume of smaller company stocks. Stocks of smaller companies can be
particularly sensitive to expected changes in interest rates, borrowing costs
and earnings.
Investment Adviser: Aeltus Investment Management, Inc.
AIM V.I. Capital Appreciation Fund
Investment Objective
Seeks growth of capital through investment in common stocks, with emphasis on
medium- and small-sized growth companies.
Policies
The portfolio managers focus on companies they believe are likely to benefit
from new or innovative products, services or processes as well as those that
have experienced above-average, long-term growth in earnings and have excellent
prospects for future growth. The portfolio managers consider whether to sell a
particular security when any of those factors materially changes. The fund may
also invest up to 20% of its total assets in foreign securities.
45
<PAGE>
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. This is especially true with respect to common stocks of smaller
companies, whose prices may go up and down more than common stocks of larger,
more-established companies. Also, since common stocks of smaller companies may
not be traded as often as common stocks of larger, more-established companies,
it may be difficult or impossible for the fund to sell securities at a desirable
price.
Investment Adviser: A I M Advisors, Inc.
AIM V.I. Growth Fund
Investment Objective
Seeks growth of capital primarily by investing in seasoned and better
capitalized companies considered to have strong earnings momentum.
Policies
The portfolio managers focus on companies that have experienced above-average
growth in earnings and have excellent prospects for future growth. The portfolio
managers consider whether to sell a particular security when any of those
factors materially changes. The fund may also invest up to 20% of its total
assets in foreign securities.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. The fund may participate in the initial public offering (IPO) market.
Because of the fund's small asset base any investment the fund may make in IPOs
may significantly increase the fund's total returns. As the fund's assets grow,
the impact of IPO investments will decline, which may reduce the fund's total
returns.
Investment Adviser: A I M Advisors, Inc.
AIM V.I. Growth and Income Fund
Investment Objective
Seeks growth of capital with a secondary objective of current income.
Policies
The fund seeks to meet these objectives by investing at least 65% of its net
assets in income-producing securities, including dividend-paying common stocks
and convertible securities. The portfolio managers purchase securities of
established companies that have long-term above-average growth in earnings and
dividends, and growth companies that they believe have the potential for
above-average growth in earnings and dividends. The portfolio managers consider
whether to sell a particular security when they believe the security no longer
has that potential or the capacity to generate income. The fund may also invest
up to 20% of its total assets in foreign securities.
46
<PAGE>
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objectives. If the fund does trade in this way, it may
incur increased transaction costs and brokerage commissions, both of which can
lower the actual return on your investment.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. The values of the convertible securities in which the fund may invest
also will be affected by market interest rates, the risk that the issuer may
default on interest or principal payments and the value of the underlying common
stock into which these securities may be converted. Specifically, since these
types of convertible securities pay fixed interest and dividends, their values
may fall if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to the fund.
Investment Adviser: A I M Advisors, Inc.
AIM V.I. Value Fund
Investment Objective
Seeks to achieve long-term growth of capital by investing primarily in equity
securities judged by the fund's investment adviser to be undervalued relative to
the investment adviser's appraisal of the current or projected earnings of the
companies issuing the securities, or relative to current market values of assets
owned by the companies issuing the securities or relative to the equity market
generally. Income is a secondary objective.
Policies
The fund also may invest in preferred stocks and debt instruments that have
prospects for growth of capital. The fund may also invest up to 25% of its total
assets in foreign securities.
The portfolio managers focus on undervalued equity securities of (1)
out-of-favor cyclical growth companies; (2) established growth companies that
are undervalued compared to historical relative valuation parameters; (3)
companies where there is early but tangible evidence of improving prospects that
are not yet reflected in the price of the company's equity securities; and (4)
companies whose equity securities are selling at prices that do not reflect the
current market value of their assets and where there is reason to expect
realization of this potential in the form of increased equity values. The
portfolio managers consider whether to sell a particular security when they
believe the company no longer fits into any of the above categories.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, shares of
affiliated money market funds, bonds or other debt securities. As a result, the
fund may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. If the seller of a repurchase agreement in which the fund invests
defaults on its obligation or declares bankruptcy, the fund may experience
delays in selling the securities underlying the repurchase agreement. As a
result, the fund may incur losses arising from decline in the value of those
securities, reduced levels of income and expenses of enforcing its rights.
Investment Adviser: A I M Advisors, Inc.
47
<PAGE>
Fidelity Variable Insurance Products Fund--High Income Portfolio
Investment Objective
Seeks a high level of current income while also considering growth of capital.
Policies
Normally invests at least 65% of total assets in income-producing debt
securities, preferred stocks and convertible securities, with an emphasis on
lower-quality debt securities. May also invest in non-income producing
securities, including defaulted securities and common stocks. Currently intends
to limit common stocks to 10% of total assets. May invest in securities of both
foreign and domestic issuers. In making investment decisions, the investment
adviser relies on fundamental analysis of each issuer and its potential for
success in light of its current financial condition, its industry position, and
economic and market conditions. May use various techniques, such as buying and
selling futures contracts, to increase or decrease exposure to changing security
prices, interest rates or other factors that affect security values.
Risks
Debt securities have varying levels of sensitivity to changes in interest rates.
In general, the price of a debt security can fall when interest rates rise.
Securities with longer maturities and mortgage securities can be more sensitive
to interest rate changes. The value of equity securities fluctuates in response
to issuer, political, market and economic developments. In the short term,
equity prices can fluctuate dramatically in response to these developments.
Foreign investments, especially those in emerging markets, can be more volatile
and potentially less liquid than U.S. investments due to increased risks of
adverse issuer, political, regulatory, market or economic developments.
Lower-quality debt securities (those of less than investment-grade quality) can
be more volatile due to increased sensitivity to adverse issuer, political,
regulatory, market or economic developments. Lower-quality debt securities
involve greater risk of default or price changes due to changes in the credit
quality of the issuer.
Investment Adviser: Fidelity Management & Research Company; Subadvisers:
Fidelity Management & Research (U.K.) Inc.; Fidelity Management & Research Far
East Inc.; Fidelity Investments Japan Limited
Janus Aspen Series--Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the preservation
of capital.
Policies
Generally invests primarily in common stocks of larger, more established
companies selected for their growth potential, although it can invest in
companies of any size. May at times hold substantial positions in cash or
similar investments.
Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease in
response to the activities of an individual company or in response to general
market and/or economic conditions. Performance may also be affected by risks
specific to certain types of investments, such as foreign securities, derivative
investments, non-investment grade debt securities (high-yield/ high-risk
securities or "junk" bonds) or companies with relatively small market
capitalizations. Smaller or newer companies may suffer more significant losses
as well as realize more substantial growth than larger or more established
issuers. Investments in such companies tend to be more volatile and somewhat
more speculative. Issues associated with investing in foreign securities include
currency risk, political and economic risk, regulatory risk, market risk and
transaction costs. High-yield/high-risk securities are generally more dependent
on the ability of the issuer to meet interest and principal payments (i.e.,
credit risk). They are more vulnerable to real or perceived economic changes,
political changes or other adverse developments specific to the issuer.
Investment Adviser: Janus Capital Corporation
48
<PAGE>
Janus Aspen Series--Worldwide Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the preservation
of capital.
Policies
Invests primarily in common stocks of companies of any size throughout the
world. Normally invests in issuers from at least five different countries,
including the United States. May at times invest in fewer than five countries or
even in a single country. May hold substantial positions in cash or similar
investments.
Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease in
response to the activities of an individual company or in response to general
market and/or economic conditions. Performance may also be affected by risks
specific to certain types of investments, such as foreign securities, derivative
investments, non-investment grade debt securities (high-yield/ high-risk
securities or "junk" bonds) or companies with relatively small market
capitalizations. Smaller or newer companies may suffer more significant losses
as well as realize more substantial growth than larger or more established
issuers. Investments in such companies tend to be more volatile and somewhat
more speculative. Issues associated with investing in foreign securities include
currency risk, political and economic risk, regulatory risk, market risk and
transaction costs. High-yield/high-risk securities are generally more dependent
on the ability of the issuer to meet interest and principal payments (i.e.,
credit risk). They are more vulnerable to real or perceived economic changes,
political changes or other adverse developments specific to the issuer.
Investment Adviser: Janus Capital Corporation
Oppenheimer Aggressive Growth Fund/VA
Investment Objective
Seeks to achieve long-term capital appreciation by investing in "growth-type"
companies.
Policies
The Fund invests mainly in equity securities, such as common stocks, and can
invest in other securities, such as preferred stocks and convertible securities.
The Fund emphasizes investments in companies that the Manager believes have
significant growth potential. Growth companies can include established companies
entering a growth cycle in their business, as well as newer companies. The Fund
can invest in securities of issuers of all market capitalizations, but currently
focuses on companies with market capitalizations of "mid-cap" issuers (currently
those issuers between $2.5 and $11.5 billion). The Fund can invest in domestic
and foreign companies, although most of its investments are in stocks of U.S.
companies.
Risks
The fund's investments in stocks are subject to changes in their value from a
number of factors. They include stock market movements and events affecting
particular industries. Stocks of growth companies may provide greater
opportunities for capital appreciation, but may be more volatile than other
stocks. The Fund invests mainly in small and medium-size companies, which tend
to have more volatile stock prices than large companies.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Main Street Growth & Income Fund/VA
Investment Objective
Seeks a high total return (which includes growth in the value of its shares as
well as current income) from equity and debt securities.
49
<PAGE>
Policies
Invests mainly in common stocks of U.S. companies, and can also invest in other
equity securities such as preferred stocks and convertible securities. Although
the fund can invest in securities of issuers of all market capitalization
ranges, it currently focuses on companies with large capitalizations. While the
fund can buy foreign securities and debt securities such as bonds and notes,
currently it does not emphasize those investments. The fund can also use hedging
instruments and certain derivative investments to try to manage investment
risks.
Risks
The fund's investments in stocks and bonds are subject to changes in their value
from a number of factors. They include changes in general stock and bond market
movements, or the change in value of particular stocks or bonds because of an
event affecting the issuer. Changes in interest rates can also affect stock and
bond prices. Because the Fund currently focuses its investments in stocks of
U.S. issuers, it will be affected primarily by changes in the U.S. Stock Market.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Strategic Bond Fund/VA
Investment Objective
Seeks a high level of current income principally derived from interest on debt
securities and seeks to enhance such income by writing covered call options on
debt securities.
Policies
Invests mainly in debt securities of issuers in three market sectors: foreign
governments and companies, U.S. government securities, and lower-rated
high-yield securities of U.S. and foreign companies. Under normal market
conditions, the fund invests in each of those three market sectors. However, the
fund is not obligated to do so, and the amount of its assets in each of the
three sectors will vary over time. The fund can invest up to 100% of its assets
in any one sector at any time, if the manager believes that in doing so the fund
can achieve its objective without undue risk. The fund can invest in securities
having short, medium or long-term maturities and may invest without limit in
lower-grade high-yield debt obligations also called "junk bonds." The fund's
foreign investments can include debt securities of issuers in developed markets
as well as emerging markets, which have special risks. The fund can also use
hedging instruments and certain derivative investments to try to enhance income
or try to manage investment risks.
Risks
The fund's investments in debt securities are subject to changes in their value
from a number of factors. They include changes in general bond market movements
in the U.S. and abroad, or the change in value of particular bonds because of an
event affecting the issuer. The fund can focus significant amounts of its
investments in foreign debt securities. Therefore, it will be subject to the
risks that economic, political or other events can have on the values of
securities of issuers in particular foreign countries. These risks are
heightened in the case of emerging market debt securities. Changes in interest
rates can also affect securities prices.
Investment Adviser: OppenheimerFunds, Inc.
Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (formerly
known as PPI MFS Value Equity Portfolio)
Investment Objective
Seeks capital appreciation.
50
<PAGE>
Policies
Invests primarily (at least 65% of total assets) in common stocks and related
securities, such as preferred stock, convertible securities and depositary
receipts. Focuses on companies believed to have favorable growth prospects and
attractive valuations based on current and expected earnings or cash flow.
Investments may include securities listed on a securities exchange or traded in
the over-the-counter markets.
May invest in foreign securities (including emerging market securities) and may
have exposure to foreign currencies through its investment in these securities,
its direct holdings of foreign currencies or through its use of foreign currency
exchange contracts for the purchase or sale of a fixed quantity of a foreign
currency at a future date.
May engage in active and frequent trading to achieve its principal investment
strategies.
Risks
Investment in the portfolio is subject to the following risks:
> 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.
> Active or Frequent Trading Risk: The Portfolio may engage in active and
frequent trading. This may result in higher capital gains as compared to
portfolios with less active trading policies. Frequent trading also increases
transaction costs, which can detract from fund performance.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Massachusetts Financial Services Company
Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
Invests primarily (at least 65% of total assets) in common stocks and related
securities, such as preferred stock, convertible securities and depositary
receipts, of emerging growth companies. Emerging growth companies are companies
believed to be early in their life cycle and that have the potential to become
major enterprises, or major enterprises whose rates of earnings growth are
expected to accelerate. Investments may include securities listed on a
securities exchange or traded in the over-the-counter markets.
51
<PAGE>
May also invest in foreign securities (including emerging market securities) and
may have exposure to foreign currencies through its investment in these
securities, its direct holdings of foreign currencies or through its use of
foreign currency exchange contracts for the purchase or sale of a fixed quantity
of foreign currency at a future date.
May engage in active and frequent trading to achieve its principal investment
strategies.
Risks
Investment in the portfolio is subject to the following risks:
> 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.
> 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.
> Emerging Markets Risk: Investments in emerging market securities involve all
the risks of investment in foreign markets. Additionally, markets of emerging
market countries have been more volatile, and involve greater risks, than the
markets of developed countries with more mature economies.
> Active or Frequent Trading Risk: The Portfolio may engage in active and
frequent trading. This may result in higher capital gains as compared to
portfolios with less active trading policies. Frequent trading also increases
transaction costs, which can detract from fund performance.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Massachusetts Financial Services Company
Portfolio Partners, Inc. (PPI) 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:
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<PAGE>
> 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 erratic market 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 that have the ability to
pay increasing dividends through strong cash flows and whose rates of earnings
growth are above average. Also seeks companies with a lucrative niche in the
economy that will give them the ability to sustain earnings momentum even during
times of slow economic growth.
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.
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Appendix III
Condensed Financial Information
- --------------------------------------------------------------------------------
(Selected data for annuity and 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
accumulation unit values included in 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.
The unaudited annuity unit values shown below are derived from the audited
accumulation unit values and reflect the application of a factor corresponding
to the assumed annual net return rates of 3.50% and 5.00% as noted. See
"Calculating Variable Income Payments" for more information. Only those
subaccounts with annuity units outstanding at the end of the period are listed
below.
<TABLE>
<CAPTION>
(unaudited)
Assumed Annual Net Return Rate
of 3.50%
----------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $17.280 $15.488 $13.448(1)
Value at end of period $18.730 $17.280 $15.488
AETNA BOND VP
Value at beginning of period $11.896 $11.529 $11.087(1)
Value at end of period $11.266 $11.896 $11.529
AETNA CROSSROADS VP
Value at beginning of period $10.350 $10.242 $10.108(4)
Value at end of period $10.883 $10.350 $10.242
AETNA GROWTH VP
Value at beginning of period $17.245 $14.972(5)
Value at end of period $22.240 $17.245
AETNA GROWTH AND INCOME VP
Value at beginning of period $20.128 $18.426 $15.431(2)
Value at end of period $22.550 $20.128 $18.426
AETNA INDEX PLUS LARGE CAP VP
Value at beginning of period $15.572 $12.402 $11.263(3)
Value at end of period $18.467 $15.572 $12.402
AETNA INTERNATIONAL VP
Value at beginning of period $10.780 $10.413(7)
Value at end of period $15.565 $10.780
AETNA LEGACY VP
Value at beginning of period $11.429 $11.201 $10.372(9)
Value at end of period $11.678 $11.429 $11.201
AETNA MONEY MARKET VP
Value at beginning of period $10.073 $10.044(10)
Value at end of period $10.098 $10.073
AETNA REAL ESTATE SECURITIES VP
Value at beginning of period $8.014(11)
Value at end of period $7.679
AETNA SMALL COMPANY VP
Value at beginning of period $12.968 $13.444 $12.930(13)
Value at end of period $16.189 $12.968 $13.444
AIM V.I. CAPITAL APPRECIATION FUND
Value at beginning of period
Value at end of period
AIM V.I. GROWTH FUND
Value at beginning of period $12.703(14)
Value at end of period $14.976
AIM V.I. GROWTH AND INCOME FUND
Value at beginning of period $11.979(15)
Value at end of period $14.763
AIM V.I. VALUE FUND
Value at beginning of period $12.215(16)
Value at end of period $14.178
FIDELITY VIP HIGH INCOME PORTFOLIO
Value at beginning of period $9.201 $10.483(5)
Value at end of period $9.494 $9.201
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $15.260 $11.789 $10.481(1)
Value at end of period $20.968 $15.260 $11.789
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $14.769 $12.007 $10.576(2)
Value at end of period $23.174 $14.769 $12.007
<CAPTION>
(unaudited)
Assumed Annual Net Return Rate
of 5.00%
---------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
AETNA BALANCED VP, INC.
Value at beginning of period $16.276 $14.800 $13.209(2)
Value at end of period $17.390 $16.276 $14.800
AETNA BOND VP
Value at beginning of period $11.205 $11.017 $10.990(3)
Value at end of period $10.460 $11.205 $11.017
AETNA CROSSROADS VP
Value at beginning of period $10.182 $10.223 $10.032(4)
Value at end of period $10.555 $10.182 $10.223
AETNA GROWTH VP
Value at beginning of period $16.827 $13.015 $13.538(4)
Value at end of period $21.391 $16.827 $13.015
AETNA GROWTH AND INCOME VP
Value at beginning of period $18.959 $17.607 $15.123(2)
Value at end of period $20.937 $18.959 $17.607
AETNA INDEX PLUS LARGE CAP VP
Value at beginning of period $15.195 $12.277 $10.848(6)
Value at end of period $17.763 $15.195 $12.277
AETNA INTERNATIONAL VP
Value at beginning of period $11.664(8)
Value at end of period $15.145
AETNA LEGACY VP
Value at beginning of period $11.080 $11.017 $10.264(2)
Value at end of period $11.160 $11.080 $11.017
AETNA MONEY MARKET VP
Value at beginning of period $9.910 $9.991 $9.995(4)
Value at end of period $9.793 $9.910 $9.991
AETNA REAL ESTATE SECURITIES VP
Value at beginning of period $8.295 $9.235(12)
Value at end of period $7.472 $8.295
AETNA SMALL COMPANY VP
Value at beginning of period $12.654 $13.308 $13.322(4)
Value at end of period $15.571 $12.654 $13.308
AIM V.I. CAPITAL APPRECIATION FUND
Value at beginning of period $12.190(14)
Value at end of period $15.541
AIM V.I. GROWTH FUND
Value at beginning of period $12.229(14)
Value at end of period $14.726
AIM V.I. GROWTH AND INCOME FUND
Value at beginning of period $12.546(14)
Value at end of period $14.516
AIM V.I. VALUE FUND
Value at beginning of period $12.716(14)
Value at end of period $13.942
FIDELITY VIP HIGH INCOME PORTFOLIO
Value at beginning of period $ 9.052 $10.060 $10.058(4)
Value at end of period $ 9.207 $9.052 $10.060
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $14.775 $11.580 $10.433(1)
Value at end of period $20.008 $14.775 $11.580
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $14.300 $11.794 $10.638(2)
Value at end of period $22.117 $14.300 $11.794
</TABLE>
54
<PAGE>
Condensed Financial Information (continued)
<TABLE>
<CAPTION>
(unaudited)
Assumed Annual Net Return Rate
of 3.50%
---------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPPENHEIMER AGGRESSIVE GROWTH FUND/VA
Value at beginning of period $9.670(17)
Value at end of period $14.612
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Value at beginning of period $9.250(11)
Value at end of period $10.298
OPPENHEIMER STRATEGIC BOND FUND/VA
Value at beginning of period $9.909 $10.180(5)
Value at end of period $9.722 $9.909
PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO
Value at beginning of period $15.084 $12.474 $12.335(19)
Value at end of period $21.414 $15.084 $12.474
PPI MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period $12.241 $9.894 $10.050(19)
Value at end of period $17.621 $12.241 $9.894
PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period $11.777 $11.433(7)
Value at end of period $17.801 $11.777
PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO
Value at beginning of period $11.733 $11.154(21)
Value at end of period $13.694 $11.733
<CAPTION>
(Unaudited)
Assumed Annual Net Return Rate
of 5.00%
------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPPENHEIMER AGGRESSIVE GROWTH FUND/VA
Value at beginning of period $10.119(8)
Value at end of period $14.519
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Value at beginning of period $9.661(11)
Value at end of period $10.232
OPPENHEIMER STRATEGIC BOND FUND/VA
Value at beginning of period $9.749 $10.152(18)
Value at end of period $9.428 $9.749
PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO
Value at beginning of period $14.605 $12.253 $12.132(19)
Value at end of period $20.438 $14.605 $12.253
PPI MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period $11.852 $9.719 $9.885(19)
Value at end of period $16.818 $11.852 $9.719
PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period $11.587 $11.992(20)
Value at end of period $17.263 $11.587
PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO
Value at beginning of period $11.582 $11.014(10)
Value at end of period $13.325 $11.582
</TABLE>
- -----------------
(1) Funds were first received in this option during March 1997.
(2) Funds were first received in this option during January 1997.
(3) Funds were first received in this option during October 1997.
(4) Funds were first received in this option during December 1997.
(5) Funds were first received in this option during March 1998.
(6) Funds were first received in this option during May 1997.
(7) Funds were first received in this option during November 1998.
(8) Funds were first received in this option during August 1999.
(9) Funds were first received in this option during February 1997.
(10) Funds were first received in this option during July 1998.
(11) Funds were first received in this option during September 1999.
(12) Funds were first received in this option during June 1998.
(13) Funds were first received in this option during August 1997.
(14) Funds were first received in this option during May 1999.
(15) Funds were first received in this option during April 1999.
(16) Funds were first received in this option during June 1999.
(17) Funds were first received in this option during October 1999.
(18) Funds were first received in this option during February 1998.
(19) Funds were first received in this option during November 1997.
(20) Funds were first received in this option during May 1998.
(21) Funds were first received in this option during December 1998.
55
<PAGE>
For Master Applications Only
- --------------------------------------------------------------------------------
I hereby acknowledge receipt of an Account B Aetna Immediate Annuity prospectus
dated May 1, 2000.
___ Please send an Account B Statement of Additional Information (Form No.
SAI.09515-00) dated May 1, 2000.
- --------------------------------------------------------------------------------
CONTRACT HOLDER'S SIGNATURE
- --------------------------------------------------------------------------------
DATE
PRO.09515-00
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
Statement of Additional Information dated May 1, 2000
Aetna Immediate Annuity
A Fixed and Variable, Single Premium, Group or Individual,
Immediate Annuity Contract
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
Attn: AFS Settlements
151 Farmington Avenue
Hartford, Connecticut 06156-0005
1-800-238-6273
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 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) issues the
contract described in the prospectus and is responsible for providing each
contract's insurance and annuity benefits. We are a stock life insurance company
organized under the insurance laws of the State of Connecticut in 1976 and an
indirect wholly-owned subsidiary of Aetna Inc. Through a merger, our assets
include the business of Aetna Variable Annuity Life Insurance Company (formerly
Participating Annuity Life Insurance Company organized in 1954). Our Home Office
is located at 151 Farmington Avenue, Hartford, Connecticut 06156.
As of December 31, 1999, the Company and its subsidiary life company had $53
billion invested through their products, including $39 billion in their separate
accounts (of which the Company or its subsidiary Aeltus Investment Management,
Inc. oversees the management of $24 billion). The Company is ranked among the
top 2% of all U.S. life insurance companies rated by A.M. Best Company based on
assets as of December 31, 1998.
In addition to serving as the principal underwriter and the depositor for the
separate account, the Company is a registered investment adviser under the
Investment Advisers Act of 1940 and a registered broker-dealer under the
Securities Exchange Act of 1934. We provide investment advice to several of the
registered management investment companies offered as variable investment
options under the contracts funded by the separate account (see "Variable
Annuity Account B" below).
Other than the mortality and expense risk charge, the administrative expense
charge and the guaranteed minimum income charge described in the prospectus, all
expenses incurred in the operations of the separate account are borne by the
Company. See "Fees" in the prospectus. We receive reimbursement for certain
administrative costs from some advisers of the funds used as funding options
under the contract. These fees generally range up to 0.425%.
The assets of the separate account are held by the Company. The separate account
has no custodian. However, the funds in whose shares the assets of the separate
account are invested each have custodians, as discussed in their respective
prospectuses.
From this point forward, the term "contract(s)" refers only to those offered
through the prospectus.
VARIABLE ANNUITY ACCOUNT B
Variable Annuity Account B is a separate account established by the Company for
the purpose of funding variable annuity contracts issued by the Company. The
separate account is registered with the Securities and Exchange Commission as a
unit investment trust under the Investment Company Act of 1940, as amended.
Purchase payments to accounts under the contract may be allocated to one or more
of the subaccounts. Each subaccount invests in the shares of only one of the
funds listed below. We may make additions to, deletions from or substitutions of
available investment options as permitted by law and subject to the conditions
of the contract. The availability of the funds is subject to applicable
regulatory authorization. Not all funds may be available in all jurisdictions or
under all contracts.
2
<PAGE>
The funds currently available under the contract are as follows:
Aetna Ascent VP
Aetna Balanced VP, Inc.
Aetna Income Shares d/b/a Aetna Bond VP
Aetna Crossroads VP
Aetna Growth VP
Aetna Variable Fund d/b/a Aetna Growth and Income VP
Aetna Index Plus Large Cap VP
Aetna International VP
Aetna Legacy VP
Aetna Variable Encore Fund d/b/a Aetna Money Market VP
Aetna Real Estate Securities VP*
Aetna Small Company VP
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
Fidelity Variable Insurance Products Fund (VIP) High Income Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
Oppenheimer Aggressive Growth Fund/VA
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Strategic Bond Fund/VA
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) Scudder International Growth Portfolio
Portfolio Partners, Inc. (PPI) T. Rowe Price Growth Equity Portfolio
*Effective May 15, 2000, transfers or deposits are not allowed into the
subaccount investing in this fund.
Complete descriptions of each of the funds, including their investment
objectives, policies, risks, 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 under the prospectus. We offer the contracts through life
insurance agents licensed to sell variable annuities who are registered
representatives of the Company or of other registered broker-dealers who have
sales agreements with the Company. The offering of the contracts is continuous.
A description of the manner in which contracts are purchased may be found in the
prospectus under the section entitled "Purchase."
PERFORMANCE DATA
GENERAL
From time to time, we may advertise different types of historical performance
for the subaccounts of the separate account available under the contract. We may
advertise the "standardized average annual total returns," calculated in a
manner prescribed by the Securities and Exchange Commission (the "standardized
returns"), 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 available under the contract, and then
related to the ending redeemable values over one, five and ten year periods (or
fractional periods thereof). The redeemable value is then divided by the initial
investment and this quotient is taken to the Nth root (N represents the number
of years in the period) and 1 is subtracted from the result which is then
expressed as a percentage, carried to at least the nearest hundredth of a
percent. The standardized figures use the actual returns of the fund since the
date contributions were first received in the fund under the separate account,
adjusted to reflect the deduction of the maximum recurring charges under the
contract during each period (e.g., 1.25% mortality and expense risk charge,
1.00% guaranteed minimum income charge, as applicable, and an early withdrawal
charge of 7% grading down to 0% after seven years). These charges will be
deducted on a pro rata basis in the case of fractional periods.
3
<PAGE>
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.
The deduction of the early withdrawal charge would decrease the level of
performance shown if reflected in these calculations. The non-standardized
figures may also include monthly, quarterly, year-to-date and three year
periods, and may include returns calculated from the fund's inception date
and/or the date contributions were first received in the fund under the separate
account. The non-standardized returns shown in the tables below reflect the
deduction of the maximum recurring charges under the contract except the early
withdrawal charge.
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.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
The tables below reflect the average annual standardized and non-standardized
total return quotation figures for the periods ended December 31, 1999 for the
subaccounts under the contract. The standardized returns assume the maximum
charges under the contract as described under "General" above. The
non-standardized returns assume the same charges but do not include the early
withdrawal charges. Also reflected in both tables is the guaranteed minimum
income charge as it applies to Aetna Index Plus Large Cap VP. As reflected in
the tables, this charge only applies when the guaranteed minimum income feature
is selected.
For the subaccounts funded by the Portfolio Partners portfolios, two sets of
performance returns are shown for each subaccount: one showing performance based
solely on the performance of the Portfolio Partners portfolio from November 28,
1997 the date the portfolio commenced operations, and one quotation based on (a)
performance through November 26, 1997 of the fund it replaced under many
contracts and (b) after November 26, 1997 based on the performance of the
Portfolio Partners portfolio.
For those subaccounts where results are not available for the full calendar
period indicated, performance for such partial periods is shown in the column
labeled "Since Inception." For standardized performance, the "Since Inception"
column shows 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.
4
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Date
Contributions
First Received
Under the
STANDARDIZED Separate Account
- ----------------------------------------------------------------------------------------------------------------------------
Since
SUBACCOUNT 1 Year 5 Year 10 Year Inception*
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP 6.15% 13.28% 08/31/1995
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.(1) 5.46% 17.02% 11.86%
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) (7.86%) 5.55% 6.37%
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 2.31% 11.08% 08/31/1995
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 25.29% 31.91% 05/30/1997
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 9.00% 21.48% 14.08%
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 15.38% 26.74% 10/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP(4)
- ----------------------------------------------------------------------------------------------------------------------------
Aetna International VP 40.48% 19.93% 05/05/1998
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP (0.59%) 8.88% 08/31/1995
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) (2.46%) 3.75% 4.01%
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP (11.09%) (13.85%) 05/06/1998
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 21.46% 16.31% 05/30/1997
- ----------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 34.24% 55.61% 10/02/1998
- ----------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund 25.53% 50.47% 10/02/1998
- ----------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund 24.62% 47.43% 10/02/1998
- ----------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund 20.58% 44.29% 10/02/1998
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 0.40% 7.25% 06/30/1995
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 33.66% 27.75% 25.51% 07/29/1994
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 52.65% 33.10% 04/28/1995
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund/VA 70.44% 33.16% 05/30/1997
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth and Income Fund/VA 12.98% 13.91% 05/30/1997
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA (4.55%) 1.27% 05/30/1997
============================================================================================================================
PPI MFS Capital Opportunities Portfolio 38.12% 31.49% 11/28/1997
- ----------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Growth/PPI MFS Capital
Opportunities(3) 38.12% 25.81% 18.04% 11/30/1992
============================================================================================================================
PPI MFS Emerging Equities Portfolio 40.05% 32.11% 11/28/1997
- ----------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI MFS Emerging Equities(3) 40.05% 24.21% 18.42% 09/30/1993
============================================================================================================================
PPI Scudder International Growth Portfolio 47.05% 31.40% 11/28/1997
- ----------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI Scudder
International Growth(3) 47.05% 19.27% 16.74% 08/31/1992
============================================================================================================================
PPI T. Rowe Price Growth Equity Portfolio 13.55% 20.45% 11/28/1997
- ----------------------------------------------------------------------------------------------------------------------------
Alger American Growth/PPI T. Rowe Price
Growth Equity(3) 13.55% 22.84% 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 4.55%. Current yield more
closely reflects current earnings than does total return. The current
yield reflects the deduction of all charges under the contract that are
deducted from the total return quotations shown above except the maximum
7% early withdrawal charge.
(3) The fund first listed was replaced with the applicable Portfolio Partners
portfolio after the close of business on November 26, 1997. The
performance shown is based on the performance of the replaced fund until
November 26, 1997 and the performance of the applicable Portfolio Partners
portfolio after that date. The replaced fund may not have been available
under all contracts. The "Date Contributions First Received Under the
Separate Account" refers to the applicable date for the replaced fund. If
no date is shown, contributions were first received in the replaced fund
under the separate account more than ten years ago.
(4) This line represents standardized performance reflecting deduction of all
applicable charges including the guaranteed minimum income charge of 1%.
No returns are shown, however, because as of the date hereof no
contributions were received in the fund under the guaranteed minimum
income feature under the separate account.
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% 11.86%
- --------------------------------------------------------------------------------------------------------------------------------
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 VP 33.28% 33.52% 33.55% 12/13/1996
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 15.95% 18.91% 21.97% 14.08%
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 22.75% 28.24% 28.88% 09/16/1996
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP(4) 21.54% 26.98% 27.61% 09/16/1996
- --------------------------------------------------------------------------------------------------------------------------------
Aetna International VP 49.45% 33.75% 12/22/1997
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 5.76% 8.09% 9.97% 07/05/1995
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 3.77% 4.02% 4.17% 4.01%
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP (5.42%) (8.01%) 12/15/1997
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 29.21% 19.66% 20.06% 12/27/1996
- --------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 42.81% 23.56% 24.03% 20.82% 05/05/1993
- --------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund 33.55% 30.39% 28.04% 21.41% 05/05/1993
- --------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund 32.57% 27.57% 26.60% 22.95% 05/02/1994
- --------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund 28.28% 27.02% 25.66% 21.55% 05/05/1993
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio(1) 6.80% 5.45% 9.49% 11.03%
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 42.19% 32.17% 28.26% 22.73% 09/13/1993
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 62.40% 35.61% 31.93% 28.09% 09/13/1993
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund/VA(1) 81.32% 30.42% 28.08% 18.79%
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth and Income Fund/VA 20.19% 17.58% 24.22% 07/05/1995
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA 1.54% 3.46% 6.90% 4.85% 05/03/1993
================================================================================================================================
PPI MFS Capital Opportunities Portfolio 46.93% 34.75% 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% 24.71% 18.47%
================================================================================================================================
PPI Scudder International Growth Portfolio 56.43% 34.66% 11/28/1997
- --------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI
Scudder International Growth(3) 56.43% 25.57% 19.75% 12.17%
================================================================================================================================
PPI T. Rowe Price Growth Equity Portfolio 20.80% 23.37% 11/28/1997
- --------------------------------------------------------------------------------------------------------------------------------
Alger American Growth/PPI T. Rowe Price
Growth Equity(3) 20.80% 24.46% 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 4.55%. Current yield more
closely reflects current earnings than does total return. The current
yield reflects the deduction of all charges under the contract that are
deducted from the total return quotations shown above. As in the table
above, the maximum 7% early withdrawal charge is not reflected.
(3) The fund first listed was replaced with the applicable Portfolio Partners
portfolio after the close of business on November 26, 1997. The
performance shown is based on the performance of the replaced fund until
November 26, 1997 and the performance of the applicable Portfolio Partners
portfolio after that date. The replaced fund may not have been available
under all contracts. The "Fund Inception Date" refers to the applicable
date for the replaced fund. If no date is shown, the replaced fund has
been in operation for more than ten years.
(4) The non-standardized returns in this row reflect deduction of applicable
charges including the guaranteed minimum income charge of 1%. The numbers
are only applicable if the guaranteed minimum income feature was elected.
6
<PAGE>
INCOME PAYMENTS
Your variable income payments will fluctuate as the annuity unit value(s)
fluctuates with the investment experience of the selected subaccount(s). The
first income payment and subsequent income payments also vary depending upon the
assumed annual net return rate selected (3.5% or 5% per annum). Selection of a
5% rate causes a higher first income payment, but payments will increase
thereafter only to the extent that the net investment rate increases by more
than 5% on an annual basis. Income payments would decline if the rate failed to
increase by 5%. Use of the 3.5% assumed rate causes a lower first income
payment, but subsequent income payments would increase more rapidly or decline
more slowly as changes occur in the net investment rate.
A fixed number of annuity units is determined in each of the designated
subaccounts on the contract effective date. The number of annuity units, which
generally does not change thereafter, is calculated by dividing (a) by (b),
where (a) is the amount of the income payment as if the payment was calculated
as of the contract effective date, and (b) is the annuity unit value for that
investment option on the contract effective date. The first payment will be
calculated as of the tenth valuation before the payment due date, which depends
upon the payment frequency you have selected. As noted above, annuity unit
values fluctuate from one valuation to the next (see "Calculating Variable
Income Payments" in the prospectus); such fluctuations reflect changes in the
net investment factor for the applicable subaccount(s) (with a ten valuation lag
which gives the Company time to process payments) and a mathematical adjustment
which offsets the assumed annual net return 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 each
subaccount selected.
EXAMPLE:
Assume that you purchase a single premium immediate annuity contract with a
$50,000 premium. The payment option that you select has a payment factor of
$6.68 per $1,000 of value applied. Also assume that no premium tax is payable.
If a payment was determined as of the contract effective date, that payment
would be calculated by multiplying $6.68 per $1,000 by 50.000. This would
produce an initial payment of $334.00.
Assume that the value of the annuity unit on the contract effective date is
13.400000. The payment calculated as of the contract effective date is divided
by the annuity unit value to determine the number of annuity units (that is,
$334.00/13.400000 = 24.925 annuity units). The number of annuity units will
generally remain constant over the term of your contract as determined by the
income payment option you select. The value of each payment will be determined
on the tenth valuation before the payment due date by multiplying the number of
annuity units by that date's annuity unit value.
Payments will subsequently fluctuate depending upon the net investment
performance that occurs between payment valuation dates less a factor that
represents the assumed annual net return rate. This offsets the assumed annual
net return rate built into the number of annuity units determined above.
Annuity unit values are calculated on a daily basis by multiplying the annuity
unit value by the daily net return factor and by a factor to reflect the daily
assumed annual net return rate. The factor for a 3.5% assumed annual net return
rate is 0.9999058 and for 5.0% is 0.9998663. The new payment is calculated by
multiplying the number of annuity units by the new annuity unit value.
7
<PAGE>
SALES MATERIAL AND ADVERTISING
We may illustrate the hypothetical values of income payments made from each of
the subaccounts over certain time periods based on the historical net asset
values of the funds. We may also advertise returns based on other fee schedules
that apply to a particular contract holder. These fee schedules may result in
higher returns than those shown.
We may also include hypothetical illustrations in our sales literature that
explain the mathematical principles of compounded interest, tax deferred
accumulation, and the mechanics of variable annuity contracts. We may also
discuss the difference between variable annuity contracts and savings or
investment products such as personal savings accounts and certificates of
deposit.
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 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
categorize funds in terms of the asset classes they represent and use such
categories in marketing materials for the contracts. 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, 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 the review of filings made with the Securities and
Exchange Commission.
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.09515-00 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 (A050SP96)(4)
(4.2) Variable Annuity Contract (A050SP99)(5)
(4.3) Endorsement SPIAE99 to Variable Annuity Contract A050SP99(5)
(4.4) Endorsement SPIAEVW99 to Variable Annuity Contracts A050SP99 and
SPIA(GR)99(5)
(4.5) Endorsement SPIAEW99 to Variable Annuity Contracts A050SP99 and
SPIA(GR)99(5)
(4.6) Endorsement SPIAEVPG99 to Variable Annuity Contracts A050SP99 and
SPIA(GR)99(5)
<PAGE>
(4.7) Endorsement E401SP96 to Variable Annuity Contracts A050SP99 and
SPIA(GR)99(5)
(4.8) Endorsement E403SP96 to Variable Annuity Contracts A050SP99 and
SPIA(GR)99(5)
(4.9) Endorsement SPIA457-99 to Variable Annuity Contracts A050SP99 and
SPIA(GR)99(5)
(4.10) Variable Annuity Contract (SPIA(GR)99)(5)
(4.11) Variable Annuity Contract Certificate (SPIA(GR)-99CERT)(5)
(4.12) Endorsement SPIAE(GR)99 to Variable Annuity Contract SPIA(GR)99
and Certificate SPIA(GR)-99CERT(5)
(4.13) Endorsement SPIAEVW(GR)99 to Variable Annuity Contract SPIA(GR)99
and Certificate SPIA(GR)-99CERT(5)
(4.14) Endorsement SPIAEW(GR)99 to Variable Annuity Contract SPIA(GR)99
and Certificate SPIA(GR)-99CERT(5)
(4.15) Endorsement SPIAEVPG(GR)99 to Variable Annuity Contract SPIA(GR)99
and Certificate SPIA(GR)-99CERT(5)
(4.16) Endorsement SPIAE401(GR)99 to Variable Annuity Contract SPIA(GR)99
and Certificate SPIA(GR)-99CERT(5)
(4.17) Endorsement SPIAE403(GR)99 to Variable Annuity Contract SPIA(GR)99
and Certificate SPIA(GR)-99CERT(5)
(4.18) Endorsement SPIAE457(GR)99 to Variable Annuity Contract SPIA(GR)99
and Certificate SPIA(GR)-99CERT(5)
(4.19) Endorsement SPIAEIRA(GR)99 to Variable Annuity Contract SPIA(GR)99
and Certificate SPIA(GR)-99CERT(5)
(5.1) Variable Annuity Contract Application (82941(2/99))(5)
(5.2) Variable Annuity Contract Application for New York
(82950(2/99))(5)
(6.1) Certificate of Incorporation of Aetna Life Insurance and Annuity
Company(6)
(6.2) Amendment to Certificate of Incorporation of Aetna Life Insurance
and Annuity Company(7)
(6.3) By-Laws as amended September 17, 1997 of Aetna Life Insurance and
Annuity Company(8)
(7) Not applicable
(8.1) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and AIM dated June 30, 1998(9)
(8.2) Service Agreement between Aetna Life Insurance and Annuity Company
and AIM effective June 30, 1998(9)
(8.3) Fund Participation Agreement by and among Aetna Life Insurance and
Annuity Company and Aetna Variable Fund, Aetna Variable Encore
Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund
on behalf of each of its series, Aetna Generation Portfolios, Inc.
on behalf of each of its series, Aetna Variable
<PAGE>
Portfolios, Inc. on behalf of each of its series, and Aeltus
Investment Management, Inc. dated as of May 1, 1998(2)
(8.4) Amendment dated November 9, 1998 to Fund Participation Agreement
by and among Aetna Life Insurance and Annuity Company and Aetna
Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares,
Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its
series, Aetna Generation Portfolios, Inc. on behalf of each of its
series, Aetna Variable Portfolios, Inc. on behalf of each of its
series, and Aeltus Investment Management, Inc. dated as of May 1,
1998(10)
(8.5) 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 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(11)
(8.6) 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 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 and December 31,
1999(12)
(8.7) 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(12)
(8.8) 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)
(8.9) Amendment dated November 4, 1998 to Service Agreement between
Aeltus Investment Management, Inc. and Aetna Life Insurance and
Annuity Company in connection with the sale of shares of Aetna
Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares,
Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its
series, Aetna Generation Portfolios, Inc. on behalf of each of its
series and Aetna Variable Portfolios, Inc. on behalf of each of
its series dated as of May 1, 1998(10)
<PAGE>
(8.10) 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(12)
(8.11) 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(12)
(8.12) 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(7)
(8.13) 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(13)
(8.14) 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(14)
(8.15) 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)
(8.16) 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(11)
(8.17) Service Agreement between Aetna Life Insurance and Annuity Company
and Fidelity Investments Institutional Operations Company dated as
of November 1, 1995(15)
<PAGE>
(8.18) 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(13)
(8.19) Service Contract between Fidelity Distributors Corporation and
Aetna Life Insurance and Annuity Company dated May 2, 1997(10)
(8.20) Fund Participation Agreement among Janus Aspen Series and Aetna
Life Insurance and Annuity Company and Janus Capital Corporation
dated December 8, 1997(14)
(8.21) 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(10)
(8.22) 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(11)
(8.23) Service Agreement between Janus Capital Corporation and Aetna Life
Insurance and Annuity Company dated December 8, 1997(16)
(8.24) Fund Participation Agreement dated March 11, 1997 between Aetna
Life Insurance and Annuity Company and Oppenheimer Variable
Annuity Account Funds and Oppenheimer Funds, Inc.(17)
(8.25) First Amendment dated December 1, 1999 to Fund Participation
Agreement between Aetna Life Insurance and Annuity Company and
Oppenheimer Variable Annuity Account Funds and Oppenheimer Funds,
Inc. dated March 11, 1997(11)
(8.26) Service Agreement effective as of March 11, 1997 between
Oppenheimer Funds, Inc. and Aetna Life Insurance and Annuity
Company(17)
(9) Opinion and Consent of Counsel
(10) Consent of Independent Auditors
(11) Not applicable
(12) Not applicable
(13) Schedule for Computation of Performance Data(18)
(14.1) Powers of Attorney(12)
(14.2) Authorization for Signatures(3)
1. Incorporated by reference to Post-Effective Amendment No. 6 to Registration
Statement on Form N-4 (File No. 33-75986), as filed on April 22, 1996.
2. Incorporated by reference to Registration Statement on Form N-4 (File No.
333-56297), as filed on June 8, 1998.
3. Incorporated by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-4 (File No. 33-75986), as filed on April 12, 1996.
4. Incorporated by reference to Registration Statement on Form N-4 (File No.
333-09515), as filed on August 2, 1996.
5. Incorporated by reference to Post-Effective Amendment No. 7 to Registration
Statement on Form N-4 (File No. 333-09515), as filed on April 20, 1999.
<PAGE>
6. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-60477), as filed on April 15, 1996.
7. 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.
8. 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.
9. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 333-56297), as filed on August 4, 1998.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. Incorporated by reference to Post-Effective Amendment No. 27 to Registration
Statement on Form N-4 (File No. 33-34370), as filed on April 16, 1997.
18. Incorporated by reference to Post-Effective Amendment No. 4 to Registration
Statement on Form N-4 (File No. 333-09515), as filed on April 9, 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
Catherine H. Smith Director, Chief Financial Officer and
Senior Vice President
Deborah Koltenuk Vice President, Corporate Controller,
and Assistant Treasurer
Therese M. Squillacote Vice President and Chief Compliance
Officer
Kirk P. Wickman Senior Vice President, General
Counsel and Corporate Secretary
* 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,
<PAGE>
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 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
<PAGE>
(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.
(d) The Company hereby represents that it is relying upon and will comply
with the provisions of Paragraphs (1) through (4) of the SEC Staff's
No-Action Letter dated November 28, 1988 with respect to language
concerning withdrawal restrictions applicable to plans established
pursuant to Section 403(b) of the Internal Revenue Code. See American
Counsel of Life Insurance; SEC No-Action Letter, [1988 WL 235221, *13
(S.E.C.)].
(e) Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(f) Aetna Life Insurance and Annuity Company represents that the fees and
charges deducted under the contracts covered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by
the insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant, Variable Annuity Account B of Aetna Life Insurance and
Annuity Company, certifies that it meets the requirements of Securities Act Rule
485(b) for effectiveness of this Post-Effective Amendment to its Registration
Statement on Form N-4 (File No. 333-09515) and has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hartford, State of Connecticut, on the
19th 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: Thomas J. McInerney*
------------------------------------------
Thomas J. McInerney
President
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 9 to the Registration Statement on Form N-4 (File No. 333-09515) 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
- ------------------------ ) 19, 2000
Shaun P. Mathews )
)
Catherine H. Smith* Director and Chief Financial Officer )
- ------------------------ )
Catherine H. Smith )
)
Deborah Koltenuk* Vice President, Corporate Controller, and )
- ------------------------ Assistant Treasurer )
Deborah Koltenuk )
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.
[Aetna letterhead] 151 Farmington Avenue
Hartford, CT 06156-8975
Michael A. Pignatella
Counsel
AFS Law, TS31
April 19, 2000 (860) 273-0261
Fax: (860) 273-9407
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. 9 to Registration Statement on Form N-4
Prospectus Title: Aetna Immediate Annuity
File Nos. 333-09515 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 certain of my colleagues have reviewed the
N-4 Registration Statement, as amended to the date hereof, and this
Post-Effective Amendment No. 9. 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/ Michael A. Pignatella
Michael A. Pignatella
Consent of Independent Auditors
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. 9 to Registration Statement (File No. 333-09515) on Form N-4 and to the
references to our firm under the headings "Condensed Financial Information" in
the prospectus and "Independent Auditors" in the statement of additional
information.
/s/ KPMG LLP
Hartford, Connecticut
April 19, 2000
