President's Letter
Dear Valued Client,
In August of 1997, I assumed leadership of Aetna's retirement, investment, and
life insurance areas, known collectively as Aetna Retirement Services (ARS).
Through its operating companies, ARS provides individuals with a full range of
financial services, investment management, and other important products and
services. I'm delighted to be heading this company because our mission is to
help people clarify, plan for, and achieve their personal retirement dreams.
That's a mission that's important to us and to you.
Overall, 1997 proved to be another strong year for the stock market. The year
began with some skepticism as to whether or not stocks could produce a third
consecutive year of 20%-plus total returns. At year end, the turbulence in the
Asian markets contributed to wild swings in domestic markets. And, in spite of
it all, the S & P 500 Index rose more than 33%, while the Dow Jones Industrial
Average climbed nearly 25%. The resilience of the market helped equity investors
enjoy yet another year of record returns.*
In the fall of 1997, the ARS organization formed a management investment company
named Portfolio Partners, Inc. (PPI) in order to give many of our clients access
to a wider array of fund management styles, with reduced fees. With the addition
of PPI, our variable insurance product investment options include funds
subadvised by T. Rowe Price Associates, Inc., Massachusetts Financial Services,
Inc. (MFS), and Scudder Kemper Investments, Inc. (Scudder). Aetna funds,
subadvised by Aeltus Investment Management, Inc., remain in our expanding list
of fund families, and together, give you valuable diversification across
markets.
Market swings, economic twists, changes in state and federal tax laws. All offer
opportunities - and confusion - for investors. That's why it's so important for
you to pursue an investment strategy that fits your needs and to wisely choose
your retirement planning partner. Thank you for choosing Aetna Retirement
Services, and for your continued trust and business.
Sincerely,
/s/ Thomas J. McInerney
- -----------------------
Thomas J. McInerney
*Past performance is no indication of future results.
<PAGE>
Variable Annuity Account G
Statement of Assets and Liabilities - December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Oppenheimer Funds:
Bond Fund; 1,309,829 shares (cost $15,178,161) ......................... $ 15,600,073
Capital Appreciation Fund; 1,415,431 shares (cost $53,749,505) ......... 57,976,072
Global Securities Fund; 2,277,867 shares (cost $37,589,767) ............ 48,678,028
Growth Fund; 1,751,957 shares (cost $42,409,945) ....................... 56,833,474
High Income Fund; 2,990,264 shares (cost $32,895,864) .................. 34,447,843
Money Fund; 12,073,177 shares (cost $12,096,278) ....................... 12,073,177
Multiple Strategies Fund; 3,265,009 shares (cost $47,694,485) .......... 55,537,808
Strategic Bond Fund; 3,239,438 shares (cost $16,280,022) ............... 16,585,922
Dividends Receivable .................................................... 23,687
------------
NET ASSETS (cost $257,894,027) .......................................... $297,756,084
============
Net assets represented by:
Reserves for annuity contracts in accumulation period: (Notes 1 and 5)
Oppenheimer Funds:
Bond Fund:
Annuity contracts in accumulation ...................................... $ 15,600,073
Capital Appreciation Fund:
Annuity contracts in accumulation ...................................... 57,976,072
Global Securities Fund:
Annuity contracts in accumulation ...................................... 48,678,028
Growth Fund:
Annuity contracts in accumulation ...................................... 56,833,474
High Income Fund:
Annuity contracts in accumulation ...................................... 34,447,843
Money Fund:
Annuity contracts in accumulation ...................................... 12,096,864
Multiple Strategies Fund:
Annuity contracts in accumulation ...................................... 55,537,808
Strategic Bond Fund:
Annuity contracts in accumulation ...................................... 16,585,922
------------
$297,756,084
============
</TABLE>
See Notes to Financial Statements
<PAGE>
Variable Annuity Account G
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
--------------- ----------------
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends .......................................................... $ 16,622,939 $ 17,968,354
Expenses: (Notes 2 and 5)
Valuation Period Deductions ........................................ (4,148,057) (4,100,918)
------------- -------------
Net investment income ............................................... 12,474,882 13,867,436
------------- -------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ................................................ 143,912,948 123,718,459
Cost of investments sold ........................................... 127,384,271 117,214,579
------------- -------------
Net realized gain ................................................. 16,528,677 6,503,880
Net unrealized gain on investments: (Note 5)
Beginning of period ................................................ 25,989,041 6,664,287
End of period ...................................................... 39,862,057 25,989,041
------------- -------------
Net change in unrealized gain ..................................... 13,873,016 19,324,754
------------- -------------
Net realized and unrealized gain on investments ..................... 30,401,693 25,828,634
------------- -------------
Net increase in net assets resulting from operations ................ 42,876,575 39,696,070
------------- -------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ......................... 679,845 1,347,812
Transfers to the Company's fixed account options .................... (1,083,698) (1,158,167)
Redemptions by contract holders ..................................... (49,029,578) (34,319,022)
Other ............................................................... 72,529 2,437,592
------------- -------------
Net decrease in net assets from unit transactions (Note 5) ......... (49,360,902) (31,691,785)
------------- -------------
Change in net assets ................................................ (6,484,327) 8,004,285
NET ASSETS:
Beginning of period ................................................. 304,240,411 296,236,126
------------- -------------
End of period ....................................................... $ 297,756,084 $ 304,240,411
============= =============
</TABLE>
See Notes to Financial Statements
<PAGE>
Variable Annuity Account G
Condensed Financial Information - Year Ended December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase 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>
Oppenheimer Funds:
Bond Fund:
CLIAC I $ 14.980 $ 16.147 7.79% 966,127.8 $15,600,073
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund:
CLIAC I $ 31.083 $ 34.245 10.18% 1,692,956.9 57,976,072
- ------------------------------------------------------------------------------------------------------------------------------------
Global Securities Fund:
CLIAC I $ 17.675 $ 21.396 21.05% 2,275,062.1 48,678,028
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Fund:
CLIAC I $ 24.881 $ 31.097 24.99% 1,827,611.1 56,833,474
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Fund:
CLIAC I $ 22.077 $ 24.441 10.71% 1,409,407.9 34,447,843
- ------------------------------------------------------------------------------------------------------------------------------------
Money Fund:
CLIAC I $ 12.447 $ 12.933 3.90% 935,378.0 12,096,864
- ------------------------------------------------------------------------------------------------------------------------------------
Multiple Strategies Fund:
CLIAC I $ 19.031 $ 22.009 15.65% 2,523,368.6 55,537,808
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund:
CLIAC I $ 12.340 $ 13.235 7.25% 1,253,203.0 16,585,922
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CLIAC I Certain Individual contracts issued as non-qualified deferred annuity
contracts or Individual Retirement Annuity contracts.
See Notes to Financial Statements
<PAGE>
Variable Annuity Account G
Notes to Financial Statements - December 31, 1997
1. Summary of Significant Accounting Policies
Variable Annuity Account G (the "Account") is a separate account
established by Aetna Life Insurance and Annuity Company (the "Company") and
is registered under the Investment Company Act of 1940 as a unit investment
trust. The Account is sold exclusively for use with the individual deferred
variable annuity contracts originally issued by Confederation Life
Insurance and Annuity Company. The Contract allows tax-deferred capital
accumulation under specific sections of the Internal Revenue Code of 1986,
as amended. The account commenced operations on October 2, 1995.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Account.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset
value per share as determined by each Fund on December 31, 1997:
Oppenheimer Funds
[bullet] Bond Fund
[bullet] Capital Appreciation Fund
[bullet] Global Securities Fund
[bullet] Growth Fund
[bullet] High Income Fund
[bullet] Money Fund
[bullet] Multiple Strategies Fund
[bullet] Strategic Bond Fund
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 Aetna Life Insurance and Annuity 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 Statements of Operations and Changes in Net Assets.
<PAGE>
Variable Annuity Account G
Notes to Financial Statements - December 31, 1997 (continued):
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended December 31, 1997 and December
31, 1996 aggregated $107,026,927 and $143,912,948; $105,939,733 and
$123,718,459, respectively.
<PAGE>
Variable Annuity Account G
Notes to Financial Statements - December 31, 1997 (continued):
5.
Supplemental Information to Statements of Operations and Changes in Net
Assets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oppenheimer Funds:
Bond Fund: $ 1,009,362 ($ 212,453) $ 4,204,924 $ 4,160,030 $ 44,894
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund: 2,866,468 (803,745) 28,899,554 23,679,296 5,220,258
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Global Securities Fund: 602,525 (690,592) 16,820,542 12,948,341 3,872,201
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Fund: 3,104,980 (767,795) 15,103,836 11,172,290 3,931,546
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Fund: 2,914,363 (487,806) 20,184,142 18,692,157 1,491,985
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Money Fund: 713,727 (186,740) 38,711,682 38,694,901 16,781
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Multiple Strategies Fund: 4,118,483 (772,176) 10,787,425 9,412,986 1,374,439
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund: 1,293,031 (226,750) 9,200,843 8,624,270 576,573
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account G $16,622,939 ($ 4,148,057) $143,912,948 $127,384,271 $16,528,677
====================================== =========== =========== ============ ============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
- ------------------------------ Change in In Net Assets ----------------------------------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 103,324 $ 421,912 $ 318,588 ($ 2,030,577)
$ 16,470,259 $ 15,600,073
- ------------------------------------------------------------------------------------------------------------------------------------
5,965,703 4,226,567 (1,739,136) (9,468,894)
61,901,121 57,976,072
- ------------------------------------------------------------------------------------------------------------------------------------
5,099,890 11,088,261 5,988,371 (8,005,658)
46,911,181 48,678,028
- ------------------------------------------------------------------------------------------------------------------------------------
8,024,778 14,423,529 6,398,751 (8,510,258)
52,676,250 56,833,474
- ------------------------------------------------------------------------------------------------------------------------------------
1,754,049 1,551,978 (202,071) (7,570,580)
38,301,952 34,447,843
- ------------------------------------------------------------------------------------------------------------------------------------
11,912 587 (11,325) (787,093)
12,351,514 12,096,864
- ------------------------------------------------------------------------------------------------------------------------------------
4,244,884 7,843,323 3,598,439 (9,137,273)
56,355,896 55,537,808
- ------------------------------------------------------------------------------------------------------------------------------------
784,501 305,900 (478,601) (3,850,569)
19,272,238 16,585,922
- ------------------------------------------------------------------------------------------------------------------------------------
$25,989,041 $39,862,057 $ 13,873,016 ($ 49,360,902) $304,240,411 $297,756,084
============ =========== ============ ============ ============ ============
</TABLE>
<PAGE>
Variable Annuity Account G
Notes to Financial Statements - December 31, 1997 (continued):
5.
Supplemental Information to Statements of Operations and Changes in Net
Assets - (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oppenheimer Funds:
Bond Fund: $ 1,104,498 ($ 235,724) $ 4,826,495 $ 4,828,642 ($ 2,147)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund: 3,495,018 (828,310) 26,760,766 23,113,025 3,647,74
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Global Securities Fund: 0 (644,717) 15,620,037 15,191,263 428,77
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Fund: 3,625,748 (665,320) 12,139,115 10,964,531 1,174,584
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Fund: 3,607,200 (515,281) 16,152,336 15,476,296 676,040
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Money Fund: 807,981 (230,448) 35,552,603 35,524,618 27,985
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Multiple Strategies Fund: 3,968,794 (746,766) 7,332,774 7,002,443 330,331
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund: 1,359,115 (234,352) 5,334,333 5,113,761 220,572
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account G $17,968,354 ($ 4,100,918) $123,718,459 $117,214,579 $6,503,880
====================================== =========== =========== ============ ============ ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
- ----------------------------------- Change in In Net Assets ----------------------------------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 386,616 $ 103,324 ($ 283,292) ($ 2,797,881)
$ 18,684,805 $ 16,470,259
- ------------------------------------------------------------------------------------------------------------------------------------
3,759,740 5,965,703 2,205,963 (4,075,202)
57,455,911 61,901,121
- ------------------------------------------------------------------------------------------------------------------------------------
(1,380,765) 5,099,890 6,480,655 (6,427,068)
47,073,537 46,911,181
- ------------------------------------------------------------------------------------------------------------------------------------
2,222,313 8,024,778 5,802,465 (3,857,056)
46,595,829 52,676,250
- ------------------------------------------------------------------------------------------------------------------------------------
529,137 1,754,049 1,224,912 (5,460,806)
38,769,887 38,301,952
- ------------------------------------------------------------------------------------------------------------------------------------
0 11,912 11,912 (5,609,002)
17,343,086 12,351,514
- ------------------------------------------------------------------------------------------------------------------------------------
821,545 4,244,884 3,423,339 (5,190,564)
54,570,762 56,355,896
- ------------------------------------------------------------------------------------------------------------------------------------
325,701 784,501 458,800 1,725,794
15,742,309 19,272,238
- ------------------------------------------------------------------------------------------------------------------------------------
$ 6,664,287 $25,989,041 $19,324,754 ($ 31,691,785) $296,236,126 $304,240,411
=============== =========== =========== ============ ============ ============
</TABLE>
<PAGE>
Independent Auditor's Report
The Board of Directors of Aetna Life Insurance and Annuity Company and
Contract Owners of Variable Annuity Account G:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account G (the "Account")
as of December 31, 1997, and the related statements of operations and changes
in net assets for each of the years in the two-year period then ended and
condensed financial information for the year ended December 31, 1997. These
financial statements and condensed financial information are the responsibility
of the Account's management. Our responsibility is to express an opinion on
these financial statements and condensed financial information based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and condensed financial information. Our procedures
included confirmation of securities owned as of December 31, 1997, 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 G
as of December 31, 1997, the results of its operations and changes in its net
assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 27, 1998
