President's Letter
Dear Valued Client,
What a year this has been in the market! Many of us feel as if we've been riding
a roller coaster. Record highs one day. Record drops another. But you'll see on
the following pages that, overall, your Aetna Retirement Services variable
annuity or variable life insurance contract has once again delivered solid
returns(1).
The dramatic changes such as those witnessed in the 1998 financial markets
reinforce the importance of choosing a competent, long-term financial partner --
one who can help you to weather the dips in the market.
At Aetna Retirement Services, we take our role as your financial partner very
seriously, and realize that the dollars we hold are actually your dreams.
Perhaps it's your hope of an early retirement. Or a dream home. It may be the
promise of your child's or grandchild's college education. Or the pride you take
in knowing that your family is financially secure because of the financial plans
you've made with us in retirement. Whatever your goals, our team of
professionals is here to help you achieve them.
As we move through 1999, I want you to know that we are prepared to help meet
your needs well into the next millennium. We have a team of extremely competent
business experts and systems leading our charge in addressing the Year 2000 bug.
In fact, we are making steady progress in systems remediation, and expect to be
Year 2000 ready by mid-1999.
My colleagues at Aetna Retirement Services and I look forward to continuing our
partnership into the next millennium. Thank you for your confidence and support.
Sincerely,
/s/ Thomas J. McInerney
Thomas J. McInerney
- --------------------------
(1)Remember that past performance is no indication of future results.
<PAGE>
Variable Annuity Account G
Statement of Assets and Liabilities - December 31, 1998
<TABLE>
<CAPTION>
ASSETS:
Investments, at net asset value: (Note 1)
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
Oppenheimer Funds:
Aggressive Growth Fund: 1,042,798 $ 41,378,486 $ 46,748,625
Bond Fund: 972,970 11,406,930 11,986,988
Global Securities Fund: 1,729,839 30,909,311 38,177,558
Growth Fund: 1,435,777 38,911,510 52,649,944
High Income Fund: 1,916,642 21,617,707 21,121,399
Money Fund: 11,115,639 11,107,273 11,115,639
Multiple Strategies Fund: 2,345,271 35,157,572 39,986,876
Strategic Bond Fund: 2,411,390 12,386,390 12,346,318
------------ ------------
NET ASSETS $202,875,179 $234,133,347
============ ============
</TABLE>
Net assets represented by:
Reserves for annuity contracts in accumulation period: (Notes 1 and 5)
<TABLE>
<CAPTION>
Oppenheimer Funds:
<S> <C>
Aggressive Growth Fund:
Annuity contracts in accumulation ........................................ $ 46,748,625
Bond Fund:
Annuity contracts in accumulation ........................................ 11,986,988
Global Securities Fund:
Annuity contracts in accumulation ........................................ 38,177,558
Growth Fund:
Annuity contracts in accumulation ........................................ 52,649,944
High Income Fund:
Annuity contracts in accumulation ........................................ 21,121,399
Money Fund:
Annuity contracts in accumulation ........................................ 11,115,639
Multiple Strategies Fund:
Annuity contracts in accumulation ........................................ 39,986,876
Strategic Bond Fund:
Annuity contracts in accumulation ........................................ 12,346,318
------------
$234,133,347
============
</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,
1998 1997
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends .......................................................... $ 18,072,003 $ 16,622,939
Expenses: (Notes 2 and 5)
Valuation period deductions ........................................ (3,630,872) (4,148,057)
------------ ------------
Net investment income ............................................... 14,441,131 12,474,882
------------ ------------
NET REALIZED AND UNREALIZED (LOSS) GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ................................................ 159,761,130 143,912,948
Cost of investments sold ........................................... 141,431,270 127,384,271
------------ ------------
Net realized gain ................................................. 18,329,860 16,528,677
------------ ------------
Net unrealized gain on investments: (Note 5)
Beginning of year .................................................. 39,862,057 25,989,041
End of year ........................................................ 31,258,168 39,862,057
------------ ------------
Net change in unrealized (loss) gain .............................. (8,603,889) 13,873,016
------------ ------------
Net realized and unrealized gain on investments ..................... 9,725,971 30,401,693
------------ ------------
Net increase in net assets resulting from operations ................ 24,167,102 42,876,575
------------ ------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ......................... 675,807 679,845
Transfers to the Company's fixed account options .................... (1,382,953) (1,083,698)
Redemptions by contract holders ..................................... (87,122,422) (49,029,578)
Other ............................................................... 39,729 72,529
------------ ------------
Net decrease in net assets from unit transactions (Note 5) ......... (87,789,839) (49,360,902)
------------ ------------
Change in net assets ................................................ (63,622,737) (6,484,327)
NET ASSETS:
Beginning of year ................................................... 297,756,084 304,240,411
------------ ------------
End of year ......................................................... $234,133,347 $ 297,756,084
============ =============
</TABLE>
See Notes to Financial Statements
<PAGE>
Variable Annuity Account G
Condensed Financial Information - Year Ended December 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------------------------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oppenheimer Funds:
Aggressive Growth Fund:
CLIAC I $34.245 $37.962 10.85% 1,231,450.0 $46,748,625
- ----------------------------------------------------------------------------------------------------------------
Bond Fund:
CLIAC I 16.147 17.014 5.37% 704,529.9 11,986,988
- ----------------------------------------------------------------------------------------------------------------
Global Securities Fund:
CLIAC I 21.396 24.087 12.58% 1,584,984.9 38,177,558
- ----------------------------------------------------------------------------------------------------------------
Growth Fund:
CLIAC I 31.097 38.044 22.34% 1,383,937.0 52,649,944
- ----------------------------------------------------------------------------------------------------------------
High Income Fund:
CLIAC I 24.441 24.187 (1.04%) 873,256.8 21,121,399
- ----------------------------------------------------------------------------------------------------------------
Money Fund:
CLIAC I 12.933 13.429 3.84% 827,713.3 11,115,639
- ----------------------------------------------------------------------------------------------------------------
Multiple Strategies Fund:
CLIAC I 22.009 23.159 5.23% 1,726,614.1 39,986,876
- ----------------------------------------------------------------------------------------------------------------
Strategic Bond Fund:
CLIAC I 13.235 13.436 1.52% 918,930.8 12,346,318
- ----------------------------------------------------------------------------------------------------------------
</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, 1998
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, 1998:
<TABLE>
<CAPTION>
<S> <C>
Oppenheimer Funds
o Aggressive Growth Fund o High Income Fund
o Bond Fund o Money Fund
o Global Securities Fund o Multiple Strategies Fund
o Growth Fund o Strategic Bond Fund
</TABLE>
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 Statements of Operations and Changes in Net Assets.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended December 31, 1998 and 1997
aggregated $86,412,422 and $159,761,130; $107,026,927 and $143,912,948,
respectively.
<PAGE>
Variable Annuity Account G
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Oppenheimer Funds:
Aggressive Growth Fund: (1) $1,514,792 ($ 684,461) $31,580,795 $28,776,621 $2,804,174
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Bond Fund: 464,866 (184,859) 7,419,874 7,149,276 270,598
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Global Securities Fund: 4,707,894 (594,290) 18,158,457 13,465,038 4,693,419
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Growth Fund: 5,251,096 (729,114) 21,533,710 14,747,824 6,785,886
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
High Income Fund: 1,581,823 (390,535) 21,445,516 20,610,333 835,183
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Money Fund: 678,425 (179,102) 29,795,344 29,800,027 (4,683)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Multiple Strategies Fund: 3,383,260 (661,691) 19,387,901 16,741,516 2,646,385
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund: 489,847 (206,820) 10,439,533 10,140,635 298,898
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account G $18,072,003 ($3,630,872) $159,761,130 $141,431,270 $18,329,860
==========================================================================================================================
(1) - Effective May 1, 1998, Capital Appreciation Fund's name changed to Aggressive Growth Fund.
</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>
$ 4,226,567 $ 5,370,139 $ 1,143,572 ($ 16,005,524)
$57,976,072 $46,748,625
- ----------------------------------------------------------------------------------------------------------
421,912 580,059 158,147 (4,321,837)
15,600,073 11,986,988
- ----------------------------------------------------------------------------------------------------------
11,088,261 7,268,247 (3,820,014) (15,487,479)
48,678,028 38,177,558
- ----------------------------------------------------------------------------------------------------------
14,423,529 13,738,433 (685,096) (14,806,302)
56,833,474 52,649,944
- ----------------------------------------------------------------------------------------------------------
1,551,978 (496,308) (2,048,286) (13,304,629)
34,447,843 21,121,399
- ----------------------------------------------------------------------------------------------------------
587 8,367 7,780 (1,483,645)
12,096,864 11,115,639
- ----------------------------------------------------------------------------------------------------------
7,843,323 4,829,304 (3,014,019) (17,904,867)
55,537,808 39,986,876
- ----------------------------------------------------------------------------------------------------------
305,900 (40,073) (345,973) (4,475,556)
16,585,922 12,346,318
- ----------------------------------------------------------------------------------------------------------
$39,862,057 $31,258,168 ($8,603,889) ($87,789,839) $297,756,084 $234,133,347
==========================================================================================================
</TABLE>
<PAGE>
Variable Annuity Account G
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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>
Independent Auditors' 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, 1998, and the related statements of operations and changes in
net assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1998. These financial
statements and condensed financial information are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements and condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and condensed financial information. Our procedures
included confirmation of securities owned as of December 31, 1998, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of Aetna Life Insurance and Annuity Company Variable Annuity Account G
as of December 31, 1998, the results of its operations and changes in its net
assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1998, in conformity with
generally accepted accounting principles.
KPMG LLP
Hartford, Connecticut
February 26, 1999
