485BPOS 1 a2035433z485bpos.txt 485BPOS As filed with the Securities and Exchange Registration No. 333-09515 Commission on April 18, 2001 Registration No. 811-2512 -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 -------------------------------------------------------------------------------- POST-EFFECTIVE AMENDMENT NO. 13 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and Amendment to REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 -------------------------------------------------------------------------------- Variable Annuity Account B of Aetna Life Insurance and Annuity Company Aetna Life Insurance and Annuity Company 151 Farmington Avenue, TS31, Hartford, Connecticut 06156 Depositor's Telephone Number, including Area Code: (860) 273-4686 Julie E. Rockmore, Counsel Aetna Life Insurance and Annuity Company 151 Farmington Avenue, TS31, Hartford, Connecticut 06156 (NAME AND ADDRESS OF AGENT FOR SERVICE) -------------------------------------------------------------------------------- It is proposed that this filing will become effective: immediately upon filing pursuant to paragraph (b) of Rule 485 -------- X on May 1, 2001 pursuant to paragraph (b) of Rule 485 -------- VARIABLE ANNUITY ACCOUNT B CROSS REFERENCE SHEET
FORM N-4 LOCATION - PROSPECTUS ITEM NO. PART A (PROSPECTUS) DATED MAY 1, 2001 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 FORM N-4 LOCATION - STATEMENT OF ADDITIONAL ITEM NO. PART B (STATEMENT OF ADDITIONAL INFORMATION) INFORMATION DATED MAY 1, 2001 FORM N-4 ITEM NO. 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. AETNA IMMEDIATE ANNUITY PROSPECTUS -- MAY 1, 2001 -------------------------------------------------------------------------------- [SIDE NOTE] THE FUNDS - 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 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 - 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 [END SIDE NOTE] 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. 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 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 18, 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, 2001, 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. This prospectus, the SAI and other information about the separate account may be obtained by accessing the Securities and Exchange Commission's (SEC) website, www.sec.gov. Copies of this information may also be obtained, after paying a duplicating fee, by contacting the SEC Public Reference Room. Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090 or 1-800-SEC-0330, e-mailing publicinfo@sec.gov or by writing to SEC Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. The SAI table of contents is listed on page 38 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. 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. (This page has been left blank intentionally.) TABLE OF CONTENTS CONTRACT OVERVIEW.............................. 4 Contract Design Who's Who Contract Rights The Contract and Retirement Plan Contract Facts Questions: Contacting the Company (sidebar) Sending Forms and Written Requests in Good Order (sidebar) FEE TABLE........................................ 5 CONDENSED FINANCIAL INFORMATION.................. 10 PURCHASE......................................... 10 RIGHT TO CANCEL.................................. 11 INCOME PAYMENTS.................................. 11 CALCULATING VARIABLE INCOME PAYMENTS............. 17 INVESTMENT OPTIONS............................... 18 FEES............................................. 21 DEATH BENEFIT.................................... 24 WITHDRAWALS...................................... 25 TAXATION......................................... 26 OTHER TOPICS..................................... 33 The Company -- Variable Annuity Account B -- Contract Distribution -- Payment Delay or Suspension -- Performance Reporting -- Voting Rights -- Contract Modifications -- Transfer of Ownership -- Legal Matters and Proceedings -- Financial Statements CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION...................................... 38 APPENDIX I FIXED DOLLAR OPTION................... 39 APPENDIX II DESCRIPTION OF UNDERLYING FUNDS...... 42 APPENDIX III CONDENSED FINANCIAL INFORMATION..... 58
3 [SIDE NOTE] QUESTIONS: CONTACTING THE COMPANY To answer your questions, contact your sales representative or write or call our Home Office at: ING 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 NOTE] CONTRACT OVERVIEW ---------------------------------------------- The following is intended as a summary. Please read each section of this prospectus for additional detail. CONTRACT DESIGN ------------------------------------------------------------------- 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 ------------------------------------------------------------------- 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 ------------------------------------------------------------------- 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." 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." 4 [SIDE NOTE] IN THIS SECTION: -- Maximum Transaction Fees -- Maximum Fees Deducted from the Subaccounts -- Fees Deducted by the Funds -- Hypothetical Examples ALSO SEE THE "FEES" FOR: -- How, When and Why Fees are Deducted -- Premium and Other Taxes -- Reduction or Elimination of Certain Fees [END SIDE NOTE] FEE TABLE ---------------------------------------------- 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* Early Number of Years from Withdrawal Contract Effective Date** Charge -------------------------------------------------- --- 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%
(*)Not all contracts permit withdrawals. Under certain contracts withdrawals are not allowed during the first year. See "Withdrawals." (**)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: 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%(3) ------------ TOTAL SEPARATE ACCOUNT EXPENSES 2.25%-2.50% ============
(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. (3) This charge terminates after five years if the Five Year Guaranteed Minimum Income Feature is elected. Otherwise, it will continue for the life of the contract. 5 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, 2000, unless otherwise noted.
FUND EXPENSE TABLE(1) Total Fund Net Fund Annual Annual Expenses Expenses Investment Without Total After Advisory Other Waivers or Waivers and Waivers Fund Name Fees Expenses Reductions Reductions or Reductions --------- ---- -------- ---------- ---------- ------------- Aetna Ascent VP(2) 0.60% 0.15% 0.75% 0.00% 0.75% Aetna Balanced VP, Inc. 0.50% 0.09% 0.59% -- 0.59% Aetna Bond VP 0.40% 0.10% 0.50% -- 0.50% Aetna Crossroads VP(2) 0.60% 0.15% 0.75% 0.05% 0.70% Aetna Growth VP(2) 0.60% 0.10% 0.70% 0.00% 0.70% Aetna Growth and Income VP 0.50% 0.08% 0.58% -- 0.58% Aetna Index Plus Large Cap VP(2) 0.35% 0.09% 0.44% 0.00% 0.44% Aetna International VP(2) 0.85% 0.49% 1.34% 0.19% 1.15% Aetna Legacy VP(2) 0.60% 0.16% 0.76% 0.11% 0.65% Aetna Money Market VP 0.25% 0.09% 0.34% -- 0.34% Aetna Small Company VP(2) 0.75% 0.12% 0.87% 0.00% 0.87% AIM V.I. Capital Appreciation Fund 0.61% 0.21% 0.82% -- 0.82% AIM V.I. Growth Fund 0.61% 0.22% 0.83% -- 0.83% AIM V.I. Growth and Income Fund 0.60% 0.24% 0.84% -- 0.84% AIM V.I. Value Fund 0.61% 0.23% 0.84% -- 0.84% Fidelity VIP High Income Portfolio(5) 0.58% 0.10% 0.68% -- 0.68% Janus Aspen Growth Portfolio(4) 0.65% 0.02% 0.67% 0.00% 0.67% Janus Aspen Worldwide Growth Portfolio(4) 0.65% 0.04% 0.69% 0.00% 0.69% Oppenheimer Aggressive Growth Fund/VA 0.62% 0.02% 0.64% -- 0.64% Oppenheimer Main Street Growth & Income Fund/VA 0.70% 0.03% 0.73% -- 0.73% Oppenheimer Strategic Bond Fund/VA 0.74% 0.05% 0.79% -- 0.79% PPI MFS Capital Opportunities Portfolio(5) 0.65% 0.25% 0.90% 0.00% 0.90% PPI MFS Emerging Equities Portfolio(5) 0.66% 0.13% 0.79% 0.00% 0.79% 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%
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 generally are separate from the expenses shown above and do not affect, directly or indirectly, the expenses paid by 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, 2001 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 maintain a certain expense ratio. Actual expenses for these funds for the period ended December 31, 2000 were at or below contractual limits. (3) The investment adviser is contractually obligated through December 31, 2001 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 do not exceed the percentage reflected under "Net Fund Annual Expenses After Waivers or Reductions." (4) Expenses are based upon expenses for the fiscal year ended December 31, 2000, restated to reflect a reduction in the management fee for Growth and Worldwide Growth Portfolios. All expenses are shown without the effect of any 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, 2002, 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. 6 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. -- These examples EXAMPLE A EXAMPLE B are purely If you withdraw your remaining If you do not withdraw your hypothetical. guaranteed payments at the end of remaining guaranteed payments, you -- They should not the periods shown, you would pay would pay the following fees at be considered a the following fees, including any the end of the periods shown (no representation applicable early withdrawal early withdrawal charge is of past or charge: reflected): future expenses or expected returns. -- Actual expenses and/or returns may be more or less than those shown in these examples.
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- ------ ------- ------- -------- Aetna Ascent VP $78 $ 94 $110 $156 $22 $62 $ 96 $156 Aetna Balanced VP, Inc. $77 $ 90 $103 $145 $20 $57 $ 89 $145 Aetna Bond VP $76 $ 88 $100 $140 $19 $55 $ 86 $140 Aetna Crossroads VP $78 $ 94 $110 $156 $22 $62 $ 96 $156 Aetna Growth VP $78 $ 93 $108 $152 $21 $60 $ 94 $152 Aetna Growth and Income VP $77 $ 90 $103 $145 $20 $57 $ 89 $145 Aetna Index Plus Large Cap VP $76 $ 86 $ 97 $136 $19 $53 $ 83 $136 Aetna International VP $84 $109 $133 $192 $27 $77 $119 $192 Aetna Legacy VP $78 $ 95 $110 $156 $22 $62 $ 96 $156 Aetna Money Market VP $75 $ 84 $ 93 $129 $18 $51 $ 79 $129 Aetna Small Company VP $79 $ 97 $114 $163 $23 $65 $100 $163 AIM V.I. Capital Appreciation Fund $79 $ 96 $112 $160 $23 $63 $ 98 $160 AIM V.I. Growth Fund $79 $ 96 $113 $161 $23 $64 $ 99 $161 AIM V.I. Growth and Income Fund $79 $ 97 $113 $161 $23 $64 $ 99 $161 AIM V.I. Value Fund $79 $ 97 $113 $161 $23 $64 $ 99 $161 Fidelity VIP High Income Portfolio $78 $ 93 $107 $151 $21 $60 $ 93 $151 Janus Aspen Growth Portfolio $78 $ 92 $106 $151 $21 $59 $ 92 $151 Janus Aspen Worldwide Growth Portfolio $78 $ 93 $107 $152 $21 $60 $ 93 $152 Oppenheimer Aggressive Growth Fund/VA $77 $ 92 $105 $149 $21 $59 $ 91 $149 Oppenheimer Main Street Growth & Income Fund/VA $78 $ 94 $109 $154 $22 $61 $ 95 $154 Oppenheimer Strategic Bond Fund/VA $79 $ 95 $111 $158 $22 $63 $ 97 $158 PPI MFS Capital Opportunities Portfolio $80 $ 98 $116 $165 $23 $65 $102 $165 PPI MFS Emerging Equities Portfolio $79 $ 95 $111 $158 $22 $63 $ 97 $158 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
7 HYPOTHETICAL EXAMPLES (For contracts WITH the Lifetime 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. -- These examples are purely EXAMPLE A EXAMPLE B hypothetical. If you withdraw your remaining If you do not withdraw your -- They should not be considered a guaranteed payments at the end of remaining guaranteed payments you representation of past or future the periods shown, you would pay the would pay the following fees at the fees or expected returns. following fees, including any end of the periods shown (no early -- Actual expenses and/or returns may applicable early withdrawal charge: withdrawal charge is reflected): be more or less than those shown in these examples.
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- ------ ------- ------- -------- Aetna Index Plus Large Cap VP Not Applicable. Withdrawals are $29 $83 $133 $237 not allowed if you elected the Lifetime Guaranteed Minimum Income Feature.
8 HYPOTHETICAL EXAMPLES (For contracts WITH the Five Year 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 for the first five years) 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. -- These examples are purely EXAMPLE A EXAMPLE B hypothetical. If you withdraw your remaining If you do not withdraw your -- They should not be considered a guaranteed payments at the end of remaining guaranteed payments you representation of past or future the periods shown, you would pay the would pay the following fees at the fees or expected returns. following fees, including any end of the periods shown (no early -- Actual expenses and/or returns may applicable early withdrawal charge: withdrawal charge is reflected): be more or less than those shown in these examples.
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- ------ ------- ------- -------- Aetna Ascent VP $87 $119 $148 $192 $31 $88 $135 $192 Aetna Balanced VP, Inc. $86 $116 $142 $182 $30 $83 $129 $182 Aetna Bond VP $85 $113 $139 $177 $29 $81 $125 $177 Aetna Crossroads VP $87 $119 $148 $192 $31 $88 $135 $192 Aetna Growth and Income VP $86 $115 $142 $182 $30 $83 $128 $182 Aetna Index Plus Large Cap VP $85 $112 $136 $173 $28 $80 $123 $173 Aetna Legacy VP $87 $120 $149 $193 $31 $88 $135 $193 Aetna Money Market VP $84 $109 $133 $167 $27 $77 $119 $167 AIM V.I. Growth and Income Portfolio $88 $122 $152 $197 $32 $90 $139 $197 Fidelity VIP High Income Portfolio $87 $118 $146 $188 $31 $86 $132 $188 Oppenheimer Main Street Growth & Income Fund/VA $87 $119 $148 $191 $31 $87 $134 $191 Oppenheimer Strategic Bond Fund/VA $88 $120 $150 $195 $32 $89 $137 $195
9 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. 10 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. INCOME PAYMENTS ---------------------------------------------- [SIDE NOTE] 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 NOTE] 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: - Payment start date; - Payment frequency (i.e., monthly, quarterly, semi-annually or annually); - Income payment option and any special features, such as a right to withdraw or a Guaranteed Minimum Income Feature; - Fixed, variable or a combination of both fixed and variable payments; - The subaccounts to allocate your purchase payment among (only if variable payments are elected); and - 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. Payments need to conform to minimum distribution requirements if applicable. See "Taxation." 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 11 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. 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." 12 GUARANTEED MINIMUM INCOME FEATURES LIFETIME GUARANTEED MINIMUM INCOME FEATURE. This feature is unavailable under contracts issued on or after May 1, 2001. If you selected 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 estimated initial payment. ESTIMATED INITIAL PAYMENT AMOUNT. On the date we issued your contract we estimated the amount of your initial payment based on the value of the annuity units your payment purchased on that date. See "Calculating Variable Income Payments--Annuity Units." Your guaranteed minimum payment amount equals 90% of this estimated amount. This feature required that you select at issue: - A lifetime payment option - 100% variable payments - Aetna Index Plus Large Cap VP as the only subaccount into which your purchase payment is allocated - 3.5% assumed annual net return rate In addition to other contract charges, if you selected this feature the guaranteed minimum income charge will apply for the life of the contract. See "Fees." There is no right to withdraw and no right to transfer if you selected this feature. FIVE YEAR GUARANTEED MINIMUM INCOME FEATURE. This feature is available only under contracts issued on or after May 1, 2001. If you select this feature, we guarantee that during the first five contract years 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 estimated initial payment. ESTIMATED INITIAL PAYMENT AMOUNT. 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 purchase on that date. See "Calculating Variable Income Payments--Annuity Units." Your guaranteed minimum payment amount equals 90% of this estimated amount. This feature requires that you select at issue: - A lifetime payment option or a nonlifetime payment option of 15 years or more - The ability to make withdrawals - 100% variable payments - Funds from the following list: Aetna Ascent VP Aetna Balanced VP, Inc. Aetna Bond VP Aetna Crossroads VP Aetna Growth and Income VP Aetna Index Plus Large Cap VP Aetna Legacy VP Aetna Money Market VP AIM V.I. Growth and Income Fund Fidelity VIP High Income Portfolio Oppenheimer Main Street Growth & Income Fund/VA Oppenheimer Strategic Bond Fund/VA - If you select this feature you may transfer only between these available funds - 3.5% assumed annual net return rate - Certain age restricitions may also apply If you select this feature, any withdrawal during the first five contract years will result in a proportionate reduction in your guaranteed minimum payment amount. In addition to other contract charges, if you select this feature, the guaranteed minimum income charge will apply for the first five contract years. See "Fees." 13 START DATE. The contract is designed to be viewed as an immediate annuity contract under the Tax Code. For nonqualified contracts 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. Annuity payments under a qualified contract must meet the required beginning date applicable to your qualified plan. 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." 14 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. LIFETIME PAYMENT OPTIONS ------------------------------------------------------------------------------------------------------------ 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 Life Income-- option). Guaranteed DEATH BENEFIT--PAYMENT TO THE BENEFICIARY: If the annuitant dies before we have made all Payments the guaranteed payments, payments will continue to the beneficiary. 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 Life Income-- (b) 100% of the payment to continue to the annuitant on the joint annuitant's death, and a Two Lives reduced payment to continue to the joint annuitant on the annuitant's death. 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.) Life Income-- CONTINUING PAYMENTS: 100% of the payment will continue to the surviving annuitant after Two Lives-- the first annuitant's death. Guaranteed DEATH BENEFIT--PAYMENT TO THE BENEFICIARY: If both annuitants die before the guaranteed Payments payments have all been paid, payments will continue to the beneficiary. 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--50 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, payments 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"). -----------------------------------------------------------------------------------------------------------
RIGHT TO CHANGE GUARANTEED PAYMENT PERIOD If you are receiving payments under a nonlifetime payment option, you may shorten or lengthen the period for which the guaranteed payments will be made or change to a lifetime payment option, subject to the following: (a) You may make the change on any contract anniversary beginning on the second contract anniversary; 15 (b) Any change request must be in writing and received by us in good order within 30 days prior to the contract anniversary: (c) A guaranteed payment period may be shortened to a period not less than 10 years from the contract effective date; (d) For nonqualified contracts, a guaranteed payment period may be lengthened to a period not greater than 50 years from the contract effective date or age 100, whichever is earlier; (e) For qualified contracts, a guaranteed payment period may not extend beyond your life expectancy or age 100, whichever is earlier; and (f) The withdrawal value on the contract anniversary of the change will be used to determine the amount of the new annuity payments. See "Withdrawals--Withdrawal Value." For variable payments, the right to change a payment period is available on contracts issued on or after October 1, 2000. For fixed payments, the right to change a payment period is available on contracts issued on or after May 1, 2001. The right to change a payment period may not be available in all states. Certain other conditions and restrictions may apply. A change to a lifetime payment option and any change in the guaranteed payment period may have an impact on the amount of each payment and the amount of each payment that is taxable. For advice about how any such change will affect your taxes, consult your tax adviser. 16 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 result in a change in the number of units, including withdrawals, death of an annuitant if a reduction in payment to a surviving annuitant was selected, transfers among subaccounts, or a change in a guaranteed payment period. While the number of units may change if you transfer among subaccounts or make a change in a guaranteed payment period, the current value of your contract will not change as a result of either of these events. 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. 17 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. Please refer to the fund prospectuses for additional information. Fund prospectuses may be obtained, free of charge, from our Home Office at the address and telephone number listed in "Contract Overview--Questions: Contacting the Company," by accessing the SEC's website or by contacting the SEC 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 - CHOOSE OPTIONS APPROPRIATE FOR YOU. Your sales representative can help you evaluate which investment options may be appropriate for your financial goals. - 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. - BE INFORMED. Read this prospectus, the fund prospectuses and the Fixed Dollar Option appendix in this prospectus. 18 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. 19 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. 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. 20 [SIDE NOTE] 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 - Early Withdrawal Charge -- FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT - Mortality and Expense Risk Charge - Administrative Expense Charge - Guaranteed Minimum Income Charge -- FEES DEDUCTED BY THE FUNDS -- PREMIUM AND OTHER TAXES [END SIDE NOTE] 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. SCHEDULE A Early Number of Years from Withdrawal Contract Effective Date* Charge -------------------------------------------------- --- 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%
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. SCHEDULE B Early Number of Years from Withdrawal Contract Effective Date* Charge -------------------------------------------------- --- 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%
* 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. 21 WHEN/HOW. At the time of withdrawal we deduct this charge from the amount withdrawn. 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 one of the guaranteed minimum income features. 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. If the Lifetime Guaranteed Minimum Income Feature is selected, this charge will be assessed for the life of the contract. If the Five Year Guaranteed Minimum Income Feature is selected, this charge will be assessed only during the first five contract years. PURPOSE. This charge compensates us for the additional mortality and expense risks we assume by guaranteeing minimum income payments. For additional 22 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 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 a charge for premium taxes from your purchase payment on the contract effective date. We will not deduct a charge for any municipal premium tax of 1% or less, but we reserve the right to reflect such an expense in our annuity purchase rates. In addition, we reserve the right to assess a charge for any federal taxes due against the separate account. See "Taxation." 23 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 Appendix 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. 24 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 selected the Lifetime 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. WITHDRAWAL VALUE 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 the withdrawal value 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 and any applicable guaranteed minimum payment amount. 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. 25 [SIDE NOTE] 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 NOTE] 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). NONQUALIFIED CONTRACTS. A full withdrawal of the present value of any remaining guaranteed payments under a nonqualified contract is taxable to the 26 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). The minimum distribution rules are subject to change as a result of new regulations proposed by the IRS on January 17, 2001. 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. 27 A payment can be rolled over only if it is: -- Not attributable to after-tax contributions; and -- Not a required minimum distribution under Tax Code section 401(a)(9). The minimum distribution rules are subject to change as a result of new regulations proposed by the IRS on January 17, 2001. 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. 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. In addition, 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 28 should consult with a tax adviser to determine how this will affect your tax liability. 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 qualified 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 to an eligible retirement plan 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. 29 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 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: - A plan participant as a means to provide benefit payments; - An alternate payee under a qualified domestic relations order in accordance with Tax Code section 414(p); or - 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 $35,000. 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: - Salary reduction contributions made after December 31, 1988; - Earnings on those contributions; and - 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 30 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), a 403(b) arrangement, or another traditional IRA 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 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 $8,500, as adjusted to reflect changes in the cost of living, or 33 1/3% 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 31 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 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 a contract, the transfer of the right to payments under a nonqualified contract or the exchange of a contract may have tax consequences. 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, generally if your death occurs before the required beginning 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 32 of the beneficiary. For details regarding rules specific to your retirement plan, consult your tax adviser. TAXATION OF THE COMPANY We are taxed as a life insurance company under the Tax Code. Variable Annuity Separate Account B is not a separate entity from us. Therefore, it is not taxed separately as a "regulated investment company," but is taxed as part of the Company. We automatically apply investment income and capital gains attributable to the separate account to increase reserves under the contracts. Because of this, under existing federal tax law we believe that any such income and gains will not be taxed. 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 ---------------------------------------------- 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 ING Groep N.V., a global financial institution active in the fields of insurance, banking and asset management. 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) under Connecticut Law in 1976 as a continuation of the separate account established in 1974 under Arkansas Law by Aetna Variable Annuity Life Insurance Company. The separate account was established as a segregated asset account to fund 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. 33 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. CONTRACT DISTRIBUTION Our subsidiary, Aetna Investment Services, LLC (AIS), serves as the principal underwriter for the contracts. AIS, a Delaware limited liability company, is registered as a broker-dealer with the SEC. AIS is also a member of the National Association of Securities Dealers, Inc. (NASD) and the Securities Investor Protection Corporation. AIS' principal office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. The contracts are offered to the public by individuals who are registered representatives of AIS or other broker-dealers which have entered into a selling arrangement with AIS. We refer to AIS and the other broker-dealers selling the contracts as "distributors." All registered representatives selling the contracts must also be licensed as insurance agents for the Company. 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, certain of these distributors may also receive compensation, overrides or reimbursement for expenses associated with the distribution of the contract. At times certain distributors may be offered 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. The total compensation package for sales, supervisory and management personnel of affiliated or related broker-dealers may be positively impacted if the overall amount of investments in the contracts and other products issued or 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. 34 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 applicable 35 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, a number of companies have been named as defendants in class action lawsuits relating to life insurance. The Company is a defendant in one such lawsuit, a purported class action which was filed against the Company in the United States District Court for the Middle District of Florida on June 30, 2000, by Helen Reese, Richard Reese, Villere Bergeron, and Alan Eckert (the "Reese Complaint"). The Reese Complaint claims that the Company engaged in unlawful sales practices in marketing life insurance policies. The Company intends to defend this 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. 36 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." 37 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." 38 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 VALUE--LIFETIME PAYMENT OPTIONS. If you select a lifetime payment option with guaranteed payments and elect the right to make withdrawals, 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 value. Any applicable early withdrawal charge will be deducted. WITHDRAWAL VALUE--NONLIFETIME PAYMENT OPTIONS. If you select a nonlifetime payment option and elect the right to make withdrawals, 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. 39 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 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 later of the contract effective date or the benefit change date shown in your contract, of 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 later of the contract effective date or the benefit change date. (3) Issue duration equals 1 plus the number of whole years from the later of the contract effective date or the benefit change date until the final payment is due, divided by 2. Any resulting fraction will be rounded up to the next whole number. (4) Benefit change date is the date of the most recent change, if any, of the guaranteed payment period. 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.
SCHEDULE A NUMBER OF YEARS FROM CONTRACT EFFECTIVE DATE* EARLY WITHDRAWAL CHARGE 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%
40 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.
SCHEDULE B NUMBER OF YEARS FROM CONTRACT EFFECTIVE DATE* EARLY WITHDRAWAL CHARGE 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%
*For participants under a group contract, the early withdrawal charge will be calculated based on the number of years from the certificate effective date. 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. 41 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. 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. 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 approximately 40% of total assets in debt (including money market instruments), although those percentages may vary from time to time. In making asset allocation decisions, the investment adviser uses current market statistics and economic indicators to attempt to forecast returns for the equity and debt sectors of the securities market, using quantitative computer models to evaluate financial criteria in an attempt to identify those issuers whose perceived value is not reflected in their equity or debt securities. May also invest in foreign debt securities. PRINCIPAL 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. Because the fund's assets are allocated between equities and fixed income securities, the fund may underperform stock funds when stocks are in favor and underperform bond funds when bonds are in favor. 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. 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. 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. Investments outside the U.S. may also be affected by administrative difficulties, such as delays in clearing and settling transactions. These risks are usually higher for securities of companies in emerging markets. Finally, 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. (Aeltus) 42 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 Investor Services, 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. High yield bonds are fixed income securities rated below BBB- by S&P or Baa3 by Moody's or, if unrated, considered by the investment adviser to be of comparable quality. May invest in zero coupon securities. PRINCIPAL 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. The risks associated with high-yield bonds also apply to zero coupon securities. 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 present 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. Investments outside the U.S. may also be affected by administrative difficulties, such as delays in clearing and settling transactions. These risks are usually higher for securities of companies in emerging markets. Finally, 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. (Aeltus) 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. May invest principally in common stocks having significant potential for capital appreciation, income growth, or both. Tends to emphasize stocks of larger companies. May also invest assets in stocks of small and medium-sized companies, and stocks of foreign issuers, depending upon market conditions. Combines internally developed quantitative computer models with a qualitative overlay to determine the relative attractiveness of each asset class and to evaluate company financial characteristics (for example, price-to-earnings ratios, growth rates and earnings estimates) to select securities within each class. PRINCIPAL 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 43 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. 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. Investments outside the U.S. may also be affected by administrative difficulties, such as delays in clearing and settling transactions. These risks are usually higher for securities of companies in emerging markets. Finally, 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. (Aeltus) 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 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), corporate debt securities, commercial paper, asset-backed securities, mortgage-related 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. PRINCIPAL RISKS It is possible to lose money by investing in the fund. There is no guaranty the fund will achieve its investment objective. Investments in the fund are not bank deposits and are 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. Risks also include adverse changes in the actual or perceived creditworthiness of issuers and adverse changes in the economic or political environment. INVESTMENT ADVISER: Aeltus Investment Management, Inc. (Aeltus) 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. May invest up to 15% of total assets in high-yield, high-risk bonds (high yield bonds). 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. Among the criteria that the investment adviser evaluates to determine allocations are economic and market conditions, including changes in circumstances with respect to particular asset classes, geographic regions, industries or issuers, and interest rate movements. The benchmark portfolio is 80% equities and 20% fixed income under neutral market conditions. 44 PRINCIPAL 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 than stocks of larger companies, and can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings. 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 caused by such factors as over-building. 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 present 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. Investments outside of the U.S. may also be affected by administrative difficulties such as delays in clearing and settling portfolio transactions. 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. (Aeltus) 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. May invest up to 15% of total assets in high-yield, high-risk bonds (high yield bonds). 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. Among the criteria that the investment adviser evaluates to determine allocations are economic and market conditions, including changes in circumstances with respect to particular asset classes, geographic regions, industries or issuers, and interest rate movements. The benchmark portfolio is 60% equities and 40% fixed income under neutral market conditions. PRINCIPAL 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 than stocks of larger companies, and can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings. 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 caused by such factors as over-building. 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 present 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 45 standardized in certain foreign countries. Investments outside of the U.S. may also be affected by administrative difficulties such as delays in clearing and settling portfolio transactions. 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. (Aeltus) 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. May invest up to 15% of total assets in high-yield, high-risk bonds (high yield bonds). 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. Among the criteria that the investment adviser evaluates to determine allocations are economic and market conditions, including changes in circumstances with respect to particular asset classes, geographic regions, industries or issuers, and interest rate movements. The benchmark portfolio is 40% equities and 60% fixed income under neutral market conditions. PRINCIPAL 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 than stocks of larger companies, and can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings. 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 caused by such factors as over-building. 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 present 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. Investments outside of the U.S. may also be affected by administrative difficulties such as delays in clearing and settling portfolio transactions. 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. (Aeltus) 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. 46 POLICIES Under normal market conditions, invests at least 65% of total assets in common stocks and securities convertible into common stock. Emphasizes 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 perceived 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. PRINCIPAL 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. (Aeltus) 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. The S&P 500 is a stock market index comprised of common stocks of 500 of the largest companies traded in the U.S. and selected by S&P. 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, the investment adviser 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. PRINCIPAL 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. (Aeltus) AETNA VARIABLE PORTFOLIOS, INC.--AETNA INTERNATIONAL VP INVESTMENT OBJECTIVE Seeks long-term capital growth primarily through 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. Invests in a mix of stocks that the investment adviser believes have the potential for 47 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. The investment adviser analyzes cash flows, earnings and dividends of each company in an attempt to select companies with long-term sustainable growth characteristics. Employs currency hedging to protect the portfolio from adverse effects on the U.S. dollar. PRINCIPAL 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. Investments outside the U.S. may also be affected by administrative difficulties, such as delays in clearing and settling portfolio transactions. INVESTMENT ADVISER: Aeltus Investment Management, Inc. (Aeltus) 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 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. PRINCIPAL 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. (Aeltus) 48 AIM V.I. CAPITAL APPRECIATION FUND INVESTMENT OBJECTIVE Seeks growth of capital. POLICIES Seeks to meet its objective by investing principally in common stocks of companies the portfolio managers 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. Portfolio managers consider whether to sell a particular security when any of those factors materially changes. May also invest up to 25% of total assets in foreign securities. In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, 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. PRINCIPAL RISKS 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. Prices of foreign securities may be further affected by other factors, including: currency exchange rates, political and economic conditions, regulations, and markets. These factors may affect the prices of securities issued by foreign companies located in developing countries more than those in countries with mature economies. 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. AIM V.I. GROWTH FUND INVESTMENT OBJECTIVE Seeks growth of capital. POLICIES Seeks to meet its investment objective by investing principally in seasoned and better capitalized companies considered to have strong earnings momentum. May invest up to 25% of its assets in foreign securities. Portfolio managers focus on companies that have experienced above-average growth in earnings and have excellent prospects for future growth. Portfolio managers consider whether to sell a particular security when any of those factors materially changes. May engage in active and frequent trading of portfolio securities to achieve its investment objectives which may result in increased transaction costs and brokerage commissions, both of which can lower the actual return on investment. In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, 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. May engage in active and frequent trading of portfolio securities to achieve its investment objective which may result in increased transaction costs and brokerage commissions, both of which can lower the actual return on investment. PRINCIPAL RISKS 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. Prices of foreign securities may be further affected by other factors, including: currency exchange rates, political and economic conditions, regulations, and markets. These factors may affect the prices of securities issued by foreign companies located in developing countries more than those in countries with mature economies. If the 49 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. AIM V.I. GROWTH AND INCOME FUND INVESTMENT OBJECTIVE Seeks growth of capital with a secondary objective of current income. POLICIES Seeks to meet its objectives by investing at least 65% of total assets in securities of established companies that have long-term above-average growth in earnings and dividends, and growth companies that the portfolio managers believe have the potential for above-average growth in earnings and dividends. Portfolio managers consider whether to sell a particular security when they believe the security no longer has that potential. May also invest up to 25% of 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. PRINCIPAL RISKS 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. 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. Prices of foreign securities may be further affected by other factors, including: currency exchange rates, political and economic conditions, regulations, and markets. These factors may affect the prices of securities issued by foreign companies located in developing countries more than those in countries with mature economies. 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. AIM V.I. VALUE FUND INVESTMENT OBJECTIVE Seeks to achieve long-term growth of capital with a secondary objective of income. POLICIES Seeks to meet its objectives 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. Also may invest in preferred stocks and debt instruments that have prospects for growth of capital. Also may invest up to 25% of total assets in foreign securities. 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 50 values. 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, 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. PRINCIPAL RISKS 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. Prices of foreign securities may be further affected by other factors, including: currency exchange rates, political and economic conditions, regulations, and markets. These factors may affect the prices of securities issued by foreign companies located in developing countries more than those in countries with mature economies. 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. FIDELITY VARIABLE INSURANCE PRODUCTS--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 invest in non-income producing securities, including defaulted securities and common stocks and companies in troubled or uncertain financial condition. May invest in securities of both domestic and foreign issuers. Uses fundamental analysis of each issuer's financial condition and industry position and market and economic conditions to select investments. PRINCIPAL RISKS Subject to the following principal investment risks: stock market volatility, interest rate changes, foreign exposure, and issuer-specific changes. Stock market volatility refers to the risk that stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. Different parts of the market can react differently to these developments. Interest rate changes refers to the risk that interest rate increases can cause the price of a debt security to decrease. Foreign exposure refers to the risk that foreign markets, particularly emerging markets, can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market or economic developments and can perform differently from the U.S. market. Issuer-specific changes refers to the risk that the value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole. 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 and can be difficult to resell. INVESTMENT ADVISER: Fidelity Management & Research Company SUBADVISERS: Fidelity Management & Research (U.K.) Inc.; Fidelity Management & Research (Far East) Inc.; Fidelity Investments Japan Limited; FMR Co., Inc. JANUS ASPEN SERIES--GROWTH PORTFOLIO INVESTMENT OBJECTIVE Seeks long-term growth of capital in a manner consistent with the preservation of capital. 51 POLICIES Invests primarily in common stocks selected for their growth potential. Although it can invest in companies of any size, it generally invests in larger, more established companies. Portfolio managers apply a "bottom up" approach in choosing investments. This approach identifies individual companies with earnings growth potential that may not be recognized by the market at large. Assessment is made by looking at companies one at a time, regardless of size, country or organization, place of principal business activity, or other similar selection criteria. If a portfolio manager is unable to find investments with earnings growth potential, a significant portion of assets may be in cash or similar investments. PRINCIPAL 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 bonds 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 bonds present greater risk of default (the failure to make timely interest and principal payments) than higher quality bonds. INVESTMENT ADVISER: Janus Capital Corporation JANUS ASPEN SERIES--WORLDWIDE GROWTH PORTFOLIO INVESTMENT OBJECTIVE Seeks long-term growth of capital in a manner consistent with the preservation of capital. POLICIES Invests primarily in common stocks of companies of any size throughout the world. Normally invests in issuers from at least five different countries, including the United States. May at times invest in fewer than five countries or even in a single country. Portfolio managers apply a "bottom up" approach in choosing investments. This approach identifies individual companies with earnings growth potential that may not be recognized by the market at large. Assessment is made by looking at companies one at a time, regardless of size, country or organization, place of principal business activity, or other similar selection criteria. If a portfolio manager is unable to find investments with earnings growth potential, a significant portion of assets may be in cash or similar investments. PRINCIPAL 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 bonds 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. The Portfolio may have significant exposure to foreign markets and may be affected to a large degree by fluctuations in currency exchange rates or political or economic conditions in a particular country. High-yield/high-risk bonds present greater risk of default (the failure to make timely interest and principal payments) than higher quality bonds. INVESTMENT ADVISER: Janus Capital Corporation 52 OPPENHEIMER AGGRESSIVE GROWTH FUND/VA INVESTMENT OBJECTIVE Seeks capital appreciation by investing in "growth-type" companies. POLICIES Invests mainly in equity securities, such as common stocks and can invest in other securities, such as preferred stocks and convertible securities. Emphasizes investments in companies believed by the investment adviser to have significant growth potential. Growth companies can include established companies entering a growth cycle in their business, as well as newer companies. Can invest in securities of issuers of all market capitalizations, but currently focuses on stocks of "mid-cap" issuers (currently those issuers between $2.5 billion and $11.5 billion). Can invest in domestic and foreign companies, although most investments are in stocks of U.S. companies. In selecting securities, the portfolio manager looks for high-growth companies using a "bottom-up" stock selection process which focuses on fundamental analysis of individual issuers before considering overall economic, market or industry trends. PRINCIPAL RISKS Stocks fluctuate in price, and their sort-term volatility at times may be great. At times the fund may increase the relative emphasis of its investments in a particular industry or sector. The prices of stocks of issuers in a particular industry or sector may go up and down in response to changes in economic conditions, government regulations, availability of basic resources or supplies, or other events that affect that industry or sector more than others. Stocks of growth companies, particularly newer companies, may offer opportunities for greater capital appreciation but may be more volatile than stocks of larger, more established companies. INVESTMENT ADVISER: OppenheimerFunds, Inc. OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA INVESTMENT OBJECTIVE Seeks high total return (which includes growth in the value of its shares as well as current income) from equity and debt securities. 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. Currently emphasizes the stocks of large-capitalization companies in the fund's portfolio. At times, may increase the relative emphasis of its investments in small-cap and mid-cap stocks. Can buy foreign securities and debt securities such as bonds and notes, but currently does not emphasize those investments. Can also use hedging instruments and certain derivative investments to try to manage investment risks. In selecting securities, portfolio managers use an investment process that combines quantitative models, fundamental research about particular securities and individual judgment. PRINCIPAL RISKS Stocks fluctuate in price, and their short-term volatility at times may be great. Additionally, stocks of issuers in a particular industry may be affected by changes in economic conditions that affect that industry more than others, or by changes in government regulations, availability of basic resources or supplies, or other events. 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. Changes in interest rates can also affect bond prices. 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. 53 POLICIES Invests mainly in debt securities of issuers in three market sectors: foreign governments and companies, U.S. Government securities, and lower-grade high-yield securities of U.S. and foreign companies. Can invest up to 100% of its assets in any one sector at any time, if the investment adviser believes that in doing so the fund can achieve its objective without undue risk. 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." Foreign investments can include debt securities of issuers in developed markets as well as emerging markets, which have special risks. Can also use hedging instruments and certain derivative investments to try to enhance income or to try to manage investment risks. In selecting securities, the portfolio managers analyze the overall investment opportunities and risks in individual national economies with an overall strategy of building a broadly-diversified portfolio of debt securities to help moderate the special risks of investing in high-yield debt instruments and foreign securities. PRINCIPAL RISKS Debt securities are subject to credit risk which refers to the risk that if the issuer fails to pay interest, or if the issuer fails to repay principal, the value of that security and of the fund's shares might be reduced. Credit risks of lower-grade securities are greater than those of investment-grade bonds. Lower-grade debt securities may be subject to greater market fluctuations and greater risks of loss of income and principal. The value of foreign investments may be affected by exchange control regulations, expropriation or nationalization of a company's assets, foreign taxes, delays in settlement of transactions, changes in governmental economic or monetary policy in the U.S. or abroad, or other political and economic factors. Securities of issuers in emerging and developing markets may be more difficult to sell at an acceptable price and their prices may be more volatile than securities of issuers in more developed markets. The fund is also subject to interest rate risk and prepayment risk. The investment adviser's expectations about the relative performance of the three principal sectors in which the fund invests may be inaccurate, and the fund's returns might be less than other funds using similar strategies. Investing in derivative investments carries the risk that if the issuer of the derivative does not pay the amount due, the fund can lose money on the investment. Also, the underlying security or investment on which the derivative is based, and the derivative itself, might not perform the way the investment adviser expected it to perform. INVESTMENT ADVISER: OppenheimerFunds, Inc. PORTFOLIO PARTNERS, INC. (PPI) MFS CAPITAL OPPORTUNITIES PORTFOLIO INVESTMENT OBJECTIVE Seeks capital appreciation. POLICIES Invests primarily (at least 65% of total assets) in common stocks and related securities, such as preferred stock, convertible securities and depositary receipts. Focuses on companies believed to have favorable growth prospects and attractive valuations based on current and expected earnings or cash flow. Investments may include securities 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. PRINCIPAL 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. 54 - 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. 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. PRINCIPAL 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. 55 - 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. PRINCIPAL RISKS - MARKET AND COMPANY RISK: The value of the securities in which the Portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. - FOREIGN MARKETS RISK: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks from these investments result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. - CURRENCY RISK: Exposure to foreign currencies may cause the value of the Portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. - EMERGING GROWTH RISK: The Portfolio's performance is particularly sensitive to changes in the value of emerging growth companies. Investments in emerging growth companies may be subject to more abrupt or 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: Zurich Scudder 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 56 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. PRINCIPAL 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. SUBADVISER: T. Rowe Price Associates, Inc. 57 APPENDIX III CONDENSED FINANCIAL INFORMATION ------------------------------------------------------------------ TABLE I ASSUMED ANNUAL NET RETURN RATE OF 5.00% (SELECTED DATA FOR ANNUITY AND ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE PERIODS IN THE FOUR-YEAR PERIOD ENDED DECEMBER 31, 2000 (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, 2000 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 RATE OF 5.00%. SEE "CALCULATING VARIABLE INCOME PAYMENTS" FOR MORE INFORMATION. ONLY THOSE SUBACCOUNTS WITH ANNUITY UNITS OUTSTANDING AT THE END OF THE PERIOD ARE LISTED BELOW.
(UNAUDITED) ---------------------------------------------- 2000 1999 1998 1997 ---- ---- ---- ---- AETNA BALANCED VP, INC. Value at beginning of period $17.390 $16.276 $14.800 $13.209(1) Value at end of period $16.269 $17.390 $16.276 $14.800 AETNA BOND VP Value at beginning of period $10.460 $11.205 $11.017 $10.990(2) Value at end of period $10.790 $10.460 $11.205 $11.017 AETNA CROSSROADS VP Value at beginning of period $10.555 $10.182 $10.223 $10.032(3) Value at end of period $9.971 $10.555 $10.182 $10.223 AETNA GROWTH VP Value at beginning of period $21.391 $16.827 $13.015 $13.538(3) Value at end of period $17.719 $21.391 $16.827 $13.015 AETNA GROWTH AND INCOME VP Value at beginning of period $20.937 $18.959 $17.607 $15.123(1) Value at end of period $17.537 $20.937 $18.959 $17.607 AETNA INDEX PLUS LARGE CAP VP Value at beginning of period $17.763 $15.195 $12.277 $10.848(4) Value at end of period $15.139 $17.763 $15.195 $12.277 AETNA INTERNATIONAL VP Value at beginning of period $15.145 $11.664(1) Value at end of period $11.352 $15.145 AETNA LEGACY VP Value at beginning of period $11.160 $11.080 $11.017 $10.264(1) Value at end of period $11.004 $11.160 $11.080 $11.017 AETNA MONEY MARKET VP Value at beginning of period $9.793 $9.910 $9.991 $9.995(3) Value at end of period $9.801 $9.793 $9.910 $9.991 AETNA SMALL COMPANY VP Value at beginning of period $15.571 $12.654 $13.308 $13.322(3) Value at end of period $15.634 $15.571 $12.654 $13.308 AIM V.I. CAPITAL APPRECIATION FUND Value at beginning of period $15.541 $12.190(2) Value at end of period $13.026 $15.541 AIM V.I. GROWTH FUND Value at beginning of period $14.726 $12.229(2) Value at end of period $11.015 $14.726 AIM V.I. GROWTH AND INCOME FUND Value at beginning of period $14.516 $12.546(2) Value at end of period $11.669 $14.516 AIM V.I. VALUE FUND Value at beginning of period $13.942 $12.716(2) Value at end of period $10.873 $13.942 FIDELITY VIP HIGH INCOME PORTFOLIO Value at beginning of period $9.207 $9.052 $10.060 $10.058(3) Value at end of period $6.715 $9.207 $9.052 $10.060 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $20.008 $14.775 $11.580 $10.433(5) Value at end of period $16.084 $20.008 $14.775 $11.580 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $22.117 $14.300 $11.794 $10.638(1) Value at end of period $17.547 $22.117 $14.300 $11.794 OPPENHEIMER AGGRESSIVE GROWTH FUND / VA Value at beginning of period $14.519 $10.119(1) Value at end of period $11.744 $14.519
58 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
(UNAUDITED) ---------------------------------------------- 2000 1999 1998 1997 ---- ---- ---- ---- OPPENHEIMER MAIN STREET GROWTH & INCOME FUND / VA Value at beginning of period $10.232 $9.661(3) Value at end of period $8.782 $10.232 OPPENHEIMER STRATEGIC BOND FUND / VA Value at beginning of period $9.428 $9.749 $10.152(1) Value at end of period $9.103 $9.428 $9.749 PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period $20.438 $14.605 $12.253 $12.132(6) Value at end of period $18.128 $20.438 $14.605 $12.253 PPI MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $16.818 $11.852 $9.719 $9.885(6) Value at end of period $11.268 $16.818 $11.852 $9.719 PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $17.263 $11.587 $11.992(2) Value at end of period $13.058 $17.263 $11.587 PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $13.325 $11.582 $11.014(3) Value at end of period $12.531 $13.325 $11.582
---------------------------------- FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1999: (1) Funds were first received in this option during August 1999. (2) Funds were first received in this option during May 1999. (3) Funds were first received in this option during September 1999. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1998: (1) Funds were first received in this option during February 1998. (2) Funds were first received in this option during May 1998. (3) Funds were first received in this option during July 1998. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1997: (1) Funds were first received in this option during January 1997. (2) Funds were first received in this option during October 1997. (3) Funds were first received in this option during December 1997. (4) Funds were first received in this option during May 1997. (5) Funds were first received in this option during March 1997. (6) Funds were first received in this option during November 1997. 59 CONDENSED FINANCIAL INFORMATION ------------------------------------------------------------------ TABLE II ASSUMED ANNUAL NET RETURN RATE OF 3.50% (SELECTED DATA FOR ANNUITY AND ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE PERIODS IN THE FOUR-YEAR PERIOD ENDED DECEMBER 31, 2000 (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, 2000 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 RATE OF 3.50%. SEE "CALCULATING VARIABLE INCOME PAYMENTS" FOR MORE INFORMATION. ONLY THOSE SUBACCOUNTS WITH ANNUITY UNITS OUTSTANDING AT THE END OF THE PERIOD ARE LISTED BELOW.
(UNAUDITED) ---------------------------------------------- 2000 1999 1998 1997 ---- ---- ---- ---- AETNA ASCENT VP Value at beginning of period $11.298(1) Value at end of period $11.085 AETNA BALANCED VP, INC. Value at beginning of period $18.730 $17.280 $15.488 $13.448(1) Value at end of period $17.774 $18.730 $17.280 $15.488 AETNA BOND VP Value at beginning of period $11.266 $11.896 $11.529 $11.087(1) Value at end of period $11.788 $11.266 $11.896 $11.529 AETNA CROSSROADS VP Value at beginning of period $10.883 $10.350 $10.242 $10.108(2) Value at end of period $10.429 $10.883 $10.350 $10.242 AETNA GROWTH VP Value at beginning of period $22.240 $17.245 $14.972(1) Value at end of period $18.688 $22.240 $17.245 AETNA GROWTH AND INCOME VP Value at beginning of period $22.550 $20.128 $18.426 $15.431(3) Value at end of period $19.160 $22.550 $20.128 $18.426 AETNA INDEX PLUS LARGE CAP VP Value at beginning of period $18.467 $15.572 $12.402 $11.263(4) Value at end of period $15.967 $18.467 $15.572 $12.402 AETNA INTERNATIONAL VP Value at beginning of period $15.565 $10.780 $10.413(2) Value at end of period $11.835 $15.565 $10.780 AETNA LEGACY VP Value at beginning of period $11.678 $11.429 $11.201 $10.372(5) Value at end of period $11.681 $11.678 $11.429 $11.201 AETNA MONEY MARKET VP Value at beginning of period $10.098 $10.073 $10.044(3) Value at end of period $10.252 $10.098 $10.073 AETNA SMALL COMPANY VP Value at beginning of period $16.189 $12.968 $13.444 $12.930(6) Value at end of period $16.488 $16.189 $12.968 $13.444 AIM V.I. CAPITAL APPRECIATION FUND Value at beginning of period $18.828(2) Value at end of period $13.438 AIM V.I. GROWTH FUND Value at beginning of period $14.976 $12.703(1) Value at end of period $11.364 $14.976 AIM V.I. GROWTH AND INCOME FUND Value at beginning of period $14.763 $11.979(2) Value at end of period $12.038 $14.763 AIM V.I. VALUE FUND Value at beginning of period $14.178 $12.215(3) Value at end of period $11.217 $14.178 FIDELITY VIP HIGH INCOME PORTFOLIO Value at beginning of period $9.494 $9.201 $10.483(1) Value at end of period $7.024 $9.494 $9.201 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $20.968 $15.260 $11.789 $10.481(1) Value at end of period $17.095 $20.968 $15.260 $11.789 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $23.174 $14.769 $12.007 $10.576(3) Value at end of period $18.650 $23.174 $14.769 $12.007 OPPENHEIMER AGGRESSIVE GROWTH FUND / VA Value at beginning of period $14.612 $9.670(4) Value at end of period $11.990 $14.612
60 CONDENSED FINANCIAL INFORMATION (CONTINUED) ------------------------------------------------------------------
(UNAUDITED) ---------------------------------------------- 2000 1999 1998 1997 ---- ---- ---- ---- OPPENHEIMER MAIN STREET GROWTH & INCOME FUND / VA Value at beginning of period $10.298 $9.250(5) Value at end of period $8.966 $10.298 OPPENHEIMER STRATEGIC BOND FUND / VA Value at beginning of period $9.722 $9.909 $10.180(1) Value at end of period $9.522 $9.722 $9.909 PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO Value at beginning of period $21.414 $15.084 $12.474 $12.335(7) Value at end of period $19.267 $21.414 $15.084 $12.474 PPI MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $17.621 $12.241 $9.894 $10.050(7) Value at end of period $11.976 $17.621 $12.241 $9.894 PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $17.801 $11.777 $11.433(2) Value at end of period $13.659 $17.801 $11.777 PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $13.694 $11.733 $11.154(4) Value at end of period $13.064 $13.694 $11.733
---------------------------------- FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 2000: (1) Funds were first received in this option during July 2000. (2) Funds were first received in this option during March 2000. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1999: (1) Funds were first received in this option during May 1999. (2) Funds were first received in this option during April 1999. (3) Funds were first received in this option during June 1999. (4) Funds were first received in this option during October 1999. (5) Funds were first received in this option during September 1999. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1998: (1) Funds were first received in this option during March 1998. (2) Funds were first received in this option during November 1998. (3) Funds were first received in this option during July 1998. (4) Funds were first received in this option during December 1998. FOOTNOTES FOR PERIOD ENDED DECEMBER 31, 1997: (1) Funds were first received in this option during March 1997. (2) Funds were first received in this option during December 1997. (3) Funds were first received in this option during January 1997. (4) Funds were first received in this option during October 1997. (5) Funds were first received in this option during February 1997. (6) Funds were first received in this option during August 1997. (7) Funds were first received in this option during November 1997. 61 FOR MASTER APPLICATIONS ONLY ------------------------------------------------------------------ I HEREBY ACKNOWLEDGE RECEIPT OF AN ACCOUNT B AETNA IMMEDIATE ANNUITY PROSPECTUS DATED MAY 1, 2001. ---- PLEASE SEND AN ACCOUNT B STATEMENT OF ADDITIONAL INFORMATION (FORM NO. SAI.09515-01) DATED MAY 1, 2001. -------------------------------------------------------------------------------- CONTRACT HOLDER'S SIGNATURE -------------------------------------------------------------------------------- DATE PRO.09515-01 62 -------------------------------------------------------------------------------- VARIABLE ANNUITY ACCOUNT B OF AETNA LIFE INSURANCE AND ANNUITY COMPANY -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 2001 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, 2001. A free prospectus is available upon request from the local Aetna Life Insurance and Annuity Company office or by writing to or calling: ING 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 Contract.................................................. 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
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 ING Groep N.V., a global financial institution active in the fields of insurance, banking and asset management. 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). Our Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. As of December 31, 2000, the Company and its subsidiary life company had $51 billion invested through their products, including $37 billion in their separate accounts (of which the Company or its subsidiary Aeltus Investment Management, Inc. oversees the management of $23 billion). The Company is ranked among the top 1% of all U.S. life insurance companies rated by A.M. Best Company based on assets as of December 31, 1999. In addition to serving as the depositor for the separate account, the Company is a registered investment adviser under the Investment Advisers Act of 1940. 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 (SEC) 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 The funds currently available under the contract are as follows: AETNA ASCENT VP AIM V.I. VALUE FUND AETNA BALANCED VP, INC. FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP) HIGH Aetna Income Shares d/b/a AETNA BOND VP INCOME PORTFOLIO AETNA CROSSROADS VP JANUS ASPEN GROWTH PORTFOLIO AETNA GROWTH VP JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Aetna Variable Fund d/b/a AETNA GROWTH AND INCOME VP OPPENHEIMER AGGRESSIVE GROWTH FUND/VA AETNA INDEX PLUS LARGE CAP VP OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA AETNA INTERNATIONAL VP OPPENHEIMER STRATEGIC BOND FUND/VA AETNA LEGACY VP PORTFOLIO PARTNERS, INC. (PPI) MFS CAPITAL OPPORTUNITIES PORTFOLIO Aetna Variable Encore Fund d/b/a AETNA MONEY MARKET VP PORTFOLIO PARTNERS, INC. (PPI) MFS EMERGING EQUITIES PORTFOLIO AETNA SMALL COMPANY VP PORTFOLIO PARTNERS, INC. (PPI) SCUDDER INTERNATIONAL GROWTH AIM V.I. CAPITAL APPRECIATION FUND PORTFOLIO AIM V.I. GROWTH FUND PORTFOLIO PARTNERS, INC. (PPI) T. ROWE PRICE GROWTH EQUITY AIM V.I. GROWTH AND INCOME FUND PORTFOLIO
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 CONTRACT The Company's subsidiary, Aetna Investment Services, LLC (AIS) serves as the principal underwriter for the contracts. AIS, a Delaware limited liability company, is registered as a broker-dealer with the SEC. AIS is also a member of the National Association of Securities Dealers, Inc., and the Securities Investor Protection Corporation. AIS' principal office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. The contracts are distributed through life insurance agents licensed to sell variable annuities who are registered representatives of AIS or of other registered broker-dealers who have entered into sales arrangements with AIS. 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 SEC (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 charges, 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 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, 2000 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, Inc. (PPI) portfolios, two sets of performance returns are shown for each subaccount: one showing performance based solely on the performance of the PPI 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 PPI 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
-------------------------------------------------------------------- DATE CONTRIBUTIONS STANDARDIZED FIRST RECEIVED UNDER THE SEPARATE ACCOUNT ------------------------------------------------------------------------------------------------------------------------------------ SINCE SUBACCOUNT 1 YEAR 5 YEAR 10 YEAR INCEPTION* ------------------------------------------------------------------------------------------------------------------------------------ Aetna Ascent VP (7.79%) 10.07% 10.48% 08/31/1995 ------------------------------------------------------------------------------------------------------------------------------------ Aetna Balanced VP, Inc.(1) (7.69%) 11.39% 11.18% ------------------------------------------------------------------------------------------------------------------------------------ Aetna Bond VP(1) 1.78% 3.98% 6.43% ----------------------------------------------------------------------------------------------------------------------------------- Aetna Crossroads VP (6.79%) 8.55% 8.95% 08/31/1995 ------------------------------------------------------------------------------------------------------------------------------------ Aetna Growth VP (18.27%) 17.80% 05/30/1997 ------------------------------------------------------------------------------------------------------------------------------------ Aetna Growth and Income VP(1) (17.35%) 12.23% 12.40% ------------------------------------------------------------------------------------------------------------------------------------ Aetna Index Plus Large Cap VP (15.90%) 16.87% 10/31/1996 ------------------------------------------------------------------------------------------------------------------------------------ Aetna International VP (26.04%) 2.75% 05/05/1998 ------------------------------------------------------------------------------------------------------------------------------------ Aetna Legacy VP (2.71%) 7.63% 8.06% 08/31/1995 ------------------------------------------------------------------------------------------------------------------------------------ Aetna Money Market VP(1)(2) (1.25%) 3.81% 3.81% ------------------------------------------------------------------------------------------------------------------------------------ Aetna Small Company VP (0.93%) 13.49% 05/30/1997 ------------------------------------------------------------------------------------------------------------------------------------ AIM V.I. Capital Appreciation Fund (17.30%) 21.30% 10/02/1998 ------------------------------------------------------------------------------------------------------------------------------------ AIM V.I. Growth Fund (26.19%) 13.18% 10/02/1998 ------------------------------------------------------------------------------------------------------------------------------------ AIM V.I. Growth and Income Fund (20.68%) 15.55% 10/02/1998 ------------------------------------------------------------------------------------------------------------------------------------ AIM V.I. Value Fund (20.77%) 14.12% 10/02/1998 ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP High Income Portfolio (28.03%) (0.19%) 1.07% 06/30/1995 ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Growth Portfolio (20.68%) 17.44% 18.18% 07/29/1994 ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Worldwide Growth Portfolio (21.72%) 21.00% 22.77% 04/28/1995 ------------------------------------------------------------------------------------------------------------------------------------ Oppenheimer Aggressive Growth Fund/VA (17.60%) 18.87% 05/30/1997 ------------------------------------------------------------------------------------------------------------------------------------ Oppenheimer Main Street Growth & Income Fund/VA (15.32%) 7.02% 05/30/1997 ------------------------------------------------------------------------------------------------------------------------------------ Oppenheimer Strategic Bond Fund/VA (4.72%) 1.59% 05/30/1997 ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ PPI MFS Capital Opportunities Portfolio (12.48%) 17.99% 11/28/1997 ------------------------------------------------------------------------------------------------------------------------------------ Neuberger Berman AMT Growth/PPI MFS Capital Opportunities(3) (12.48%) 17.67% 14.63% 11/30/1992 ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ PPI MFS Emerging Equities Portfolio (33.89%) 8.10% 11/28/1997 ------------------------------------------------------------------------------------------------------------------------------------ Alger American Small Cap/PPI MFS Emerging Equities(3) (33.89%) 7.85% 10.37% 09/30/1993 ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ PPI Scudder International Growth Portfolio (25.36%) 12.02% 11/28/1997 ------------------------------------------------------------------------------------------------------------------------------------ Scudder VLIF International/PPI Scudder International Growth(3) (25.36%) 11.80% 11.47% 08/31/1992 ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ PPI T. Rowe Price Growth Equity Portfolio (7.20%) 13.33% 11/28/1997 ------------------------------------------------------------------------------------------------------------------------------------ Alger American Growth/PPI T. Rowe Price Growth Equity(3) (7.20%) 15.86% 18.54% 02/28/1995 ------------------------------------------------------------------------------------------------------------------------------------
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, 2000 (on an annualized basis) was 5.11%. 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 PPI 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 PPI Portfolio after that date. The replaced fund may not have been available under all contracts. The "Date Contributions First Received Under the Separate Account" refers to the applicable date for the replaced fund. If no date is shown, contributions were first received in the replaced fund under the separate account more than ten years ago. 5
-------------------------------------------------------------------- FUND NON-STANDARDIZED INCEPTION DATE ----------------------------------------------------------------------------------------------------------------------------------- SINCE SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** ----------------------------------------------------------------------------------------------------------------------------------- Aetna Ascent VP (1.90%) 4.50% 10.52% 11.41% 07/05/1995 ----------------------------------------------------------------------------------------------------------------------------------- Aetna Balanced VP, Inc.(1) (1.80%) 8.36% 11.84% 11.18% ----------------------------------------------------------------------------------------------------------------------------------- Aetna Bond VP(1) 8.28% 4.26% 4.40% 6.43% ----------------------------------------------------------------------------------------------------------------------------------- Aetna Crossroads VP (0.84%) 4.12% 8.99% 9.80% 07/05/1995 ----------------------------------------------------------------------------------------------------------------------------------- Aetna Growth VP (13.05%) 16.37% 20.12% 12/13/1996 ----------------------------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP(1) (12.08%) 4.85% 12.69% 12.40% ----------------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP (10.53%) 12.59% 18.37% 09/16/1996 ----------------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP(2) (11.41%) 11.48% 17.21% 09/16/1996 ----------------------------------------------------------------------------------------------------------------------------------- Aetna International VP (21.32%) 11.36% 12.23% 12/22/1997 ----------------------------------------------------------------------------------------------------------------------------------- Aetna Legacy VP 3.51% 4.95% 8.07% 8.77% 07/05/1995 ----------------------------------------------------------------------------------------------------------------------------------- Aetna Money Market VP(1)(3) 5.06% 4.32% 4.23% 3.81% ----------------------------------------------------------------------------------------------------------------------------------- Aetna Small Company VP 5.39% 10.78% 16.22% 12/27/1996 ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund (12.02%) 13.97% 14.02% 15.92% 05/05/1993 ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth Fund (21.48%) 11.58% 15.22% 14.69% 05/05/1993 ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth and Income Fund (15.62%) 12.16% 15.72% 16.20% 05/02/1994 ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund (15.71%) 12.24% 14.43% 15.88% 05/05/1993 ----------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP High Income Portfolio(1) (23.44%) (8.24%) 0.22% 8.49% ----------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Growth Portfolio (15.62%) 17.14% 17.91% 16.59% 09/13/1993 ----------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Worldwide Growth Portfolio (16.72%) 19.86% 21.49% 20.76% 09/13/1993 ----------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Aggressive Growth Fund/VA(1) (12.34%) 20.82% 18.22% 19.48% ----------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Main Street Growth & Income Fund/VA (9.91%) 3.84% 13.89% 17.16% 07/05/1995 ----------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund/VA 1.36% 1.51% 4.44% 4.39% 05/03/1993 ----------------------------------------------------------------------------------------------------------------------------------- PPI MFS Capital Opportunities Portfolio (6.89%) 19.64% 19.51% 11/28/1997 ----------------------------------------------------------------------------------------------------------------------------------- Neuberger Berman AMT Growth/PPI MFS Capital Opportunities(4) (6.89%) 19.64% 18.15% 15.18% ----------------------------------------------------------------------------------------------------------------------------------- PPI MFS Emerging Equities Portfolio (29.67%) 10.30% 9.54% 11/28/1997 ----------------------------------------------------------------------------------------------------------------------------------- Alger American Small Cap/PPI MFS Emerging Equities(4) (29.67%) 10.30% 8.29% 13.57% ----------------------------------------------------------------------------------------------------------------------------------- PPI Scudder International Growth Portfolio (20.60%) 13.47% 13.58% 11/28/1997 ----------------------------------------------------------------------------------------------------------------------------------- Scudder VLIF International/PPI Scudder International Growth(4) (20.60%) 13.47% 12.25% 10.63% ----------------------------------------------------------------------------------------------------------------------------------- PPI T. Rowe Price Growth Equity Portfolio (1.28%) 14.54% 14.79% 11/28/1997 ----------------------------------------------------------------------------------------------------------------------------------- Alger American Growth/PPI T. Rowe Price Growth Equity(4) (1.28%) 14.54% 16.33% 18.26% -----------------------------------------------------------------------------------------------------------------------------------
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 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. (3) The current yield for the subaccount for the seven-day period ended December 31, 2000 (on an annualized basis) was 5.11%. 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. (4) The fund first listed was replaced with the applicable PPI 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 PPI Portfolio after that date. The replaced fund may not have been available under all contracts. The "Fund Inception Date" refers to the applicable date for the replaced fund. If no date is shown, the replaced fund has been in operation for more than ten years. 6 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 charge 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 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, One Financial Plaza, 755 Main Street, Hartford, Connecticut 06103, are the independent auditors for the separate account and for the Company for the year ended December 31, 2000. The independent auditors provide services to the separate account that include primarily the audit of the separate account's financial statements and the review of filings made with the SEC. 8 FINANCIAL STATEMENTS VARIABLE ANNUITY ACCOUNT B INDEX
Page ---- 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-21 Independent Auditors' Report...................... S-44
S-1 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 2000 ASSETS: Investments, at net asset value: (Note 1)
Net Shares Cost Assets ------ ---- ------ Aetna Ascent VP 1,195,910 $ 17,431,812 $ 17,520,083 Aetna Balanced VP, Inc. 14,908,048 226,439,839 199,767,841 Aetna Bond VP 7,889,777 99,197,285 99,490,083 Aetna Crossroads VP 1,553,033 20,993,340 21,090,188 Aetna GET Fund, Series C 641,164 7,190,435 5,898,705 Aetna GET Fund, Series D 13,392,734 135,281,878 129,775,588 Aetna GET Fund, Series E 33,891,672 349,982,592 333,832,965 Aetna GET Fund, Series G 19,005,569 190,537,561 186,444,632 Aetna GET Fund, Series H 14,148,073 145,222,862 141,763,690 Aetna GET Fund, Series I 9,424,840 94,768,141 92,928,925 Aetna GET Fund, Series J 8,200,371 82,634,541 79,871,616 Aetna GET Fund, Series K 9,323,044 94,727,370 93,789,821 Aetna GET Fund, Series L 58,455 584,652 584,846 Aetna Growth and Income VP 38,482,989 1,169,534,747 928,209,700 Aetna Growth VP 5,670,592 96,300,960 85,002,177 Aetna Index Plus Large Cap VP 15,648,239 299,129,117 261,795,046 Aetna Index Plus Mid Cap VP 458,983 6,655,287 6,733,274 Aetna Index Plus Small Cap VP 91,719 1,028,370 1,097,872 Aetna International VP 934,344 11,562,816 9,707,836 Aetna Legacy VP 2,039,814 25,717,339 26,191,216 Aetna Money Market VP 15,564,778 209,806,639 211,808,608 Aetna Small Company VP 2,839,063 46,042,265 47,270,402 Aetna Technology VP 1,672,211 13,609,902 9,832,599 Aetna Value Opportunity VP 1,284,849 19,325,739 19,709,584 AIM V.I. Funds: Capital Appreciation Fund 842,644 31,752,262 25,987,131 Government Securities Fund 26,426 295,171 294,912 Growth and Income Fund 1,902,373 58,362,233 49,823,138 Growth Fund 1,501,085 46,300,700 37,256,929 Value Fund 2,685,829 81,084,098 73,349,994 Alger American Funds: Balanced Portfolio 354,964 5,047,533 4,887,859 Income & Growth Portfolio 1,250,830 17,136,329 16,586,009 Leveraged AllCap Portfolio 401,107 18,469,505 15,562,934 Alliance Funds: Growth and Income Portfolio 38,778 863,406 897,717 Premier Growth Portfolio 83,852 2,793,232 2,687,461 Quasar Portfolio 6,965 80,240 82,470 American Century VP Funds: Balanced Fund 369,255 2,728,708 2,684,483 International Fund 479,440 4,880,699 4,904,674 Calvert Social Balanced Portfolio 1,255,611 2,731,338 2,513,732 Federated Insurance Series: American Leaders Fund II 4,999,320 91,839,300 102,586,049 Equity Income Fund II 1,694,431 22,131,264 24,264,247 Growth Strategies Fund II 1,460,440 29,472,095 33,809,187
S-2 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 2000 (continued):
Net Shares Cost Assets ------ ---- ------ High Income Bond Fund II 3,126,026 $ 31,192,444 $ 26,446,176 International Equity Fund II 1,084,766 17,618,207 20,057,326 Prime Money Fund II 8,703,425 8,703,425 8,703,425 U.S. Government Securities Fund II 1,002,107 10,791,546 11,133,403 Utility Fund II 1,555,514 20,210,960 19,350,590 Fidelity Variable Insurance Products Fund: Equity-Income Portfolio 7,367,750 175,907,002 188,024,984 Growth Portfolio 4,802,061 231,469,733 209,609,983 High Income Portfolio 5,563,794 50,818,205 45,511,833 Overseas Portfolio 722,922 14,898,935 14,451,215 Fidelity Variable Insurance Products Fund II: Asset Manager Portfolio 1,113,810 18,087,858 17,820,958 Contrafund Portfolio 9,139,147 221,111,759 216,963,354 Index 500 Portfolio 889,782 138,055,912 133,049,029 Investment Grade Bond Portfolio 293,881 3,564,784 3,699,966 Janus Aspen Series: Aggressive Growth Portfolio 7,560,938 362,389,358 274,462,060 Balanced Portfolio 10,038,825 248,812,100 244,144,219 Flexible Income Portfolio 1,634,341 18,507,673 18,729,553 Growth Portfolio 10,107,741 307,411,599 267,652,979 Worldwide Growth Portfolio 13,084,441 541,167,659 483,862,628 Lexington funds: Emerging Markets Fund, Inc. 164,501 1,373,579 1,255,139 Natural Resources Trust Fund 189,866 2,559,795 2,800,522 MFS Funds: Global Government Series 153,576 1,478,686 1,537,291 Total Return Series 3,236,248 59,303,108 63,398,107 Mitchell Hutchins Series Trust: Growth & Income Portfolio 65,534 919,627 950,238 Small Cap Portfolio 15,160 240,390 208,747 Tactical Allocation Portfolio 792,730 12,757,117 12,509,283 Oppenheimer Funds: Aggressive Growth Fund/VA 806,161 74,075,644 57,052,022 Global Securities Fund/VA 569,059 17,092,440 17,259,574 Main Street Growth & Income Fund/VA 3,182,146 71,537,150 67,652,421 Strategic Bond Fund/VA 4,975,381 23,189,053 23,334,535 Portfolio Partners, Inc. (PPI): PPI MFS Capital Opportunities Portfolio 1,761,616 88,396,416 78,233,370 PPI MFS Emerging Equities Portfolio 2,342,095 160,197,053 136,684,647 PPI MFS Research Growth Portfolio 7,485,495 106,529,650 97,910,276 PPI Scudder International Growth Portfolio 2,075,904 37,599,167 38,279,673 PPI T. Rowe Price Growth Equity Portfolio 1,873,426 117,079,464 113,229,886 -------------- -------------- NET ASSETS $6,974,721,100 $6,324,265,635 ============== ==============
S-3 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 2000 (continued): NET ASSETS REPRESENTED BY: Reserves for annuity contracts in accumulation and payment period: (Notes 1 and 6) Aetna Ascent VP Annuity contracts in accumulation............. $ 17,494,584 Annuity contracts in payment period........... 25,499 Aetna Balanced VP, Inc. Annuity contracts in accumulation............. 170,506,936 Annuity contracts in payment period........... 29,260,905 Aetna Bond VP Annuity contracts in accumulation............. 93,669,011 Annuity contracts in payment period........... 5,821,072 Aetna Crossroads VP Annuity contracts in accumulation............. 19,642,538 Annuity contracts in payment period........... 1,447,650 Aetna GET Fund, Series C Annuity contracts in accumulation............. 5,898,705 Aetna GET Fund, Series D Annuity contracts in accumulation............. 129,775,588 Aetna GET Fund, Series E Annuity contracts in accumulation............. 333,832,965 Aetna GET Fund, Series G Annuity contracts in accumulation............. 186,444,632 Aetna GET Fund, Series H Annuity contracts in accumulation............. 141,763,690 Aetna GET Fund, Series I Annuity contracts in accumulation............. 92,928,925 Aetna GET Fund, Series J Annuity contracts in accumulation............. 79,871,616 Aetna GET Fund, Series K Annuity contracts in accumulation............. 93,789,821 Aetna GET Fund, Series L Annuity contracts in accumulation............. 584,846 Aetna Growth and Income VP Annuity contracts in accumulation............. 765,261,567 Annuity contracts in payment period........... 162,948,133 Aetna Growth VP Annuity contracts in accumulation............. 78,188,522 Annuity contracts in payment period........... 6,813,655 Aetna Index Plus Large Cap VP Annuity contracts in accumulation............. 217,699,546 Annuity contracts in payment period........... 44,095,500 Aetna Index Plus Mid Cap VP Annuity contracts in accumulation............. 6,733,274 Aetna Index Plus Small Cap VP Annuity contracts in accumulation............. 1,097,872 Aetna International VP Annuity contracts in accumulation............. 9,382,842 Annuity contracts in payment period........... 324,994
S-4 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 2000 (continued): Aetna Legacy VP Annuity contracts in accumulation............. $ 22,842,539 Annuity contracts in payment period........... 3,348,677 Aetna Money Market VP Annuity contracts in accumulation............. 206,567,488 Annuity contracts in payment period........... 5,241,120 Aetna Small Company VP Annuity contracts in accumulation............. 45,163,536 Annuity contracts in payment period........... 2,106,866 Aetna Technology VP Annuity contracts in accumulation............. 9,832,599 Aetna Value Opportunity VP Annuity contracts in accumulation............. 19,709,584 AIM V.I. Funds: Capital Appreciation Fund Annuity contracts in accumulation............. 25,248,912 Annuity contracts in payment period........... 738,219 Government Securities Fund Annuity contracts in accumulation............. 294,912 Growth and Income Fund Annuity contracts in accumulation............. 46,632,179 Annuity contracts in payment period........... 3,190,959 Growth Fund Annuity contracts in accumulation............. 36,220,507 Annuity contracts in payment period........... 1,036,422 Value Fund Annuity contracts in accumulation............. 70,471,041 Annuity contracts in payment period........... 2,878,953 Alger American Funds: Balanced Portfolio Annuity contracts in accumulation............. 4,887,859 Income & Growth Portfolio Annuity contracts in accumulation............. 16,586,009 Leveraged AllCap Portfolio Annuity contracts in accumulation............. 15,562,934 Alliance Funds: Growth and Income Portfolio Annuity contracts in accumulation............. 897,717 Premier Growth Portfolio Annuity contracts in accumulation............. 2,687,461 Quasar Portfolio Annuity contracts in accumulation............. 82,470 American Century VP Funds: Balanced Fund Annuity contracts in accumulation............. 2,684,483 International Fund Annuity contracts in accumulation............. 4,904,674 Calvert Social Balanced Portfolio Annuity contracts in accumulation............. 2,513,732
S-5 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 2000 (continued): Federated Insurance Series: American Leaders Fund II Annuity contracts in accumulation............. $ 102,497,426 Annuity contracts in payment period........... 88,623 Equity Income Fund II Annuity contracts in accumulation............. 24,223,008 Annuity contracts in payment period........... 41,239 Growth Strategies Fund II Annuity contracts in accumulation............. 33,809,187 High Income Bond Fund II Annuity contracts in accumulation............. 26,434,464 Annuity contracts in payment period........... 11,712 International Equity Fund II Annuity contracts in accumulation............. 20,017,475 Annuity contracts in payment period........... 39,851 Prime Money Fund II Annuity contracts in accumulation............. 8,703,425 U.S. Government Securities Fund II Annuity contracts in accumulation............. 11,133,403 Utility Fund II Annuity contracts in accumulation............. 19,310,088 Annuity contracts in payment period........... 40,502 Fidelity Variable Insurance Products Fund: Equity-Income Portfolio Annuity contracts in accumulation............. 188,024,984 Growth Portfolio Annuity contracts in accumulation............. 209,609,983 High Income Portfolio Annuity contracts in accumulation............. 44,851,961 Annuity contracts in payment period........... 659,872 Overseas Portfolio Annuity contracts in accumulation............. 14,451,215 Fidelity Variable Insurance Products Fund II: Asset Manager Portfolio Annuity contracts in accumulation............. 17,820,958 Contrafund Portfolio Annuity contracts in accumulation............. 216,963,354 Index 500 Portfolio Annuity contracts in accumulation............. 133,049,029 Investment Grade Bond Portfolio Annuity contracts in accumulation............. 3,699,966 Janus Aspen Series: Aggressive Growth Portfolio Annuity contracts in accumulation............. 274,462,060 Balanced Portfolio Annuity contracts in accumulation............. 244,144,219 Flexible Income Portfolio Annuity contracts in accumulation............. 18,729,553 Growth Portfolio Annuity contracts in accumulation............. 253,461,282 Annuity contracts in payment period........... 14,191,697
S-6 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 2000 (continued): Worldwide Growth Portfolio Annuity contracts in accumulation............. $ 467,731,442 Annuity contracts in payment period........... 16,131,186 Lexington Funds: Emerging Markets Fund, Inc. Annuity contracts in accumulation............. 1,255,139 Natural Resources Trust Fund Annuity contracts in accumulation............. 2,800,522 MFS Funds: Global Government Series Annuity contracts in accumulation............. 1,537,291 Total Return Series Annuity contracts in accumulation............. 63,398,107 Mitchell Hutchins Series Trust: Growth & Income Portfolio Annuity contracts in accumulation............. 950,238 Small Cap Portfolio Annuity contracts in accumulation............. 208,747 Tactical Allocation Portfolio Annuity contracts in accumulation............. 12,509,283 Oppenheimer Funds: Aggressive Growth Fund/VA Annuity contracts in accumulation............. 55,317,044 Annuity contracts in payment period........... 1,734,978 Global Securities Fund/VA Annuity contracts in accumulation............. 17,259,574 Main Street Growth & Income Fund/VA Annuity contracts in accumulation............. 66,668,968 Annuity contracts in payment period........... 983,453 Strategic Bond Fund/VA Annuity contracts in accumulation............. 22,834,845 Annuity contracts in payment period........... 499,690 Portfolio Partners, Inc. (PPI): PPI MFS Capital Opportunities Portfolio Annuity contracts in accumulation............. 74,490,975 Annuity contracts in payment period........... 3,742,395 PPI MFS Emerging Equities Portfolio Annuity contracts in accumulation............. 134,260,645 Annuity contracts in payment period........... 2,424,002 PPI MFS Research Growth Portfolio Annuity contracts in accumulation............. 97,910,276 PPI Scudder International Growth Portfolio Annuity contracts in accumulation............. 37,459,265 Annuity contracts in payment period........... 820,408 PPI T. Rowe Price Growth Equity Portfolio Annuity contracts in accumulation............. 111,737,190 Annuity contracts in payment period........... 1,492,696 -------------- $6,324,265,635 ==============
See Notes to Financial Statements S-7 VARIABLE ANNUITY ACCOUNT B STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 ----------------- INVESTMENT INCOME: Income: (Notes 1, 3 and 5) Dividends....................................... $ 527,997,200 Expenses: (Notes 2 and 5) Valuation period deductions..................... (84,578,915) --------------- Net investment income............................. $ 443,418,285 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments: (Notes 1, 4 and 5) Proceeds from sales............................. $ 6,595,668,326 Cost of investments sold........................ (6,264,073,053) --------------- Net realized gain on investments.............. 331,595,273 --------------- Net unrealized gain (loss) on investments: (Note 5) Beginning of year............................... 860,262,998 End of year..................................... (650,455,465) --------------- Net change in unrealized gain (loss) on investments................................. (1,510,718,463) --------------- Net realized and unrealized loss on investments... (1,179,123,190) --------------- Net decrease in net assets resulting from operations...................................... $ (735,704,905) ===============
See Notes to Financial Statements -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2000 1999 ---- ---- FROM OPERATIONS: Net investment income................... $ 443,418,285 $ 312,954,293 Net realized gain on investments........ 331,595,273 243,088,761 Net change in unrealized (loss) gain on investments........................... (1,510,718,463) 510,456,415 --------------- -------------- Net decrease in net assets resulting from operations....................... (735,704,905) 1,066,499,469 --------------- -------------- FROM UNIT TRANSACTIONS: Variable annuity contract purchase payments.............................. 587,979,766 659,312,376 Transfers from the Company for mortality guarantee adjustments................. 1,823,656 2,250,831 Transfer from the Company's other variable annuity accounts............. 813,910,948 819,446,700 Redemptions by contract holders......... (481,282,116) (300,870,502) Annuity payments........................ (40,923,357) (30,374,265) Other................................... 4,610,611 1,018,001 --------------- -------------- Net increase in net assets from unit transactions (Note 6)............... 886,119,508 1,150,783,141 --------------- -------------- Change in net assets.................... 150,414,603 2,217,282,610 NET ASSETS: Beginning of year....................... 6,173,851,032 3,956,568,422 --------------- -------------- End of year............................. $ 6,324,265,635 $6,173,851,032 =============== ==============
See Notes to Financial Statements S-8 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2000
------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------------------- AETNA ASCENT VP: Non-Qualified V $ 17.905 $ 17.566 (1.89%) 79,351.7 $ 1,393,892 Non-Qualified V (0.75) 18.253 17.996 (1.41%) 118,219.7 2,127,481 Non-Qualified VII 17.779 17.415 (2.05%) 664,701.5 11,575,776 Non-Qualified VIII 15.822 15.521 (1.90%) 128,641.8 1,996,649 Non-Qualified IX 17.783 17.403 (2.14%) 774.8 13,483 Non-Qualified X 18.066 17.786 (1.55%) 21,775.7 387,303 Annuity contracts in payment period 25,499 ------------------------------------------------------------------------------------------------------------------------- AETNA BALANCED VP, INC.: Non-Qualified V 24.603 24.163 (1.79%) 2,014,689.6 48,680,946 Non-Qualified V (0.75) 25.081 24.755 (1.30%) 1,315,033.5 32,553,654 Non-Qualified VI 20.706 20.348 (1.73%) 28,030.5 570,364 Non-Qualified VII 24.091 23.622 (1.95%) 2,057,800.3 48,609,358 Non-Qualified VIII 17.066 16.759 (1.80%) 452,341.6 7,580,793 Non-Qualified IX 24.436 23.939 (2.03%) 16,800.1 402,177 Non-Qualified X 24.762 24.379 (1.55%) 361,203.4 8,805,777 Non-Qualified XI 20.840 20.530 (1.49%) 4,301.6 88,311 Non-Qualified XII 11.902 11.741 (1.35%) 8,875.4 104,206 Non-Qualified XIII 11.632 11.457 (1.50%) 788,862.7 9,038,000 Non-Qualified XIV 11.581 11.372 (1.80%) 741,767.5 8,435,380 Non-Qualified XV 11.555 11.330 (1.95%) 383,214.8 4,341,824 Non-Qualified XVI 9.867 9.532 (3.40%) (8) 50,040.3 476,984 Non-Qualified XVIII 9.924 9.520 (4.07%) (8) 29,542.6 281,246 Non-Qualified XIX 10.000 9.524 (4.76%) (7) 56,480.1 537,916 Annuity contracts in payment period 29,260,905 ------------------------------------------------------------------------------------------------------------------------- AETNA BOND VP: Non-Qualified V 13.988 15.147 8.29% 722,494.4 10,943,623 Non-Qualified V (0.75) 14.260 15.519 8.83% 1,459,551.7 22,650,783 Non-Qualified VI 12.792 13.860 8.35% 39,051.9 541,259 Non-Qualified VII 13.700 14.811 8.11% 1,640,793.4 24,301,791 Non-Qualified VIII 11.674 12.640 8.27% 429,644.9 5,430,711 Non-Qualified IX 13.893 15.007 8.02% 7,623.0 114,399 Non-Qualified X 14.042 15.229 8.45% 364,572.9 5,552,081 Non-Qualified XI 12.841 13.934 8.51% 1,300.3 18,118 Non-Qualified XII 10.970 11.121 1.38% (10) 8.1 90 Non-Qualified XIII 10.145 11.018 8.61% 722,144.6 7,956,589 Non-Qualified XIV 10.101 10.937 8.28% 1,025,034.6 11,210,803 Non-Qualified XV 10.078 10.896 8.12% 402,296.7 4,383,425 Non-Qualified XVI 10.042 10.472 4.28% (8) 26,415.4 276,622 Non-Qualified XVIII 10.323 10.459 1.32% (10) 2,717.2 28,419 Non-Qualified XIX 10.131 10.463 3.28% (9) 24,878.0 260,298 Annuity contracts in payment period 5,821,072 ------------------------------------------------------------------------------------------------------------------------- AETNA CROSSROADS VP: Non-Qualified V 16.431 16.295 (0.83%) 99,845.0 1,626,975 Non-Qualified V (0.75) 16.750 16.694 (0.33%) 125,909.8 2,101,938 Non-Qualified VII 16.316 16.155 (0.99%) 765,165.2 12,361,243 Non-Qualified VIII 14.789 14.665 (0.84%) 228,739.4 3,354,464 Non-Qualified X 16.579 16.499 (0.48%) 9,913.1 163,557 Non-Qualified XVII 16.474 16.387 (0.53%) 2,096.8 34,361 Annuity contracts in payment period 1,447,650 ------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES C: Non-Qualified V 19.358 17.424 (9.99%) 47,034.0 819,520 Non-Qualified V (0.75) 19.679 17.801 (9.54%) 276,469.7 4,921,437 Non-Qualified IX 19.227 17.263 (10.21%) 9,137.9 157,748 ------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES D: Non-Qualified V 10.726 10.188 (5.02%) 1,802,844.4 18,367,379 Non-Qualified V (0.75) 10.792 10.301 (4.55%) 1,414,157.2 14,567,233 Non-Qualified VII 10.704 10.150 (5.18%) 3,885,709.8 39,439,954 Non-Qualified VIII 10.739 10.199 (5.03%) 1,836,502.6 18,730,490 Non-Qualified IX 10.693 10.131 (5.26%) 308.5 3,125 Non-Qualified X 10.726 10.188 (5.02%) 152,895.4 1,557,698
S-9 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2000 (continued):
------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES D: (continued): Non-Qualified XII $ 10.785 $ 10.290 (4.59%) 986.9 $ 10,155 Non-Qualified XIII 10.769 10.258 (4.75%) 1,489,732.1 15,281,672 Non-Qualified XIV 10.730 10.190 (5.03%) 1,653,798.6 16,852,208 Non-Qualified XV 10.710 10.156 (5.17%) 488,939.9 4,965,674 ------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES E: Non-Qualified V 10.760 10.139 (5.77%) 1,778,814.3 18,035,398 Non-Qualified V (0.75) 10.789 10.218 (5.29%) 217,163.5 2,218,977 Non-Qualified VII 10.743 10.081 (6.16%) 3,656,013.2 36,856,269 Non-Qualified VIII 10.752 10.105 (6.02%) 488,662.9 4,937,939 Non-Qualified X 10.766 10.145 (5.77%) 139,139.5 1,411,570 Non-Qualified XIII 10.770 10.152 (5.74%) 9,656,836.6 98,036,205 Non-Qualified XIV 10.752 10.105 (6.02%) 9,028,434.3 91,232,329 Non-Qualified XV 10.743 10.081 (6.16%) 8,045,261.2 81,104,278 ------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES G: Non-Qualified V 10.370 9.914 (4.40%) 232,618.4 2,306,179 Non-Qualified V (0.75) 10.386 9.978 (3.93%) 176,707.5 1,763,187 Non-Qualified VII 10.363 9.866 (4.80%) 2,459,972.9 24,270,093 Non-Qualified VIII 10.368 9.886 (4.65%) 360,626.5 3,565,154 Non-Qualified X 10.377 9.920 (4.40%) 12,410.5 123,112 Non-Qualified XIII 10.378 9.925 (4.37%) 5,016,318.0 49,786,956 Non-Qualified XIV 10.368 9.886 (4.65%) 6,915,820.8 68,369,804 Non-Qualified XV 10.363 9.866 (4.80%) 3,675,263.2 36,260,147 ------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES H: Non-Qualified V 10.020 10.069 0.49% 111,809.3 1,125,808 Non-Qualified V (0.75) 10.059 10.121 0.62% (2) 49,219.3 498,149 Non-Qualified VII 10.019 10.031 0.12% 1,526,005.9 15,307,365 Non-Qualified VIII 10.020 10.047 0.27% 104,933.0 1,054,262 Non-Qualified IX 10.040 10.043 0.03% (1) 497.9 5,000 Non-Qualified X 10.106 10.075 (0.31%) (3) 989.5 9,969 Non-Qualified XIII 10.021 10.079 0.58% 4,728,531.1 47,658,865 Non-Qualified XIV 10.020 10.047 0.27% 5,035,318.9 50,589,849 Non-Qualified XV 10.019 10.031 0.12% 2,543,557.3 25,514,423 ------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES I: Non-Qualified VII 10.001 9.850 (1.51%) (3) 394,796.4 3,888,745 Non-Qualified VIII 10.020 9.862 (1.58%) (3) 27,445.3 270,666 Non-Qualified XIII 10.000 9.886 (1.14%) (3) 2,851,071.3 28,185,691 Non-Qualified XIV 10.000 9.862 (1.38%) (3) 3,660,044.6 36,095,360 Non-Qualified XV 10.000 9.850 (1.50%) (3) 2,486,138.4 24,488,463 ------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES J: Non-Qualified VII 9.995 9.722 (2.73%) (5) 225,025.0 2,187,693 Non-Qualified VIII 9.994 9.730 (2.64%) (5) 37,844.4 368,226 Non-Qualified XIII 9.997 9.746 (2.51%) (5) 2,259,504.4 22,021,130 Non-Qualified XIV 9.996 9.730 (2.66%) (5) 3,671,394.2 35,722,666 Non-Qualified XV 9.997 9.722 (2.75%) (5) 2,013,155.8 19,571,901 ------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES K: Non-Qualified VII 10.038 10.036 (0.02%) (7) 86,864.8 871,775 Non-Qualified VIII 10.025 10.040 0.15% (7) 5,031.1 50,512 Non-Qualified XIII 10.026 10.049 0.23% (7) 1,560,153.9 15,677,987 Non-Qualified XIV 10.007 10.040 0.33% (7) 2,175,845.4 21,845,488 Non-Qualified XV 10.030 10.036 0.06% (7) 957,780.1 9,612,281 Non-Qualified XVI 10.006 10.009 0.03% (7) 1,787,033.1 17,886,414 Non-Qualified XVIII 10.014 9.997 (0.17%) (7) 1,280,395.9 12,800,118 Non-Qualified XIX 10.051 10.001 (0.50%) (7) 1,504,374.2 15,045,246 ------------------------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES L: Non-Qualified XIII 10.012 10.017 0.05% (10) 1,020.4 10,221 Non-Qualified XIV 9.999 10.016 0.17% (10) 12,485.8 125,058 Non-Qualified XV 9.997 10.015 0.18% (10) 3,772.4 37,781 Non-Qualified XVI 10.010 10.015 0.05% (10) 26,346.1 263,856 Non-Qualified XIX 9.998 10.013 0.15% (10) 14,773.8 147,930 -------------------------------------------------------------------------------------------------------------------------
S-10 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2000 (continued):
------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------------------- AETNA GROWTH AND INCOME VP: Non-Qualified 1964 $310.020 $272.607 (12.07%) 958.7 $ 261,340 Non-Qualified V 28.883 25.397 (12.07%) 6,188,910.3 157,179,755 Non-Qualified V (0.75) 29.444 26.020 (11.63%) 10,227,817.0 266,127,799 Non-Qualified VI 27.061 23.810 (12.01%) 1,445,701.4 34,422,151 Non-Qualified VII 28.758 25.247 (12.21%) 6,649,057.4 167,868,752 Non-Qualified VIII 19.253 16.928 (12.08%) 1,199,815.1 20,310,470 Non-Qualified IX 28.686 25.162 (12.28%) 91,087.9 2,291,954 Non-Qualified X 29.069 25.624 (11.85%) 2,862,933.3 73,359,804 Non-Qualified XI 27.236 24.023 (11.80%) 42,051.9 1,010,212 Non-Qualified XII 11.882 10.495 (11.67%) 34,376.1 360,777 Non-Qualified XIII 11.498 10.140 (11.81%) 1,630,201.4 16,530,242 Non-Qualified XIV 11.447 10.065 (12.07%) 1,840,246.4 18,522,080 Non-Qualified XV 11.422 10.028 (12.20%) 609,963.6 6,116,715 Non-Qualified XVI 9.481 8.973 (5.36%) (8) 37,513.0 336,604 Non-Qualified XVII 285.280 251.601 (11.81%) 239.8 60,333 Non-Qualified XVIII 9.312 8.962 (3.76%) (8) 6,538.7 58,600 Non-Qualified XIX 10.000 8.965 (10.35%) (7) 49,523.6 443,979 Annuity contracts in payment period 162,948,133 ------------------------------------------------------------------------------------------------------------------------- AETNA GROWTH VP: Non-Qualified V 23.875 20.761 (13.04%) 133,052.0 2,762,292 Non-Qualified V (0.75) 24.203 21.151 (12.61%) 791,026.7 16,731,005 Non-Qualified VII 23.771 20.638 (13.18%) 1,107,041.9 22,847,130 Non-Qualified VIII 23.870 20.755 (13.05%) 419,749.0 8,711,891 Non-Qualified IX 23.713 20.569 (13.26%) 9,672.4 198,952 Non-Qualified XII 15.094 13.184 (12.65%) 6,154.9 81,146 Non-Qualified XIII 14.022 12.229 (12.79%) 1,034,463.9 12,650,459 Non-Qualified XIV 13.961 12.139 (13.05%) 901,462.4 10,942,852 Non-Qualified XV 13.930 12.094 (13.18%) 205,559.0 2,486,031 Non-Qualified XVI 9.187 8.027 (12.63%) (8) 44,665.8 358,532 Non-Qualified XVIII 9.280 8.017 (13.61%) (8) 5,769.2 46,252 Non-Qualified XIX 9.727 8.021 (17.54%) (7) 46,375.8 371,980 Annuity contracts in payment period 6,813,655 ------------------------------------------------------------------------------------------------------------------------- AETNA INDEX PLUS LARGE CAP VP: Non-Qualified V 23.044 20.618 (10.53%) 331,180.7 6,828,284 Non-Qualified V (0.75) 23.427 21.065 (10.08%) 1,133,417.5 23,875,439 Non-Qualified VII 22.923 20.478 (10.67%) 2,629,360.6 53,844,046 Non-Qualified VIII 22.646 20.261 (10.53%) 867,634.1 17,579,135 Non-Qualified IX 22.887 20.427 (10.75%) 24,238.7 495,124 Non-Qualified XII 13.677 12.292 (10.13%) 21,613.2 265,670 Non-Qualified XIII 13.193 11.839 (10.26%) 4,191,119.1 49,618,659 Non-Qualified XIV 13.136 11.752 (10.54%) 3,665,274.8 43,074,309 Non-Qualified XV 13.107 11.709 (10.67%) 1,645,364.7 19,265,575 Non-Qualified XVI 9.846 9.002 (8.57%) (8) 90,026.1 810,415 Non-Qualified XVII 22.657 20.701 (8.63%) (2) 100.7 2,084 Non-Qualified XVIII 10.031 8.991 (10.37%) (11) 12,684.6 114,047 Non-Qualified XIX 10.000 8.995 (10.05%) (11) 214,203.3 1,926,759 Annuity contracts in payment period 44,095,500 ------------------------------------------------------------------------------------------------------------------------- AETNA INDEX PLUS MID CAP VP: Non-Qualified V 12.455 14.751 18.43% 90,356.8 1,332,853 Non-Qualified V (0.75) 12.561 14.951 19.03% 357,389.2 5,343,326 Non-Qualified XII 15.024 15.591 3.77% (10) 2,190.4 34,150 Non-Qualified IX 12.403 14.653 18.14% 1,565.9 22,945 ------------------------------------------------------------------------------------------------------------------------- AETNA INDEX PLUS SMALL CAP VP: Non-Qualified V 9.645 10.461 8.46% 28,764.1 300,901 Non-Qualified V (0.75) 9.727 10.602 9.00% 74,216.3 786,841 Non-Qualified IX 9.604 10.391 8.19% 963.9 10,016 Non-Qualified XII 10.485 11.423 8.95% 10.0 114 ------------------------------------------------------------------------------------------------------------------------- AETNA INTERNATIONAL VP: Non-Qualified V 14.594 11.484 (21.31%) 19,207.5 220,579 Non-Qualified V (0.75) 14.718 11.639 (20.92%) 84,648.9 985,228
S-11 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2000 (continued):
------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------------------- AETNA INTERNATIONAL VP: (continued): Non-Qualified VII $ 14.554 $ 11.434 (21.44%) 101,229.7 $ 1,157,460 Non-Qualified VIII 14.592 11.481 (21.32%) 40,044.5 459,751 Non-Qualified XIII 13.715 10.824 (21.08%) 274,728.4 2,973,660 Non-Qualified XIV 13.655 10.744 (21.32%) 211,631.4 2,273,768 Non-Qualified XV 13.625 10.704 (21.44%) 82,567.6 883,804 Non-Qualified XVI 9.183 8.741 (4.81%) (8) 27,897.6 243,853 Non-Qualified XVIII 9.317 8.730 (6.30%) (8) 899.1 7,849 Non-Qualified XIX 10.038 8.734 (12.99%) (8) 20,253.0 176,890 Annuity contracts in payment period 324,994 ------------------------------------------------------------------------------------------------------------------------- AETNA LEGACY VP: Non-Qualified V 14.875 15.397 3.51% 99,654.9 1,534,387 Non-Qualified V (0.75) 15.164 15.775 4.03% 59,794.0 943,251 Non-Qualified VII 14.772 15.267 3.35% 988,465.3 15,090,900 Non-Qualified VIII 13.787 14.271 3.51% 368,911.1 5,264,730 Non-Qualified XII 10.713 11.139 3.98% 832.3 9,271 Annuity contracts in payment period 3,348,677 ------------------------------------------------------------------------------------------------------------------------- AETNA MONEY MARKET VP: Non-Qualified V 12.894 13.547 5.06% 894,023.5 12,111,336 Non-Qualified V (0.75) 13.145 13.879 5.58% 2,718,809.7 37,734,360 Non-Qualified VI 12.597 13.243 5.13% 55,988.2 741,452 Non-Qualified VII 12.766 13.392 4.90% 5,982,730.1 80,120,721 Non-Qualified VIII 11.561 12.145 5.05% 939,265.5 11,407,380 Non-Qualified IX 12.806 13.422 4.81% 6,361.8 85,388 Non-Qualified X 12.894 13.547 5.06% 424,945.6 5,756,738 Non-Qualified XI 12.597 13.243 5.13% 49.6 657 Non-Qualified XII 11.066 11.260 1.75% (7) 45.6 514 Non-Qualified XIII 10.615 11.186 5.38% 2,214,734.2 24,774,017 Non-Qualified XIV 10.569 11.103 5.05% 1,993,511.0 22,133,953 Non-Qualified XV 10.546 11.062 4.89% 818,340.0 9,052,477 Non-Qualified XVI 10.044 10.143 0.99% (8) 101,037.5 1,024,823 Non-Qualified XVIII 10.014 10.130 1.16% (8) 92,189.3 933,878 Non-Qualified XIX 10.015 10.135 1.20% (8) 68,060.6 689,794 Annuity contracts in payment period 5,241,120 ------------------------------------------------------------------------------------------------------------------------- AETNA SMALL COMPANY VP: Non-Qualified V 17.617 18.568 5.40% 64,121.7 1,190,612 Non-Qualified V (0.75) 17.859 18.917 5.92% 282,406.8 5,342,290 Non-Qualified VII 17.540 18.458 5.23% 970,627.4 17,915,840 Non-Qualified VIII 17.613 18.563 5.39% 297,717.2 5,526,525 Non-Qualified IX 17.497 18.396 5.14% 1,842.8 33,901 Non-Qualified XII 12.352 13.077 5.87% 35,990.3 470,645 Non-Qualified XIII 12.128 12.820 5.71% 578,289.2 7,413,668 Non-Qualified XIV 12.074 12.726 5.40% 419,833.9 5,342,806 Non-Qualified XV 12.048 12.679 5.24% 119,262.6 1,512,130 Non-Qualified XVI 8.762 9.234 5.39% (8) 19,541.5 180,446 Non-Qualified XVIII 9.222 9.223 0.01% (9) 3,437.7 31,706 Non-Qualified XIX 10.169 9.226 (9.27%) (7) 21,999.5 202,967 Annuity contracts in payment period 2,106,866 ------------------------------------------------------------------------------------------------------------------------- AETNA TECHNOLOGY VP: Non-Qualified V 9.558 5.831 (38.99%) (4) 127,429.8 743,043 Non-Qualified V (0.75) 9.999 5.850 (41.49%) (4) 319,734.5 1,870,447 Non-Qualified VII 9.738 5.824 (40.19%) (4) 366,685.4 2,135,576 Non-Qualified VIII 9.999 5.830 (41.69%) (4) 53,901.7 314,247 Non-Qualified IX 10.754 5.821 (45.87%) (6) 8,565.2 49,858 Non-Qualified X 9.564 5.841 (38.93%) (7) 7,134.6 41,673 Non-Qualified XII 7.729 5.848 (24.34%) (8) 3,062.4 17,909 Non-Qualified XIII 9.999 5.842 (41.57%) (4) 367,377.8 2,146,221 Non-Qualified XIV 9.999 5.830 (41.69%) (4) 223,693.0 1,304,130 Non-Qualified XV 8.693 5.824 (33.00%) (4) 74,723.7 435,191 Non-Qualified XVI 9.288 6.088 (34.45%) (8) 27,854.1 169,576 Non-Qualified XVIII 8.131 6.080 (25.22%) (8) 27,016.1 164,258 Non-Qualified XIX 9.300 6.083 (34.59%) (7) 72,410.0 440,470 -------------------------------------------------------------------------------------------------------------------------
S-12 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2000 (continued):
------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------------------- AETNA VALUE OPPORTUNITY VP: Non-Qualified V $ 18.930 $ 20.602 8.83% 27,040.2 $ 557,083 Non-Qualified V (0.75) 19.190 20.989 9.37% 121,019.4 2,540,076 Non-Qualified VII 18.847 20.480 8.66% 641,673.0 13,141,464 Non-Qualified VIII 18.926 20.596 8.82% 157,762.1 3,249,269 Non-Qualified IX 18.801 20.412 8.57% 761.5 15,543 Non-Qualified XII 13.007 14.220 9.33% 14,497.1 206,149 ------------------------------------------------------------------------------------------------------------------------- AIM V.I. FUNDS: CAPITAL APPRECIATION FUND: Non-Qualified V 13.753 12.101 (12.01%) 16,497.6 199,638 Non-Qualified V (0.75) 13.801 12.204 (11.57%) 134,675.4 1,643,579 Non-Qualified XIII 14.675 12.951 (11.75%) 552,618.6 7,156,964 Non-Qualified XIV 14.611 12.855 (12.02%) 701,843.8 9,022,202 Non-Qualified XV 14.579 12.808 (12.15%) 392,207.0 5,023,387 Non-Qualified XVI 9.935 7.678 (22.72%) (7) 100,308.8 770,171 Non-Qualified XVII 14.871 12.316 (17.18%) (5) 166.1 2,046 Non-Qualified XVIII 10.097 7.669 (24.05%) (7) 98,265.6 753,599 Non-Qualified XIX 10.077 7.672 (23.87%) (7) 88,285.5 677,326 Annuity contracts in payment period 738,219 ------------------------------------------------------------------------------------------------------------------------- GOVERNMENT SECURITIES FUND: Non-Qualified XIII 10.488 10.800 2.97% (8) 8,235.2 88,940 Non-Qualified XV 10.743 10.767 0.22% (10) 10,553.1 113,625 Non-Qualified XVI 10.090 10.392 2.99% (9) 917.9 9,539 Non-Qualified XVIII 10.350 10.379 0.28% (10) 2,946.9 30,586 Non-Qualified XIX 10.222 10.384 1.58% (10) 5,029.1 52,222 ------------------------------------------------------------------------------------------------------------------------- GROWTH AND INCOME FUND: Non-Qualified V 11.716 9.887 (15.61%) 55,310.3 546,853 Non-Qualified V (0.75) 11.756 9.970 (15.19%) 148,347.6 1,479,026 Non-Qualified XII 10.973 9.962 (9.21%) (10) 55.9 557 Non-Qualified XIII 14.179 12.001 (15.36%) 1,098,096.0 13,178,250 Non-Qualified XIV 14.117 11.912 (15.62%) 1,809,797.2 21,558,304 Non-Qualified XV 14.086 11.868 (15.75%) 628,310.8 7,456,792 Non-Qualified XVI 9.846 8.214 (16.58%) (8) 61,552.2 505,590 Non-Qualified XVIII 9.845 8.204 (16.67%) (8) 69,883.3 573,323 Non-Qualified XIX 10.000 8.207 (17.93%) (7) 162,481.3 1,333,484 Annuity contracts in payment period 3,190,959 ------------------------------------------------------------------------------------------------------------------------- GROWTH FUND: Non-Qualified V 12.069 9.477 (21.48%) 15,453.7 146,455 Non-Qualified V (0.75) 12.111 9.558 (21.08%) 167,339.7 1,599,433 Non-Qualified IX 12.347 9.437 (23.57%) (1) 278.8 2,631 Non-Qualified XII 12.772 9.550 (25.23%) (2) 2,233.6 21,331 Non-Qualified XIII 14.438 11.371 (21.24%) 935,077.6 10,632,767 Non-Qualified XIV 14.375 11.288 (21.47%) 1,389,231.1 15,681,641 Non-Qualified XV 14.343 11.246 (21.59%) 539,472.2 6,066,904 Non-Qualified XVI 9.945 7.611 (23.47%) (7) 121,072.7 921,484 Non-Qualified XVIII 10.032 7.601 (24.23%) (7) 52,041.6 395,568 Non-Qualified XIX 10.000 7.604 (23.96%) (7) 98,933.9 752,293 Annuity contracts in payment period 1,036,422 ------------------------------------------------------------------------------------------------------------------------- VALUE FUND: Non-Qualified V 11.506 9.699 (15.70%) 11,764.3 114,102 Non-Qualified V (0.75) 11.546 9.781 (15.29%) 129,960.3 1,271,142 Non-Qualified XII 10.772 9.773 (9.27%) (1) 1,829.1 17,876 Non-Qualified XIII 13.659 11.548 (15.46%) 1,793,242.8 20,708,368 Non-Qualified XIV 13.599 11.463 (15.71%) 2,930,389.9 33,591,059 Non-Qualified XV 13.569 11.420 (15.84%) 1,085,664.4 12,398,287 Non-Qualified XVI 9.590 8.804 (8.20%) (8) 83,391.3 734,177 Non-Qualified XVII 10.090 9.981 (1.08%) (9) 379.6 3,789 Non-Qualified XVIII 10.009 8.793 (12.15%) (7) 28,614.5 251,607 Non-Qualified XIX 9.667 8.796 (9.01%) (8) 156,961.6 1,380,634 Annuity contracts in payment period 2,878,953 -------------------------------------------------------------------------------------------------------------------------
S-13 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2000 (continued):
------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------------------- ALGER AMERICAN FUNDS: BALANCED PORTFOLIO: Non-Qualified VII $ 26.687 $ 25.588 (4.12%) 191,021.5 $ 4,887,859 ------------------------------------------------------------------------------------------------------------------------- INCOME & GROWTH PORTFOLIO: Non-Qualified VII 30.991 30.172 (2.64%) 549,715.3 16,586,009 ------------------------------------------------------------------------------------------------------------------------- LEVERAGED ALLCAP PORTFOLIO: Non-Qualified VII 43.684 32.379 (25.88%) 480,525.6 15,558,937 Non-Qualified VIII 32.013 23.765 (25.76%) 168.2 3,997 ------------------------------------------------------------------------------------------------------------------------- ALLIANCE FUNDS: GROWTH AND INCOME PORTFOLIO: Non-Qualified XIII 9.778 10.129 3.59% (7) 29,928.3 303,144 Non-Qualified XIV 9.765 10.108 3.51% (8) 16,099.0 162,729 Non-Qualified XV 9.310 10.098 8.46% (8) 4,460.1 45,038 Non-Qualified XVI 9.984 10.387 4.04% (8) 20,209.2 209,913 Non-Qualified XVIII 10.145 10.374 2.26% (10) 1,545.4 16,032 Non-Qualified XIX 10.240 10.378 1.35% (7) 15,500.2 160,861 ------------------------------------------------------------------------------------------------------------------------- PREMIER GROWTH PORTFOLIO: Non-Qualified XIII 9.283 7.620 (17.91%) (7) 83,126.2 633,422 Non-Qualified XIV 9.083 7.605 (16.27%) (7) 76,847.6 584,426 Non-Qualified XV 7.918 7.597 (4.05%) (8) 23,774.5 180,615 Non-Qualified XVI 9.505 8.198 (13.75%) (8) 38,183.9 313,032 Non-Qualified XVIII 9.504 8.188 (13.85%) (8) 6,109.4 50,024 Non-Qualified XIX 9.170 8.191 (10.68%) (8) 113,043.8 925,942 ------------------------------------------------------------------------------------------------------------------------- QUASAR PORTFOLIO: Non-Qualified XIII 10.602 9.511 (10.29%) (9) 1,070.4 10,181 Non-Qualified XIV 10.504 9.491 (9.64%) (9) 431.4 4,094 Non-Qualified XV 8.851 9.482 7.13% (9) 296.4 2,810 Non-Qualified XVI 9.718 8.589 (11.62%) (8) 963.2 8,273 Non-Qualified XVIII 9.714 8.579 (11.68%) (8) 834.9 7,163 Non-Qualified XIX 9.065 8.582 (5.33%) (8) 5,820.2 49,949 ------------------------------------------------------------------------------------------------------------------------- AMERICAN CENTURY VP FUNDS: BALANCED FUND: Non-Qualified VII 18.968 18.208 (4.01%) 147,434.3 2,684,483 ------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL FUND: Non-Qualified VII 26.105 21.410 (17.99%) 228,917.7 4,901,128 Non-Qualified VIII 23.649 19.425 (17.86%) 182.5 3,546 ------------------------------------------------------------------------------------------------------------------------- CALVERT SOCIAL BALANCED PORTFOLIO: Non-Qualified V 22.626 21.647 (4.33%) 7,201.0 155,881 Non-Qualified V (0.75) 23.066 22.178 (3.85%) 32,222.4 714,629 Non-Qualified VII 12.656 12.089 (4.48%) 75,859.0 917,060 Non-Qualified VIII 12.696 12.146 (4.33%) 59,786.1 726,162 ------------------------------------------------------------------------------------------------------------------------- FEDERATED INSURANCE SERIES: AMERICAN LEADERS FUND II: Non-Qualified VII 24.746 24.983 0.96% 4,096,584.0 102,344,959 Non-Qualified VIII 17.769 17.966 1.11% 8,486.4 152,467 Annuity contracts in payment period 88,623 ------------------------------------------------------------------------------------------------------------------------- EQUITY INCOME FUND II: Non-Qualified VII 16.369 14.335 (12.43%) 1,689,780.8 24,223,008 Annuity contracts in payment period 41,239 ------------------------------------------------------------------------------------------------------------------------- GROWTH STRATEGIES FUND II: Non-Qualified VII 31.060 24.528 (21.03%) 1,378,391.5 33,809,187 ------------------------------------------------------------------------------------------------------------------------- HIGH INCOME BOND FUND II: Non-Qualified VII 15.040 13.493 (10.29%) 1,958,869.0 26,431,019 Non-Qualified VIII 12.759 11.464 (10.15%) 300.5 3,445 Annuity contracts in payment period 11,712 ------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND II: Non-Qualified VII 26.832 20.476 (23.69%) 977,487.4 20,015,032 Non-Qualified VIII 24.690 18.870 (23.57%) 129.5 2,443 Annuity contracts in payment period 39,851 -------------------------------------------------------------------------------------------------------------------------
S-14 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2000 (continued):
------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------------------- PRIME MONEY FUND II: Non-Qualified VII $ 11.868 $ 12.398 4.47% 702,002.3 $ 8,703,425 ------------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND II: Non-Qualified VII 12.363 13.528 9.42% 822,989.6 11,133,403 ------------------------------------------------------------------------------------------------------------------------- UTILITY FUND II: Non-Qualified VII 18.714 16.802 (10.22%) 1,149,218.0 19,309,160 Non-Qualified VIII 15.537 13.971 (10.08%) 66.4 928 Annuity contracts in payment period 40,502 ------------------------------------------------------------------------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO: Non-Qualified V 18.272 19.565 7.08% 204,703.9 4,005,032 Non-Qualified V (0.75) 18.627 20.045 7.61% 417,042.4 8,359,615 Non-Qualified VII 21.883 23.395 6.91% 5,036,496.8 117,828,843 Non-Qualified VIII 15.689 16.799 7.08% 877,097.0 14,734,352 Non-Qualified IX 18.147 19.384 6.82% 4,142.2 80,293 Non-Qualified X 18.272 19.565 7.08% 7,656.3 149,796 Non-Qualified XII 10.651 11.457 7.57% 1,315.1 15,067 Non-Qualified XIII 10.438 11.210 7.40% 1,176,438.9 13,187,880 Non-Qualified XIV 10.392 11.127 7.07% 2,028,219.6 22,567,999 Non-Qualified XV 10.369 11.086 6.91% 597,258.3 6,621,206 Non-Qualified XVI 10.343 10.654 3.01% (8) 19,341.1 206,060 Non-Qualified XVIII 10.074 10.640 5.62% (8) 7,261.0 77,257 Non-Qualified XIX 10.000 10.645 6.45% (7) 17,997.6 191,584 ------------------------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO: Non-Qualified V 25.999 22.858 (12.08%) 536,656.3 12,266,889 Non-Qualified V (0.75) 26.504 23.418 (11.64%) 1,030,485.8 24,131,916 Non-Qualified VII 35.706 31.342 (12.22%) 3,812,422.1 119,488,933 Non-Qualified VIII 23.643 20.785 (12.09%) 878,021.8 18,249,684 Non-Qualified IX 25.822 22.646 (12.30%) 13,914.0 315,097 Non-Qualified X 25.999 22.858 (12.08%) 29,625.6 677,182 Non-Qualified XII 16.024 14.152 (11.68%) 6,685.7 94,616 Non-Qualified XIII 12.649 11.154 (11.82%) 1,214,067.2 13,541,706 Non-Qualified XIV 12.628 11.102 (12.08%) 1,209,832.4 13,431,559 Non-Qualified XV 12.618 11.076 (12.22%) 444,915.6 4,927,885 Non-Qualified XVI 9.783 8.554 (12.56%) (7) 131,208.9 1,122,361 Non-Qualified XVII 26.366 23.250 (11.82%) 245.7 5,712 Non-Qualified XVIII 9.018 8.543 (5.27%) (8) 37,651.9 321,660 Non-Qualified XIX 9.790 8.546 (12.71%) (7) 121,083.9 1,034,783 ------------------------------------------------------------------------------------------------------------------------- HIGH INCOME PORTFOLIO: Non-Qualified VII 14.042 10.735 (23.55%) 2,107,872.1 22,628,007 Non-Qualified VIII 12.601 9.648 (23.43%) 494,024.2 4,766,345 Non-Qualified XIII 9.586 7.362 (23.20%) 887,739.5 6,535,538 Non-Qualified XIV 9.544 7.307 (23.44%) 990,111.0 7,234,741 Non-Qualified XV 9.523 7.280 (23.55%) 460,730.8 3,354,120 Non-Qualified XVI 9.860 8.470 (14.10%) (8) 13,910.0 117,818 Non-Qualified XVIII 9.371 8.459 (9.73%) (8) 12,250.3 103,625 Non-Qualified XIX 9.903 8.463 (14.54%) (7) 13,206.5 111,767 Annuity contracts in payment period 659,872 ------------------------------------------------------------------------------------------------------------------------- OVERSEAS PORTFOLIO: Non-Qualified V 19.419 15.514 (20.11%) 33,208.4 515,195 Non-Qualified V (0.75) 19.796 15.894 (19.71%) 193,260.3 3,071,679 Non-Qualified VII 21.391 17.062 (20.24%) 589,198.5 10,052,905 Non-Qualified VIII 18.139 14.491 (20.11%) 55,032.7 797,479 Non-Qualified IX 19.287 15.370 (20.31%) 877.6 13,488 Non-Qualified XII 10.700 11.081 3.56% (10) 42.3 469 -------------------------------------------------------------------------------------------------------------------------
S-15 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2000 (continued):
------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO: Non-Qualified VII $ 19.482 $ 18.456 (5.27%) 829,362.9 $ 15,306,722 Non-Qualified VIII 16.218 15.387 (5.12%) 163,400.0 2,514,236 ------------------------------------------------------------------------------------------------------------------------- CONTRAFUND PORTFOLIO: Non-Qualified V 24.217 22.333 (7.78%) 365,498.9 8,162,687 Non-Qualified V (0.75) 24.687 22.881 (7.32%) 642,878.3 14,709,699 Non-Qualified VII 26.797 24.674 (7.92%) 4,392,709.8 108,385,721 Non-Qualified VIII 21.463 19.792 (7.79%) 731,695.2 14,481,711 Non-Qualified IX 24.052 22.126 (8.01%) 19,458.0 430,527 Non-Qualified X 24.217 22.333 (7.78%) 8,064.0 180,093 Non-Qualified XII 13.787 12.772 (7.36%) 7,547.7 96,399 Non-Qualified XIII 12.966 11.993 (7.50%) 1,991,818.4 23,887,878 Non-Qualified XIV 12.909 11.904 (7.79%) 2,706,891.0 32,222,831 Non-Qualified XV 12.881 11.860 (7.93%) 1,105,564.5 13,111,995 Non-Qualified XVI 10.000 9.440 (5.60%) (7) 56,159.9 530,149 Non-Qualified XVII 27.241 25.197 (7.50%) 4,544.1 114,497 Non-Qualified XVIII 9.607 9.428 (1.86%) (8) 10,423.0 98,268 Non-Qualified XIX 10.000 9.432 (5.68%) (7) 58,407.4 550,899 ------------------------------------------------------------------------------------------------------------------------- INDEX 500 PORTFOLIO: Non-Qualified VII 27.005 24.151 (10.57%) 4,683,497.3 113,111,144 Non-Qualified VIII 22.522 20.173 (10.43%) 988,345.1 19,937,885 ------------------------------------------------------------------------------------------------------------------------- INVESTMENT GRADE BOND PORTFOLIO: Non-Qualified VII 12.143 13.317 9.67% 277,562.9 3,696,305 Non-Qualified VIII 11.834 12.998 9.84% 281.7 3,661 ------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO: Non-Qualified V 45.486 30.628 (32.66%) 986,824.7 30,224,466 Non-Qualified V (0.75) 46.370 31.380 (32.33%) 1,382,321.6 43,377,252 Non-Qualified VII 45.363 30.497 (32.77%) 2,725,307.8 83,113,713 Non-Qualified VIII 31.525 21.226 (32.67%) 667,971.0 14,178,353 Non-Qualified IX 45.177 30.344 (32.83%) 34,443.8 1,045,163 Non-Qualified X 45.486 30.628 (32.66%) 37,118.3 1,136,859 Non-Qualified XII 26.089 17.646 (32.36%) 16,278.3 287,246 Non-Qualified XIII 24.654 16.650 (32.47%) 2,655,062.4 44,206,789 Non-Qualified XIV 24.546 16.527 (32.67%) 2,338,681.9 38,651,395 Non-Qualified XV 24.492 16.466 (32.77%) 933,620.8 15,373,000 Non-Qualified XVI 10.000 6.975 (30.25%) (7) 131,436.3 916,768 Non-Qualified XVII 53.698 36.266 (32.46%) 4,041.3 146,562 Non-Qualified XVIII 9.755 6.966 (28.59%) (8) 131,359.7 915,052 Non-Qualified XIX 10.000 6.969 (30.31%) (7) 127,628.4 889,442 ------------------------------------------------------------------------------------------------------------------------- BALANCED PORTFOLIO: Non-Qualified V 24.886 24.030 (3.44%) 582,229.2 13,990,968 Non-Qualified V (0.75) 25.370 24.619 (2.96%) 688,649.1 16,953,853 Non-Qualified VII 27.623 26.630 (3.59%) 2,943,151.0 78,376,112 Non-Qualified VIII 21.992 21.234 (3.45%) 827,114.5 17,562,949 Non-Qualified IX 24.717 23.807 (3.68%) 6,367.6 151,594 Non-Qualified X 24.886 24.030 (3.44%) 16,213.8 389,618 Non-Qualified XII 14.479 14.043 (3.01%) 2,450.1 34,407 Non-Qualified XIII 13.742 13.308 (3.16%) 3,217,068.4 42,812,746 Non-Qualified XIV 13.681 13.210 (3.44%) 3,812,376.8 50,361,498 Non-Qualified XV 13.651 13.161 (3.59%) 1,480,173.6 19,480,565 Non-Qualified XVI 9.982 9.746 (2.36%) (7) 175,867.6 1,714,006 Non-Qualified XVII 24.954 24.167 (3.15%) 3,056.6 73,870 Non-Qualified XVIII 10.056 9.734 (3.20%) (7) 49,505.9 481,890 Non-Qualified XIX 10.000 9.738 (2.62%) (7) 180,749.9 1,760,143 ------------------------------------------------------------------------------------------------------------------------- FLEXIBLE INCOME PORTFOLIO: Non-Qualified V 15.562 16.331 4.94% 62,404.0 1,019,120 Non-Qualified V (0.75) 15.864 16.731 5.47% 237,151.7 3,967,785 Non-Qualified VII 15.433 16.170 4.78% 673,856.9 10,896,266 Non-Qualified VIII 12.916 13.554 4.94% 201,336.8 2,728,919
S-16 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2000 (continued):
------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------------------- FLEXIBLE INCOME PORTFOLIO: (continued): Non-Qualified IX $ 15.456 $ 16.179 4.68% 3,166.3 $ 51,228 Non-Qualified X 15.562 16.331 4.94% 3,109.7 50,785 Non-Qualified XII 10.404 10.967 5.41% 1,408.8 15,450 ------------------------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO: Non-Qualified V 29.366 24.782 (15.61%) 541,341.7 13,415,531 Non-Qualified V (0.75) 29.936 25.390 (15.19%) 757,792.6 19,240,354 Non-Qualified VII 34.828 29.345 (15.74%) 2,868,918.6 84,188,415 Non-Qualified VIII 24.827 20.951 (15.61%) 586,507.8 12,287,924 Non-Qualified IX 29.166 24.552 (15.82%) 12,556.2 308,279 Non-Qualified X 29.366 24.782 (15.61%) 46,192.4 1,144,741 Non-Qualified XII 16.313 13.829 (15.23%) 13,511.1 186,845 Non-Qualified XIII 15.599 13.203 (15.36%) 3,180,105.7 41,986,935 Non-Qualified XIV 15.531 13.106 (15.61%) 4,430,382.0 58,064,587 Non-Qualified XV 15.497 13.057 (15.74%) 1,465,080.0 19,129,549 Non-Qualified XVI 10.000 8.308 (16.92%) (7) 139,032.3 1,155,080 Non-Qualified XVII 32.068 27.143 (15.36%) 616.4 16,732 Non-Qualified XVIII 9.982 8.298 (16.87%) (8) 83,221.0 690,568 Non-Qualified XIX 10.000 8.301 (16.99%) (7) 198,258.3 1,645,742 Annuity contracts in payment period 14,191,697 ------------------------------------------------------------------------------------------------------------------------- WORLDWIDE GROWTH PORTFOLIO: Non-Qualified V 34.626 28.839 (16.71%) 966,698.1 27,878,607 Non-Qualified V (0.75) 35.298 29.545 (16.30%) 1,691,751.2 49,982,790 Non-Qualified VII 38.979 32.413 (16.84%) 6,694,492.2 216,988,577 Non-Qualified VIII 28.189 23.476 (16.72%) 1,190,701.4 27,952,905 Non-Qualified IX 34.390 28.571 (16.92%) 33,746.0 964,156 Non-Qualified X 34.626 28.839 (16.71%) 42,596.2 1,228,431 Non-Qualified XII 16.613 13.899 (16.34%) 26,789.1 372,342 Non-Qualified XIII 15.599 13.030 (16.47%) 4,326,254.2 56,371,092 Non-Qualified XIV 15.531 12.934 (16.72%) 4,782,840.5 61,861,259 Non-Qualified XV 15.497 12.886 (16.85%) 1,437,826.3 18,527,830 Non-Qualified XVI 10.000 8.570 (14.30%) (7) 255,500.8 2,189,642 Non-Qualified XVII 38.687 32.317 (16.47%) 2,080.1 67,221 Non-Qualified XVIII 9.853 8.559 (13.13%) (8) 113,875.2 974,658 Non-Qualified XIX 10.000 8.563 (14.37%) (7) 276,997.8 2,371,932 Annuity contracts in payment period 16,131,186 ------------------------------------------------------------------------------------------------------------------------- LEXINGTON FUNDS: EMERGING MARKETS FUND, INC.: Non-Qualified VII 13.640 8.011 (41.27%) 156,676.9 1,255,139 ------------------------------------------------------------------------------------------------------------------------- NATURAL RESOURCES TRUST FUND: Non-Qualified V 12.428 14.530 16.91% 44,843.7 651,579 Non-Qualified V (0.75) 12.670 14.886 17.49% 43,623.9 649,385 Non-Qualified VII 12.298 14.354 16.72% 102,662.4 1,473,616 Non-Qualified IX 12.344 14.395 16.62% 32.7 470 Non-Qualified X 12.428 14.530 16.91% 1,753.1 25,472 ------------------------------------------------------------------------------------------------------------------------- MFS FUNDS: GLOBAL GOVERNMENT SERIES: Non-Qualified VII 10.440 10.799 3.44% 124,226.3 1,341,520 Non-Qualified VIII 10.498 10.875 3.59% 18,001.9 195,771 ------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN SERIES: Non-Qualified VII 14.669 16.782 14.40% 1,935,233.6 32,477,091 Non-Qualified VIII 14.751 16.901 14.58% 422,692.1 7,143,920 Non-Qualified XIII 10.385 11.934 14.92% 485,470.9 5,793,610 Non-Qualified XIV 10.339 11.846 14.58% 1,107,868.3 13,123,808 Non-Qualified XV 10.317 11.803 14.40% 359,845.8 4,247,260 Non-Qualified XVI 10.244 10.763 5.07% (8) 23,734.0 255,449 Non-Qualified XVIII 10.077 10.749 6.67% (7) 15,276.5 164,207 Non-Qualified XIX 10.243 10.754 4.99% (8) 17,924.7 192,762 -------------------------------------------------------------------------------------------------------------------------
S-17 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2000 (continued):
------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------------------- MITCHELL HUTCHINS SERIES TRUST: GROWTH & INCOME PORTFOLIO: Non-Qualified XIII $ 10.960 $ 10.338 (5.68%) 4,243.5 $ 43,869 Non-Qualified XIV 10.937 10.285 (5.96%) 83,550.7 859,319 Non-Qualified XV 10.925 10.258 (6.11%) 4,586.7 47,050 ------------------------------------------------------------------------------------------------------------------------- SMALL CAP PORTFOLIO: Non-Qualified XIV 11.828 13.334 12.73% 15,263.5 203,523 Non-Qualified XV 11.816 13.299 12.55% 392.8 5,224 ------------------------------------------------------------------------------------------------------------------------- TACTICAL ALLOCATION PORTFOLIO: Non-Qualified XIII 10.651 10.326 (3.05%) 187,905.7 1,940,314 Non-Qualified XIV 10.629 10.273 (3.35%) 917,169.8 9,422,085 Non-Qualified XV 10.618 10.247 (3.49%) 93,298.0 956,025 Non-Qualified XVI 9.565 9.567 0.02% (9) 200.3 1,916 Non-Qualified XVIII 9.803 9.555 (2.53%) (8) 11,556.3 110,420 Non-Qualified XIX 9.954 9.559 (3.97%) (9) 8,214.6 78,523 ------------------------------------------------------------------------------------------------------------------------- OPPENHEIMER FUNDS: AGGRESSIVE GROWTH FUND/VA: Non-Qualified VII 24.477 21.423 (12.48%) 1,000,872.8 21,441,697 Non-Qualified VIII 24.578 21.545 (12.34%) 311,924.3 6,720,408 Non-Qualified XIII 17.027 14.970 (12.08%) 614,552.0 9,199,843 Non-Qualified XIV 16.952 14.860 (12.34%) 677,021.6 10,060,541 Non-Qualified XV 16.915 14.805 (12.47%) 262,828.8 3,891,181 Non-Qualified XVI 10.000 6.828 (31.72%) (7) 159,722.9 1,090,588 Non-Qualified XVIII 10.260 6.820 (33.53%) (7) 318,939.9 2,175,170 Non-Qualified XIX 10.000 6.823 (31.77%) (7) 108,107.3 737,616 Annuity contracts in payment period 1,734,978 ------------------------------------------------------------------------------------------------------------------------- GLOBAL SECURITIES FUND/VA: Non-Qualified V 15.681 16.275 3.79% 93,132.5 1,515,731 Non-Qualified V (0.75) 15.814 16.495 4.31% 177,896.1 2,934,396 Non-Qualified VII 20.287 21.023 3.63% 515,085.0 10,828,632 Non-Qualified VIII 20.372 21.142 3.78% 91,347.6 1,931,271 Non-Qualified IX 15.615 16.166 3.53% 2,910.4 47,050 Non-Qualified XII 16.352 16.571 1.34% (9) 150.5 2,494 ------------------------------------------------------------------------------------------------------------------------- MAIN STREET GROWTH & INCOME FUND/VA: Non-Qualified VII 15.839 14.248 (10.04%) 1,984,151.5 28,270,191 Non-Qualified VIII 15.905 14.329 (9.91%) 642,720.0 9,209,535 Non-Qualified XIII 10.946 9.891 (9.64%) 768,952.4 7,605,708 Non-Qualified XIV 10.898 9.818 (9.91%) 1,516,367.6 14,887,697 Non-Qualified XV 10.874 9.782 (10.04%) 527,869.7 5,163,621 Non-Qualified XVI 10.000 8.838 (11.62%) (7) 86,666.9 765,962 Non-Qualified XVIII 9.168 8.827 (3.72%) (8) 13,806.3 121,868 Non-Qualified XIX 9.736 8.831 (9.30%) (8) 72,968.6 644,386 Annuity contracts in payment period 983,453 ------------------------------------------------------------------------------------------------------------------------- STRATEGIC BOND FUND/VA: Non-Qualified V 10.048 10.185 1.36% 831.0 8,464 Non-Qualified V (0.75) 10.133 10.323 1.88% 13,676.2 141,179 Non-Qualified VII 11.072 11.206 1.21% 785,150.1 8,798,392 Non-Qualified VIII 11.118 11.269 1.36% 248,905.0 2,804,911 Non-Qualified IX 10.006 10.117 1.11% 152.5 1,543 Non-Qualified XIII 10.005 10.171 1.66% 410,622.5 4,176,441 Non-Qualified XIV 9.961 10.096 1.36% 497,550.5 5,023,270 Non-Qualified XV 9.939 10.059 1.21% 151,920.6 1,528,169 Non-Qualified XVI 9.995 9.939 (0.56%) (8) 17,051.5 169,475 Non-Qualified XVIII 9.822 9.927 1.07% (9) 2,304.6 22,878 Non-Qualified XIX 9.991 9.931 (0.60%) (8) 16,123.6 160,123 Annuity contracts in payment period 499,690 ------------------------------------------------------------------------------------------------------------------------- PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO: Non-Qualified V 39.254 36.551 (6.89%) 335,970.2 12,280,046 Non-Qualified V (0.75) 40.017 37.448 (6.42%) 260,806.0 9,766,663
S-18 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2000 (continued):
------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------------------- PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO: (continued): Non-Qualified VII $ 18.612 $ 17.303 (7.03%) 1,162,339.7 $ 20,111,964 Non-Qualified VIII 18.672 17.385 (6.89%) 314,991.2 5,476,122 Non-Qualified IX 38.987 36.213 (7.12%) 4,077.1 147,645 Non-Qualified X 39.254 36.551 (6.89%) 11,361.8 415,286 Non-Qualified XII 15.732 14.714 (6.47%) 718.1 10,566 Non-Qualified XIII 15.023 14.030 (6.61%) 643,762.5 9,031,988 Non-Qualified XIV 14.957 13.926 (6.89%) 845,123.6 11,769,191 Non-Qualified XV 14.924 13.875 (7.03%) 258,456.9 3,586,089 Non-Qualified XVI 9.991 8.801 (11.91%) (8) 54,609.6 480,619 Non-Qualified XVII 43.155 40.304 (6.61%) 1,515.6 61,085 Non-Qualified XVIII 9.186 8.790 (4.31%) (8) 94,882.7 834,019 Non-Qualified XIX 9.984 8.794 (11.92%) (8) 59,096.2 519,692 Annuity contracts in payment period 3,742,395 ------------------------------------------------------------------------------------------------------------------------- PPI MFS EMERGING EQUITIES PORTFOLIO: Non-Qualified V 29.040 20.426 (29.66%) 455,264.2 9,299,226 Non-Qualified V (0.75) 29.605 20.927 (29.31%) 478,943.8 10,022,857 Non-Qualified VII 27.973 19.644 (29.78%) 4,169,943.6 81,914,373 Non-Qualified VIII 19.012 13.372 (29.67%) 555,262.9 7,424,976 Non-Qualified IX 28.843 20.236 (29.84%) 12,425.7 251,446 Non-Qualified X 29.040 20.426 (29.66%) 13,794.7 281,770 Non-Qualified XII 16.210 11.453 (29.35%) 8,940.4 102,394 Non-Qualified XIII 15.499 10.933 (29.46%) 844,849.4 9,236,738 Non-Qualified XIV 15.431 10.853 (29.67%) 1,063,457.5 11,541,704 Non-Qualified XV 15.397 10.812 (29.78%) 337,201.4 3,645,821 Non-Qualified XVI 8.529 7.614 (10.73%) (8) 24,330.4 185,252 Non-Qualified XVII 28.739 20.274 (29.45%) 380.4 7,712 Non-Qualified XVIII 8.273 7.605 (8.07%) (8) 22,160.0 168,527 Non-Qualified XIX 9.683 7.608 (21.43%) (8) 23,376.6 177,849 Annuity contracts in payment period 2,424,002 ------------------------------------------------------------------------------------------------------------------------- PPI MFS RESEARCH GROWTH PORTFOLIO: Non-Qualified V 18.963 17.889 (5.66%) 395,372.7 7,072,822 Non-Qualified V (0.75) 19.332 18.328 (5.19%) 292,094.1 5,353,501 Non-Qualified VI 16.032 15.133 (5.61%) 19,030.0 287,981 Non-Qualified VII 18.750 17.659 (5.82%) 3,282,513.6 57,965,908 Non-Qualified VIII 12.901 12.169 (5.67%) 579,223.8 7,048,575 Non-Qualified IX 18.834 17.723 (5.90%) 15,098.5 267,591 Non-Qualified X 18.963 17.889 (5.66%) 162,447.5 2,906,023 Non-Qualified XI 15.791 15.133 (4.17%) (1) 3,785.9 57,292 Non-Qualified XIII 12.424 11.755 (5.38%) 383,389.0 4,506,738 Non-Qualified XIV 12.370 11.668 (5.68%) 740,494.5 8,640,090 Non-Qualified XV 12.343 11.625 (5.82%) 281,914.3 3,277,254 Non-Qualified XVI 9.951 8.726 (12.31%) (7) 31,491.4 274,794 Non-Qualified XVIII 9.414 8.715 (7.43%) (8) 2,326.2 20,273 Non-Qualified XIX 9.996 8.719 (12.78%) (7) 26,543.6 231,434 ------------------------------------------------------------------------------------------------------------------------- PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO: Non-Qualified V 32.942 26.160 (20.59%) 286,301.1 7,489,638 Non-Qualified V (0.75) 33.582 26.801 (20.19%) 266,457.7 7,141,333 Non-Qualified VII 18.181 14.415 (20.71%) 253,493.3 3,654,106 Non-Qualified VIII 18.238 14.482 (20.59%) 67,477.6 977,210 Non-Qualified IX 32.718 25.917 (20.79%) 5,489.7 142,276 Non-Qualified X 32.942 26.160 (20.59%) 4,808.1 125,780 Non-Qualified XII 15.541 12.397 (20.23%) 321.0 3,980 Non-Qualified XIII 14.511 11.557 (20.36%) 695,490.6 8,037,785 Non-Qualified XIV 14.448 11.472 (20.60%) 453,857.5 5,206,653 Non-Qualified XV 14.416 11.430 (20.71%) 360,840.7 4,124,409 Non-Qualified XVI 9.570 9.775 2.14% (8) 29,924.2 292,509 Non-Qualified XVIII 9.724 9.763 0.40% (8) 7,075.4 69,077 Non-Qualified XIX 10.111 9.767 (3.40%) (8) 19,914.9 194,509 Annuity contracts in payment period 820,408 -------------------------------------------------------------------------------------------------------------------------
S-19 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION - Year Ended December 31, 2000 (continued):
------------------------------------------------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------------------------------------------- PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO: Non-Qualified V $ 21.922 $ 21.643 (1.27%) 192,789.9 $ 4,172,551 Non-Qualified V (0.75) 22.348 22.174 (0.78%) 271,254.0 6,014,787 Non-Qualified VII 27.835 27.438 (1.43%) 3,475,122.4 95,350,408 Non-Qualified VIII 20.151 19.893 (1.28%) 293,210.9 5,832,844 Non-Qualified IX 21.773 21.443 (1.52%) 9,181.7 196,883 Non-Qualified X 21.922 21.643 (1.27%) 4,919.8 106,480 Non-Qualified XII 13.248 13.138 (0.83%) 1,705.2 22,403 Non-Qualified XVII 25.309 25.061 (0.98%) 1,629.4 40,834 Annuity contracts in payment period 1,492,696 ------------------------------------------------------------------------------------------------------------------------- TOTAL $6,324,265,635 =========================================================================================================================
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 Aetna Plus 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 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 XVI Certain individual Retirement Annuity contracts issued since August 2000. NON-QUALIFIED XVII Group AetnaPlus contracts issued in connection with Deferred Compensation Plans having contract modifications effective September 1, 1999. NON-QUALIFIED XVIII Certain individual Retirement Annuity contracts issued since September 2000. NON-QUALIFIED XIX Certain individual Retirement Annuity contracts issued since August 2000.
NOTES TO CONDENSED FINANCIAL INFORMATION: (1) - Reflects less than a full year of performance activity. Funds were first received in this option during January 2000. (2) - Reflects less than a full year of performance activity. Funds were first received in this option during March 2000. (3) - Reflects less than a full year of performance activity. Funds were first received in this option during April 2000. (4) - Reflects less than a full year of performance activity. Funds were first received in this option during May 2000. (5) - Reflects less than a full year of performance activity. Funds were first received in this option during June 2000. (6) - Reflects less than a full year of performance activity. Funds were first received in this option during July 2000. (7) - Reflects less than a full year of performance activity. Funds were first received in this option during August 2000. (8) - Reflects less than a full year of performance activity. Funds were first received in this option during September 2000. (9) - Reflects less than a full year of performance activity. Funds were first received in this option during October 2000. (10) - Reflects less than a full year of performance activity. Funds were first received in this option during November 2000. (11) - Reflects less than a full year of performance activity. Funds were first received in this option during December 2000.
See Notes to Financial Statements S-20 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000: 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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported therein. Actual results could differ from these estimates. Certain reclassifications have been made to prior year financial information to conform to current year presentation. a. VALUATION OF INVESTMENTS Investments in the following Funds are stated at their closing net asset value per share as determined by each Fund on December 31, 2000: Aetna Ascent VP Aetna Balanced VP, Inc. Aetna Bond VP Aetna Crossroads VP Aetna GET Fund, Series C Aetna GET Fund, Series D Aetna GET Fund, Series E Aetna GET Fund, Series G Aetna GET Fund, Series H Aetna GET Fund, Series I Aetna GET Fund, Series J Aetna GET Fund, Series K Aetna GET Fund, Series L Aetna Growth and Income VP Aetna Growth VP Aetna Index Plus Large Cap VP Aetna Index Plus Mid Cap VP Aetna Index Plus Small Cap VP Aetna International VP Aetna Legacy VP Aetna Money Market VP Aetna Small Company VP Aetna Technology VP Aetna Value Opportunity VP AIM V.I. Funds: - Capital Appreciation Fund - Government Securities Fund - Growth and Income Fund - Growth Fund - Value Fund Alger American Funds: - Balanced Portfolio - Income & Growth Portfolio - Leveraged AllCap Portfolio American Century Investments: - Balanced Fund - International Fund Calvert Social Balanced Portfolio Federated Insurance Series: - American Leaders Fund II - Equity Income Fund II - Growth Strategies Fund II - High Income Bond Fund II - International Equity Fund II - Prime Money Fund II - U.S. Government Securities Fund II - Utility Fund II Fidelity Variable Insurance Products Fund: - Equity-Income Portfolio - Growth Portfolio - High Income Portfolio - Overseas Portfolio S-21 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000: (continued): Fidelity Variable Insurance Products Fund II: - Asset Manager Portfolio - Contrafund Portfolio - Index 500 Portfolio - Investment Grade Bond Portfolio Janus Aspen Series: - Aggressive Growth Portfolio - Balanced Portfolio - Flexible Income Portfolio - Growth Portfolio - Worldwide Growth Portfolio Lexington Funds: - Emerging Markets Fund, Inc. - Natural Resources Trust Fund MFS Funds: - Global Government Series - Total Return Series Mitchell Hutchins Series Trust: - Growth & Income Portfolio - Small Cap portfolio - Tactical Allocation Portfolio Oppenheimer Funds: - Aggressive Growth Fund/VA - Global Securities Fund/VA - Main Street Growth & Income Fund/VA - Strategic Bond Fund/VA Portfolio Partners, Inc. (PPI): - PPI MFS Capital Opportunities Portfolio - PPI MFS Emerging Equities Portfolio - PPI MFS Research Growth Portfolio - PPI Scudder International Growth Portfolio - PPI T. Rowe Price Growth Equity Portfolio b. OTHER Investment transactions are accounted for on a trade date basis and dividend income is recorded on the ex-dividend date. The cost of investments sold is determined by specific identification. c. FEDERAL INCOME TAXES The operations of the Account form a part of, and are taxed with, the total operations of the Company which is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended. d. ANNUITY RESERVES Annuity reserves held in the Separate Accounts are computed for currently payable contracts according to the Progressive Annuity, a49, 1971 Individual Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983 Group Annuity Mortality tables using various assumed interest rates not to exceed seven percent. Mortality experience is monitored by the Company. Charges to annuity reserves for mortality experience are reimbursed to the Company if the reserves required are less than originally estimated. If additional reserves are required, the Company reimburses the Account. 2. VALUATION PERIOD DEDUCTIONS Deductions by the Account for mortality and expense risk charges are made in accordance with the terms of the contracts and are paid to the Company. S-22 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000: (continued): 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, 2000 aggregated $7,925,206,119 and $6,595,668,326, respectively. S-23 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS Valuation Proceeds Cost of YEAR ENDED DECEMBER 31, Period from Investments 2000 Dividends Deductions Sales Sold AETNA ASCENT VP Annuity contracts in accumulation $225,039 ($245,025) $16,871,170 ($16,790,266) AETNA BALANCED VP, INC. Annuity contracts in accumulation 27,853,632 (2,415,186) 92,085,463 (87,693,164) AETNA BOND VP Annuity contracts in accumulation 5,387,599 (1,084,614) 70,718,870 (74,644,945) AETNA CROSSROADS VP Annuity contracts in accumulation 417,486 (296,915) 21,073,083 (20,922,874) AETNA GET FUND, SERIES C Annuity contracts in accumulation 1,408,025 (72,273) 682,068 (573,927) AETNA GET FUND, SERIES D Annuity contracts in accumulation 7,639,071 (2,171,104) 140,983,546 (139,364,683) AETNA GET FUND, SERIES E Annuity contracts in accumulation 14,783,456 (6,143,954) 355,177,174 (346,307,649) AETNA GET FUND, SERIES G Annuity contracts in accumulation 4,720,820 (3,411,240) 207,014,846 (207,891,548) AETNA GET FUND, SERIES H Annuity contracts in accumulation 2,787,773 (2,048,501) 156,626,029 (154,440,843) AETNA GET FUND, SERIES I Annuity contracts in accumulation 1,176,528 (901,328) 55,188,135 (55,882,551) AETNA GET FUND, SERIES J Annuity contracts in accumulation 582,971 (406,040) 14,629,150 (15,113,666) AETNA GET FUND, SERIES K Annuity contracts in accumulation 171,687 (94,237) 1,819,247 (1,825,601) AETNA GET FUND, SERIES L Annuity contracts in accumulation 403 (192) 40,382 (40,389) AETNA GROWTH AND INCOME VP Annuity contracts in accumulation 116,862,587 (11,722,978) 391,374,640 (453,899,589) AETNA GROWTH VP Annuity contracts in accumulation 1,422,379 (960,612) 116,782,347 (110,038,435) AETNA HIGH YIELD VP Annuity contracts in accumulation 547 (1,509) 455,088 (480,680) AETNA INDEX PLUS LARGE CAP VP Annuity contracts in accumulation 31,491,057 (3,109,833) 225,376,024 (220,701,090) AETNA INDEX PLUS MID CAP VP Annuity contracts in accumulation 15,027 (19,954) 3,544,873 (3,471,597) AETNA INDEX PLUS SMALL CAP VP Annuity contracts in accumulation 0 (7,596) 828,745 (722,361) AETNA INTERNATIONAL VP Annuity contracts in accumulation 1,695,466 (99,233) 29,428,293 (31,073,260) --------------------------------------------------------------------------------------
S-24 Net Increase Net Net Realized Net (Decrease) Realized Gain (Loss) Change in in Net Assets Gain (Loss) --------------------------- Unrealized Resulting YEAR ENDED DECEMBER 31, on Beginning of End Gain (Loss) from 2000 Investments Year of Year on Investments Operations AETNA ASCENT VP Annuity contracts in accumulation $80,904 $483,736 $88,271 ($395,465) ($334,547) AETNA BALANCED VP, INC. Annuity contracts in accumulation 4,392,299 6,704,110 (26,671,998) (33,376,108) (3,545,363) AETNA BOND VP Annuity contracts in accumulation (3,926,075) (6,898,223) 292,798 7,191,021 7,567,931 AETNA CROSSROADS VP Annuity contracts in accumulation 150,209 548,689 96,848 (451,841) (181,061) AETNA GET FUND, SERIES C Annuity contracts in accumulation 108,141 786,857 (1,291,730) (2,078,587) (634,694) AETNA GET FUND, SERIES D Annuity contracts in accumulation 1,618,863 9,587,836 (5,506,290) (15,094,126) (8,007,296) AETNA GET FUND, SERIES E Annuity contracts in accumulation 8,869,525 23,410,070 (16,149,627) (39,559,697) (22,050,670) AETNA GET FUND, SERIES G Annuity contracts in accumulation (876,702) 5,934,910 (4,092,929) (10,027,839) (9,594,961) AETNA GET FUND, SERIES H Annuity contracts in accumulation 2,185,186 2,439 (3,459,172) (3,461,611) (537,153) AETNA GET FUND, SERIES I Annuity contracts in accumulation (694,416) 0 (1,839,216) (1,839,216) (2,258,432) AETNA GET FUND, SERIES J Annuity contracts in accumulation (484,516) 0 (2,762,925) (2,762,925) (3,070,510) AETNA GET FUND, SERIES K Annuity contracts in accumulation (6,354) 0 (937,549) (937,549) (866,453) AETNA GET FUND, SERIES L Annuity contracts in accumulation (7) 0 194 194 398 AETNA GROWTH AND INCOME VP Annuity contracts in accumulation (62,524,949) (68,936,164) (241,325,047) (172,388,883) (129,774,223) AETNA GROWTH VP Annuity contracts in accumulation 6,743,912 8,580,844 (11,298,783) (19,879,627) (12,673,948) AETNA HIGH YIELD VP Annuity contracts in accumulation (25,592) (16,080) 0 16,080 (10,474) AETNA INDEX PLUS LARGE CAP VP Annuity contracts in accumulation 4,674,934 23,757,249 (37,334,071) (61,091,320) (28,035,162) AETNA INDEX PLUS MID CAP VP Annuity contracts in accumulation 73,276 (42,233) 77,987 120,220 188,569 AETNA INDEX PLUS SMALL CAP VP Annuity contracts in accumulation 106,384 96,292 69,502 (26,790) 71,998 AETNA INTERNATIONAL VP Annuity contracts in accumulation (1,644,967) 330,445 (1,854,980) (2,185,425) (2,234,159) ----------------------------------------------------------------------------------------------------
S-25 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS (continued): Valuation Proceeds Cost of YEAR ENDED DECEMBER 31, Period from Investments 2000 Dividends Deductions Sales Sold AETNA LEGACY VP Annuity contracts in accumulation $536,622 ($368,361) $28,259,806 ($27,975,563) AETNA MONEY MARKET VP Annuity contracts in accumulation 9,081,085 (2,532,081) 953,530,305 (949,974,735) AETNA REAL ESTATE SECURITIES VP Annuity contracts in accumulation 1,731 (15,004) 3,432,843 (3,179,462) AETNA SMALL COMPANY VP Annuity contracts in accumulation 2,601,993 (534,131) 78,899,841 (76,263,569) AETNA TECHNOLOGY VP Annuity contracts in accumulation 0 (51,699) 7,965,370 (9,210,531) AETNA VALUE OPPORTUNITY VP Annuity contracts in accumulation 2,474,261 (218,816) 19,437,883 (17,931,223) AIM V.I. FUNDS: CAPITAL APPRECIATION FUND Annuity contracts in accumulation 712,114 (232,416) 26,403,826 (23,483,268) GOVERNMENT SECURITIES FUND Annuity contracts in accumulation 1,717 (155) 57 (57) GROWTH AND INCOME FUND Annuity contracts in accumulation 1,530,337 (479,794) 37,149,069 (34,866,993) GROWTH FUND Annuity contracts in accumulation 1,224,855 (381,155) 29,309,758 (28,486,218) VALUE FUND Annuity contracts in accumulation 3,252,186 (741,317) 59,720,942 (62,040,448) ALGER AMERICAN FUNDS: BALANCED PORTFOLIO Annuity contracts in accumulation 503,984 (80,140) 6,490,645 (4,770,045) INCOME & GROWTH PORTFOLIO Annuity contracts in accumulation 4,030,463 (261,604) 20,033,617 (15,492,442) LEVERAGED ALLCAP PORTFOLIO Annuity contracts in accumulation 2,121,355 (307,776) 23,487,217 (12,803,897) ALLIANCE FUNDS: GROWTH & INCOME PORTFOLIO Annuity contracts in accumulation 0 (1,396) 18,747 (18,777) PREMIER GROWTH PORTFOLIO Annuity contracts in accumulation 0 (3,883) 4,459 (4,677) QUASAR PORTFOLIO Annuity contracts in accumulation 0 (126) 966 (1,126) --------------------------------------------------------------------------------------
S-26 Net Increase Net Net Realized Net (Decrease) Realized Gain (Loss) Change in in Net Assets Gain (Loss) --------------------------- Unrealized Resulting YEAR ENDED DECEMBER 31, on Beginning of End Gain (Loss) from 2000 Investments Year of Year on Investments Operations AETNA LEGACY VP Annuity contracts in accumulation $284,243 ($38,204) $473,877 $512,081 $964,585 AETNA MONEY MARKET VP Annuity contracts in accumulation 3,555,570 1,765,548 2,001,969 236,421 10,340,995 AETNA REAL ESTATE SECURITIES VP Annuity contracts in accumulation 253,381 (181,523) 0 181,523 421,631 AETNA SMALL COMPANY VP Annuity contracts in accumulation 2,636,272 6,242,096 1,228,137 (5,013,959) (309,825) AETNA TECHNOLOGY VP Annuity contracts in accumulation (1,245,161) 0 (3,777,303) (3,777,303) (5,074,163) AETNA VALUE OPPORTUNITY VP Annuity contracts in accumulation 1,506,660 2,822,690 383,845 (2,438,845) 1,323,260 AIM V.I. FUNDS: CAPITAL APPRECIATION FUND Annuity contracts in accumulation 2,920,558 2,111,777 (5,765,131) (7,876,908) (4,476,652) GOVERNMENT SECURITIES FUND Annuity contracts in accumulation 0 0 (259) (259) 1,303 GROWTH AND INCOME FUND Annuity contracts in accumulation 2,282,076 3,746,947 (8,539,095) (12,286,042) (8,953,423) GROWTH FUND Annuity contracts in accumulation 823,540 2,711,961 (9,043,771) (11,755,732) (10,088,492) VALUE FUND Annuity contracts in accumulation (2,319,506) 4,671,998 (7,734,104) (12,406,102) (12,214,739) ALGER AMERICAN FUNDS: BALANCED PORTFOLIO Annuity contracts in accumulation 1,720,600 2,168,767 (159,674) (2,328,441) (183,997) INCOME & GROWTH PORTFOLIO Annuity contracts in accumulation 4,541,175 8,170,558 (550,320) (8,720,878) (410,844) LEVERAGED ALLCAP PORTFOLIO Annuity contracts in accumulation 10,683,320 15,044,425 (2,906,571) (17,950,996) (5,454,097) ALLIANCE FUNDS: GROWTH & INCOME PORTFOLIO Annuity contracts in accumulation (30) 0 34,311 34,311 32,885 PREMIER GROWTH PORTFOLIO Annuity contracts in accumulation (218) 0 (105,771) (105,771) (109,872) QUASAR PORTFOLIO Annuity contracts in accumulation (160) 0 2,230 2,230 1,944 ----------------------------------------------------------------------------------------------------
S-27 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS (continued): Valuation Proceeds Cost of YEAR ENDED DECEMBER 31, Period from Investments 2000 Dividends Deductions Sales Sold AMERICAN CENTURY VP FUNDS: BALANCED FUND Annuity contracts in accumulation $136,152 ($43,436) $3,523,408 ($3,572,301) INTERNATIONAL FUND Annuity contracts in accumulation 132,668 (87,321) 6,568,155 (4,373,724) CALVERT SOCIAL BALANCED PORTFOLIO Annuity contracts in accumulation 120,186 (30,695) 2,404,025 (2,234,500) FEDERATED INSURANCE SERIES: AMERICAN LEADERS FUND II Annuity contracts in accumulation 4,230,851 (1,529,421) 34,650,952 (24,574,119) EQUITY INCOME FUND II Annuity contracts in accumulation 313,111 (416,293) 5,606,635 (4,170,207) GROWTH STRATEGIES FUND II Annuity contracts in accumulation 3,341,548 (615,413) 11,136,706 (4,861,291) HIGH INCOME BOND FUND II Annuity contracts in accumulation 3,501,508 (488,388) 20,340,642 (22,946,626) INTERNATIONAL EQUITY FUND II Annuity contracts in accumulation 4,478,227 (368,468) 4,743,593 (2,245,503) PRIME MONEY FUND II Annuity contracts in accumulation 484,008 (118,176) 11,081,648 (11,081,648) U.S. GOVERNMENT SECURITIES FUND II Annuity contracts in accumulation 632,729 (163,681) 5,422,866 (5,287,024) UTILITY FUND II Annuity contracts in accumulation 1,237,696 (326,336) 8,490,819 (6,975,021) FIDELITY VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO Annuity contracts in accumulation 14,924,625 (2,351,773) 212,580,062 (207,813,735) GROWTH PORTFOLIO Annuity contracts in accumulation 23,307,184 (2,944,519) 193,467,943 (154,134,840) HIGH INCOME PORTFOLIO Annuity contracts in accumulation 4,009,052 (726,094) 62,948,550 (77,439,059) OVERSEAS PORTFOLIO Annuity contracts in accumulation 1,986,495 (225,354) 34,632,835 (34,855,594) --------------------------------------------------------------------------------------
S-28 Net Increase Net Net Realized Net (Decrease) Realized Gain (Loss) Change in in Net Assets Gain (Loss) --------------------------- Unrealized Resulting YEAR ENDED DECEMBER 31, on Beginning of End Gain (Loss) from 2000 Investments Year of Year on Investments Operations AMERICAN CENTURY VP FUNDS: BALANCED FUND Annuity contracts in accumulation ($48,893) $113,895 ($44,225) ($158,120) ($114,297) INTERNATIONAL FUND Annuity contracts in accumulation 2,194,431 3,420,828 23,975 (3,396,853) (1,157,075) CALVERT SOCIAL BALANCED PORTFOLIO Annuity contracts in accumulation 169,525 8,210 (217,606) (225,816) 33,200 FEDERATED INSURANCE SERIES: AMERICAN LEADERS FUND II Annuity contracts in accumulation 10,076,833 23,291,163 10,746,749 (12,544,414) 233,849 EQUITY INCOME FUND II Annuity contracts in accumulation 1,436,428 6,982,904 2,132,983 (4,849,921) (3,516,675) GROWTH STRATEGIES FUND II Annuity contracts in accumulation 6,275,415 22,782,494 4,337,092 (18,445,402) (9,443,852) HIGH INCOME BOND FUND II Annuity contracts in accumulation (2,605,984) (768,082) (4,746,268) (3,978,186) (3,571,050) INTERNATIONAL EQUITY FUND II Annuity contracts in accumulation 2,498,090 15,689,012 2,439,119 (13,249,893) (6,642,044) PRIME MONEY FUND II Annuity contracts in accumulation 0 0 0 0 365,832 U.S. GOVERNMENT SECURITIES FUND II Annuity contracts in accumulation 135,842 (71,689) 341,857 413,546 1,018,436 UTILITY FUND II Annuity contracts in accumulation 1,515,798 3,900,529 (860,370) (4,760,899) (2,333,741) FIDELITY VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO Annuity contracts in accumulation 4,766,327 17,824,133 12,117,982 (5,706,151) 11,633,028 GROWTH PORTFOLIO Annuity contracts in accumulation 39,333,103 67,658,735 (21,859,750) (89,518,485) (29,822,717) HIGH INCOME PORTFOLIO Annuity contracts in accumulation (14,490,509) (2,606,690) (5,306,372) (2,699,682) (13,907,233) OVERSEAS PORTFOLIO Annuity contracts in accumulation (222,759) 4,814,866 (447,720) (5,262,586) (3,724,204) ----------------------------------------------------------------------------------------------------
S-29 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS (continued): Valuation Proceeds Cost of YEAR ENDED DECEMBER 31, Period from Investments 2000 Dividends Deductions Sales Sold FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO Annuity contracts in accumulation $2,225,935 ($274,795) $22,576,659 ($23,415,309) CONTRAFUND PORTFOLIO Annuity contracts in accumulation 29,738,682 (2,926,758) 232,387,276 (216,909,923) INDEX 500 PORTFOLIO Annuity contracts in accumulation 2,332,098 (2,101,523) 205,968,735 (184,404,452) INVESTMENT GRADE BOND PORTFOLIO Annuity contracts in accumulation 280,708 (53,239) 4,524,822 (4,468,980) JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO Annuity contracts in accumulation 41,333,446 (4,214,651) 351,562,341 (338,374,167) BALANCED PORTFOLIO Annuity contracts in accumulation 25,881,016 (2,810,630) 198,175,836 (184,867,908) FLEXIBLE INCOME PORTFOLIO Annuity contracts in accumulation 1,031,500 (231,051) 22,574,371 (23,713,721) GROWTH PORTFOLIO Annuity contracts in accumulation 23,793,816 (3,545,809) 267,992,889 (241,616,780) WORLDWIDE GROWTH PORTFOLIO Annuity contracts in accumulation 45,772,988 (6,882,401) 557,962,147 (454,444,568) LEXINGTON FUNDS: EMERGING MARKETS FUND Annuity contracts in accumulation 0 (29,359) 1,851,691 (2,060,545) NATURAL RESOURCES TRUST FUND Annuity contracts in accumulation 10,290 (33,769) 2,314,994 (2,595,175) MFS FUNDS: GLOBAL GOVERNMENT SERIES Annuity contracts in accumulation 76,041 (21,062) 1,859,797 (1,976,938) TOTAL RETURN SERIES Annuity contracts in accumulation 2,484,328 (714,994) 60,967,992 (57,383,322) MITCHELL HUTCHINS SERIES TRUST: GROWTH & INCOME PORTFOLIO Annuity contracts in accumulation 62,979 (10,910) 965,684 (1,025,803) SMALL CAP PORTFOLIO Annuity contracts in accumulation 45,379 (2,446) 238,388 (217,259) TACTICAL ALLOCATION PORTFOLIO Annuity contracts in accumulation 163,594 (114,014) 9,591,458 (9,738,101) --------------------------------------------------------------------------------------
S-30 Net Increase Net Net Realized Net (Decrease) Realized Gain (Loss) Change in in Net Assets Gain (Loss) --------------------------- Unrealized Resulting YEAR ENDED DECEMBER 31, on Beginning of End Gain (Loss) from 2000 Investments Year of Year on Investments Operations FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO Annuity contracts in accumulation ($838,650) $1,897,225 ($266,900) ($2,164,125) ($1,051,635) CONTRAFUND PORTFOLIO Annuity contracts in accumulation 15,477,353 56,818,405 (4,148,405) (60,966,810) (18,677,533) INDEX 500 PORTFOLIO Annuity contracts in accumulation 21,564,283 32,900,456 (5,006,883) (37,907,339) (16,112,481) INVESTMENT GRADE BOND PORTFOLIO Annuity contracts in accumulation 55,842 75,103 135,182 60,079 343,390 JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO Annuity contracts in accumulation 13,188,174 100,137,615 (87,927,298) (188,064,913) (137,757,944) BALANCED PORTFOLIO Annuity contracts in accumulation 13,307,928 40,182,173 (4,667,881) (44,850,054) (8,471,740) FLEXIBLE INCOME PORTFOLIO Annuity contracts in accumulation (1,139,350) (999,230) 221,880 1,221,110 882,209 GROWTH PORTFOLIO Annuity contracts in accumulation 26,376,109 56,878,486 (39,758,620) (96,637,106) (50,012,990) WORLDWIDE GROWTH PORTFOLIO Annuity contracts in accumulation 103,517,579 183,495,928 (57,305,031) (240,800,959) (98,392,793) LEXINGTON FUNDS: EMERGING MARKETS FUND Annuity contracts in accumulation (208,854) 579,071 (118,440) (697,511) (935,724) NATURAL RESOURCES TRUST FUND Annuity contracts in accumulation (280,181) (494,145) 240,727 734,872 431,212 MFS FUNDS: GLOBAL GOVERNMENT SERIES Annuity contracts in accumulation (117,141) (52,025) 58,605 110,630 48,468 TOTAL RETURN SERIES Annuity contracts in accumulation 3,584,670 1,850,808 4,094,999 2,244,191 7,598,195 MITCHELL HUTCHINS SERIES TRUST: GROWTH & INCOME PORTFOLIO Annuity contracts in accumulation (60,119) 74,102 30,611 (43,491) (51,541) SMALL CAP PORTFOLIO Annuity contracts in accumulation 21,129 9,469 (31,643) (41,112) 22,950 TACTICAL ALLOCATION PORTFOLIO Annuity contracts in accumulation (146,643) 35,469 (247,834) (283,303) (380,366) ----------------------------------------------------------------------------------------------------
S-31 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 5. SUPPLEMENTAL INFORMATION TO STATEMENT OF OPERATIONS (continued): Valuation Proceeds Cost of YEAR ENDED DECEMBER 31, Period from Investments 2000 Dividends Deductions Sales Sold OPPENHEIMER FUNDS: AGGRESSIVE GROWTH FUND/VA Annuity contracts in accumulation $1,624,280 ($710,516) $109,098,865 ($98,798,801) GLOBAL SECURITIES FUND/VA Annuity contracts in accumulation 1,900,142 (189,190) 15,435,756 (14,996,938) MAIN STREET GROWTH & INCOME FUND/VA Annuity contracts in accumulation 3,264,181 (842,224) 79,391,324 (77,728,674) STRATEGIC BOND FUND/VA Annuity contracts in accumulation 1,683,741 (275,767) 23,931,129 (25,220,954) PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO (1) Annuity contracts in accumulation 10,514,688 (890,046) 58,291,587 (47,911,570) PPI MFS EMERGING EQUITIES PORTFOLIO Annuity contracts in accumulation 1,936,641 (2,335,328) 219,053,249 (189,229,670) PPI MFS RESEARCH GROWTH PORTFOLIO Annuity contracts in accumulation 7,888,039 (1,400,474) 89,947,830 (67,521,268) PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO Annuity contracts in accumulation 3,948,392 (434,893) 120,805,337 (129,195,271) PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO Annuity contracts in accumulation 10,454,000 (1,675,520) 125,754,806 (91,309,615) TOTAL VARIABLE ANNUITY ACCOUNT B $527,997,200 ($84,578,915) $6,595,668,326 ($6,264,073,053)
(1) - Effective May 1, 2000, PPI MFS Value Equity Portfolio's name changed to PPI MFS Capital Opportunities Portfolio. S-32 Net Increase Net Net Realized Net (Decrease) Realized Gain (Loss) Change in in Net Assets Gain (Loss) --------------------------- Unrealized Resulting YEAR ENDED DECEMBER 31, on Beginning of End Gain (Loss) from 2000 Investments Year of Year on Investments Operations OPPENHEIMER FUNDS: AGGRESSIVE GROWTH FUND/VA Annuity contracts in accumulation $10,300,064 $8,288,775 ($17,023,622) ($25,312,397) ($14,098,569) GLOBAL SECURITIES FUND/VA Annuity contracts in accumulation 438,818 2,312,761 167,134 (2,145,627) 4,143 MAIN STREET GROWTH & INCOME FUND/VA Annuity contracts in accumulation 1,662,650 7,488,511 (3,884,729) (11,373,240) (7,288,633) STRATEGIC BOND FUND/VA Annuity contracts in accumulation (1,289,825) (12,690) 145,482 158,172 276,321 PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO (1) Annuity contracts in accumulation 10,380,017 64,359,069 (10,163,046) (74,522,115) (54,517,456) PPI MFS EMERGING EQUITIES PORTFOLIO Annuity contracts in accumulation 29,823,579 26,374,011 (23,512,406) (49,886,417) (20,461,525) PPI MFS RESEARCH GROWTH PORTFOLIO Annuity contracts in accumulation 22,426,562 17,014,014 (8,619,374) (25,633,388) 3,280,739 PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO Annuity contracts in accumulation (8,389,934) 3,641,431 680,506 (2,960,925) (7,837,360) PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO Annuity contracts in accumulation 34,445,191 40,800,081 (3,849,578) (44,649,659) (1,425,988) TOTAL VARIABLE ANNUITY ACCOUNT B $331,595,273 $860,262,998 ($650,455,465) ($1,510,718,463) ($735,704,905)
(1) - Effective May 1, 2000, PPI MFS Value Equity Portfolio's name changed to PPI MFS Capital Opportunities Portfolio. S-33 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2000 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year AETNA ASCENT VP Annuity contracts in accumulation ($19,986) $80,904 ($395,465) ($2,126,497) $19,981,127 $17,494,584 Annuity contracts in payment period 0 25,499 AETNA BALANCED VP, INC. Annuity contracts in accumulation 25,438,446 4,392,299 (33,376,108) (3,685,639) 180,920,898 170,506,936 Annuity contracts in payment period 26,077,945 29,260,905 AETNA BOND VP Annuity contracts in accumulation 4,302,985 (3,926,075) 7,191,021 (7,130,690) 93,390,139 93,669,011 Annuity contracts in payment period 5,662,703 5,821,072 AETNA CROSSROADS VP Annuity contracts in accumulation 120,571 150,209 (451,841) (3,675,149) 23,405,948 19,642,538 Annuity contracts in payment period 1,540,450 1,447,650 AETNA GET FUND, SERIES C Annuity contracts in accumulation 1,335,752 108,141 (2,078,587) (591,069) 7,124,468 5,898,705 AETNA GET FUND, SERIES D Annuity contracts in accumulation 5,467,967 1,618,863 (15,094,126) (38,850,045) 176,632,929 129,775,588 AETNA GET FUND, SERIES E Annuity contracts in accumulation 8,639,502 8,869,525 (39,559,697) (25,814,741) 381,698,376 333,832,965 AETNA GET FUND, SERIES G Annuity contracts in accumulation 1,309,580 (876,702) (10,027,839) (15,815,466) 211,855,059 186,444,632 AETNA GET FUND, SERIES H Annuity contracts in accumulation 739,272 2,185,186 (3,461,611) 140,573,888 1,726,955 141,763,690 AETNA GET FUND, SERIES I Annuity contracts in accumulation 275,200 (694,416) (1,839,216) 95,187,357 0 92,928,925 AETNA GET FUND, SERIES J Annuity contracts in accumulation 176,931 (484,516) (2,762,925) 82,942,126 0 79,871,616 AETNA GET FUND, SERIES K Annuity contracts in accumulation 77,450 (6,354) (937,549) 94,656,274 0 93,789,821 AETNA GET FUND, SERIES L Annuity contracts in accumulation 211 (7) 194 584,448 0 584,846 AETNA GROWTH AND INCOME VP Annuity contracts in accumulation 105,139,609 (62,524,949) (172,388,883) (115,312,686) 980,638,280 765,261,567 Annuity contracts in payment period 192,658,329 162,948,133 AETNA GROWTH VP Annuity contracts in accumulation 461,767 6,743,912 (19,879,627) 26,673,488 66,260,594 78,188,522 Annuity contracts in payment period 4,742,043 6,813,655 AETNA HIGH YIELD VP Annuity contracts in accumulation (962) (25,592) 16,080 (235,208) 245,682 0 AETNA INDEX PLUS LARGE CAP VP Annuity contracts in accumulation 28,381,224 4,674,934 (61,091,320) 50,756,181 198,210,089 217,699,546 Annuity contracts in payment period 40,863,938 44,095,500
S-34 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2000 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year AETNA INDEX PLUS MID CAP VP Annuity contracts in accumulation ($4,927) $73,276 $120,220 $5,677,943 $866,762 $6,733,274 AETNA INDEX PLUS SMALL CAP VP Annuity contracts in accumulation (7,596) 106,384 (26,790) 114,561 911,313 1,097,872 AETNA INTERNATIONAL VP Annuity contracts in accumulation 1,596,233 (1,644,967) (2,185,425) 7,402,219 4,434,269 9,382,842 Annuity contracts in payment period 105,507 324,994 AETNA LEGACY VP Annuity contracts in accumulation 168,261 284,243 512,081 (4,343,073) 26,597,646 22,842,539 Annuity contracts in payment period 2,972,058 3,348,677 AETNA MONEY MARKET VP Annuity contracts in accumulation 6,549,004 3,555,570 236,421 (14,305,266) 214,710,443 206,567,488 Annuity contracts in payment period 1,062,436 5,241,120 AETNA REAL ESTATE SECURITIES VP Annuity contracts in accumulation (13,273) 253,381 181,523 (2,361,351) 1,925,817 0 Annuity contracts in payment period 13,903 0 AETNA SMALL COMPANY VP Annuity contracts in accumulation 2,067,862 2,636,272 (5,013,959) 21,990,505 25,125,952 45,163,536 Annuity contracts in payment period 463,770 2,106,866 AETNA TECHNOLOGY VP Annuity contracts in accumulation (51,699) (1,245,161) (3,777,303) 14,906,762 0 9,832,599 AETNA VALUE OPPORTUNITY VP Annuity contracts in accumulation 2,255,445 1,506,660 (2,438,845) 1,467,498 16,918,826 19,709,584 AIM V.I. FUNDS: CAPITAL APPRECIATION FUND Annuity contracts in accumulation 479,698 2,920,558 (7,876,908) 20,492,644 9,923,942 25,248,912 Annuity contracts in payment period 47,197 738,219 GOVERNMENT SECURITIES FUND Annuity contracts in accumulation 1,562 0 (259) 293,609 0 294,912 GROWTH AND INCOME FUND Annuity contracts in accumulation 1,050,543 2,282,076 (12,286,042) 35,286,376 22,700,889 46,632,179 Annuity contracts in payment period 789,296 3,190,959 GROWTH FUND Annuity contracts in accumulation 843,700 823,540 (11,755,732) 28,414,358 18,608,980 36,220,507 Annuity contracts in payment period 322,083 1,036,422 VALUE FUND Annuity contracts in accumulation 2,510,869 (2,319,506) (12,406,102) 43,738,065 40,884,392 70,471,041 Annuity contracts in payment period 942,276 2,878,953 ALGER AMERICAN FUNDS: BALANCED PORTFOLIO Annuity contracts in accumulation 423,844 1,720,600 (2,328,441) (1,141,945) 6,213,801 4,887,859
S-35 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2000 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year INCOME & GROWTH PORTFOLIO Annuity contracts in accumulation $3,768,859 $4,541,175 ($8,720,878) ($2,090,817) $19,087,670 $16,586,009 LEVERAGED ALLCAP PORTFOLIO Annuity contracts in accumulation 1,813,579 10,683,320 (17,950,996) (4,095,310) 25,112,341 15,562,934 ALLIANCE FUNDS: GROWTH & INCOME PORTFOLIO Annuity contracts in accumulation (1,396) (30) 34,311 864,832 0 897,717 PREMIER GROWTH PORTFOLIO Annuity contracts in accumulation (3,883) (218) (105,771) 2,797,333 0 2,687,461 QUASAR PORTFOLIO Annuity contracts in accumulation (126) (160) 2,230 80,526 0 82,470 AMERICAN CENTURY VP FUNDS: BALANCED FUND Annuity contracts in accumulation 92,716 (48,893) (158,120) (653,587) 3,452,367 2,684,483 INTERNATIONAL FUND Annuity contracts in accumulation 45,347 2,194,431 (3,396,853) (1,437,282) 7,499,031 4,904,674 CALVERT SOCIAL BALANCED PORTFOLIO Annuity contracts in accumulation 89,491 169,525 (225,816) (108,598) 2,589,130 2,513,732 FEDERATED INSURANCE SERIES: AMERICAN LEADERS FUND II Annuity contracts in accumulation 2,701,430 10,076,833 (12,544,414) (22,814,712) 125,105,874 102,497,426 Annuity contracts in payment period 61,038 88,623 EQUITY INCOME FUND II Annuity contracts in accumulation (103,182) 1,436,428 (4,849,921) (2,611,778) 30,384,515 24,223,008 Annuity contracts in payment period 8,185 41,239 GROWTH STRATEGIES FUND II Annuity contracts in accumulation 2,726,135 6,275,415 (18,445,402) (3,424,589) 46,677,628 33,809,187 HIGH INCOME BOND FUND II Annuity contracts in accumulation 3,013,120 (2,605,984) (3,978,186) (11,789,080) 41,788,490 26,434,464 Annuity contracts in payment period 17,816 11,712 INTERNATIONAL EQUITY FUND II Annuity contracts in accumulation 4,109,759 2,498,090 (13,249,893) (2,226,299) 28,925,669 20,017,475 Annuity contracts in payment period 0 39,851 PRIME MONEY FUND II Annuity contracts in accumulation 365,832 0 0 (319,878) 8,657,471 8,703,425 U.S. GOVERNMENT SECURITIES FUND II Annuity contracts in accumulation 469,048 135,842 413,546 (2,699,444) 12,814,411 11,133,403 UTILITY FUND II Annuity contracts in accumulation 911,360 1,515,798 (4,760,899) (4,874,174) 26,498,835 19,310,088 Annuity contracts in payment period 59,670 40,502
S-36 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2000 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year FIDELITY VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO Annuity contracts in accumulation $12,572,852 $4,766,327 ($5,706,151) ($15,362,952) $191,754,908 $188,024,984 GROWTH PORTFOLIO Annuity contracts in accumulation 20,362,665 39,333,103 (89,518,485) 30,450,179 208,982,521 209,609,983 HIGH INCOME PORTFOLIO Annuity contracts in accumulation 3,282,958 (14,490,509) (2,699,682) (3,275,558) 61,938,947 44,851,961 Annuity contracts in payment period 755,677 659,872 OVERSEAS PORTFOLIO Annuity contracts in accumulation 1,761,141 (222,759) (5,262,586) (1,913,521) 20,088,940 14,451,215 FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO Annuity contracts in accumulation 1,951,140 (838,650) (2,164,125) (2,646,869) 21,519,462 17,820,958 CONTRAFUND PORTFOLIO Annuity contracts in accumulation 26,811,924 15,477,353 (60,966,810) 642,863 234,998,024 216,963,354 INDEX 500 PORTFOLIO Annuity contracts in accumulation 230,575 21,564,283 (37,907,339) (21,306,125) 170,467,635 133,049,029 INVESTMENT GRADE BOND PORTFOLIO Annuity contracts in accumulation 227,469 55,842 60,079 (763,474) 4,120,050 3,699,966 JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO Annuity contracts in accumulation 37,118,795 13,188,174 (188,064,913) 137,555,004 274,665,000 274,462,060 BALANCED PORTFOLIO Annuity contracts in accumulation 23,070,386 13,307,928 (44,850,054) 67,292,044 185,323,915 244,144,219 FLEXIBLE INCOME PORTFOLIO Annuity contracts in accumulation 800,449 (1,139,350) 1,221,110 (1,735,067) 19,582,411 18,729,553 GROWTH PORTFOLIO Annuity contracts in accumulation 20,248,007 26,376,109 (96,637,106) 94,745,263 213,572,309 253,461,282 Annuity contracts in payment period 9,348,397 14,191,697 WORLDWIDE GROWTH PORTFOLIO Annuity contracts in accumulation 38,890,587 103,517,579 (240,800,959) 100,536,442 470,413,281 467,731,442 Annuity contracts in payment period 11,305,698 16,131,186 LEXINGTON FUNDS: EMERGING MARKETS FUND Annuity contracts in accumulation (29,359) (208,854) (697,511) (383,164) 2,574,027 1,255,139 NATURAL RESOURCES TRUST FUND Annuity contracts in accumulation (23,479) (280,181) 734,872 (799,653) 3,168,963 2,800,522 MFS FUNDS: GLOBAL GOVERNMENT SERIES Annuity contracts in accumulation 54,979 (117,141) 110,630 (154,591) 1,643,414 1,537,291 TOTAL RETURN SERIES Annuity contracts in accumulation 1,769,334 3,584,670 2,244,191 5,010,468 50,789,444 63,398,107
S-37 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 2000 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year MITCHELL HUTCHINS SERIES TRUST: GROWTH & INCOME PORTFOLIO Annuity contracts in accumulation $52,069 ($60,119) ($43,491) $191,823 $809,956 $950,238 SMALL CAP PORTFOLIO Annuity contracts in accumulation 42,933 21,129 (41,112) 13,275 172,522 208,747 TACTICAL ALLOCATION PORTFOLIO Annuity contracts in accumulation 49,580 (146,643) (283,303) 5,525,454 7,364,195 12,509,283 OPPENHEIMER FUNDS: AGGRESSIVE GROWTH FUND/VA Annuity contracts in accumulation 913,764 10,300,064 (25,312,397) 40,219,243 29,291,524 55,317,044 Annuity contracts in payment period 1,639,824 1,734,978 GLOBAL SECURITIES FUND/VA Annuity contracts in accumulation 1,710,952 438,818 (2,145,627) 7,741,683 9,513,748 17,259,574 MAIN STREET GROWTH & INCOME FUND/VA Annuity contracts in accumulation 2,421,957 1,662,650 (11,373,240) 18,574,761 56,214,303 66,668,968 Annuity contracts in payment period 151,990 983,453 STRATEGIC BOND FUND/VA Annuity contracts in accumulation 1,407,974 (1,289,825) 158,172 3,260,148 19,569,256 22,834,845 Annuity contracts in payment period 228,810 499,690 PORTFOLIO PARTNERS, INC. (PPI): PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO (1) Annuity contracts in accumulation 9,624,642 10,380,017 (74,522,115) 77,813,035 53,173,898 74,490,975 Annuity contracts in payment period 1,763,893 3,742,395 PPI MFS EMERGING EQUITIES PORTFOLIO Annuity contracts in accumulation (398,687) 29,823,579 (49,886,417) (26,097,535) 181,712,440 134,260,645 Annuity contracts in payment period 1,531,267 2,424,002 PPI MFS RESEARCH GROWTH PORTFOLIO Annuity contracts in accumulation 6,487,565 22,426,562 (25,633,388) (7,907,361) 102,536,898 97,910,276 PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO Annuity contracts in accumulation 3,513,499 (8,389,934) (2,960,925) 10,664,760 35,328,550 37,459,265 Annuity contracts in payment period 123,723 820,408 PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO Annuity contracts in accumulation 8,778,480 34,445,191 (44,649,659) (12,137,687) 126,069,747 111,737,190 Annuity contracts in payment period 723,814 1,492,696 TOTAL VARIABLE ANNUITY ACCOUNT B $443,418,285 $331,595,273 ($1,510,718,463) $886,119,508 $6,173,851,032 $6,324,265,635
(1) - Effective May 1, 2000, PPI MFS Value Equity Portfolio's name changed to PPI MFS Capital Opportunities Portfolio. S-38 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 1999 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year AETNA ASCENT VP Annuity contracts in accumulation $1,070,293 $614,087 $688,288 ($7,289,731) $24,898,190 $19,981,127 AETNA BALANCED VP, INC. Annuity contracts in accumulation 24,109,936 5,798,309 (6,953,408) (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 5,009,815 (250,395) (6,626,783) 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 1,159,582 835,357 92,697 (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 7,720,048 (4,212,086) (3,285,620) (19,622,110) 19,399,768 0 AETNA GET FUND, SERIES C Annuity contracts in accumulation 1,883,527 1,202,519 (1,645,757) (3,591,840) 9,276,019 7,124,468 AETNA GET FUND, SERIES D Annuity contracts in accumulation 1,027,651 877,472 9,652,660 75,168,020 89,907,126 176,632,929 AETNA GET FUND, SERIES E Annuity contracts in accumulation 512,899 235,363 23,410,070 357,540,044 0 381,698,376 AETNA GET FUND, SERIES G Annuity contracts in accumulation (105,549) 10,944 5,934,910 206,014,754 0 211,855,059 AETNA GET FUND, SERIES H Annuity contracts in accumulation (535) 0 2,439 1,725,051 0 1,726,955 AETNA GROWTH AND INCOME VP Annuity contracts in accumulation 195,636,189 27,598,205 (54,549,571) (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 2,503,752 8,758,918 4,526,105 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 20,145 (26,909) 22,547 (487) 230,386 245,682 AETNA INDEX PLUS LARGE CAP VP Annuity contracts in accumulation 7,633,075 12,905,081 14,212,836 117,244,893 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 151,622 3,176 (67,301) 403,520 375,745 866,762 AETNA INDEX PLUS SMALL CAP VP Annuity contracts in accumulation (6,226) 4,776 88,028 (145,065) 969,800 911,313 AETNA INTERNATIONAL VP Annuity contracts in accumulation 314,228 796,809 334,892 1,562,914 1,528,847 4,434,269 Annuity contracts in payment period 2,086 105,507
S-39 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 1999 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year AETNA LEGACY VP Annuity contracts in accumulation $1,259,802 $677,837 ($268,597) ($7,254,086) $32,331,905 $26,597,646 Annuity contracts in payment period 2,822,843 2,972,058 AETNA MONEY MARKET VP Annuity contracts in accumulation 4,806,378 2,133,321 330,845 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 79,420 (94,506) (103,018) 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 46,684 495,596 5,053,673 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 571,020 1,109,347 1,089,659 (4,540,412) 18,689,212 16,918,826 AIM V.I. FUNDS: CAPITAL APPRECIATION FUND Annuity contracts in accumulation 162,329 218,729 2,092,057 7,199,232 298,792 9,923,942 Annuity contracts in payment period 0 47,197 GROWTH AND INCOME FUND Annuity contracts in accumulation 72,400 84,137 3,729,182 19,382,908 221,558 22,700,889 Annuity contracts in payment period 0 789,296 GROWTH FUND Annuity contracts in accumulation 569,280 91,500 2,699,619 15,273,804 296,860 18,608,980 Annuity contracts in payment period 0 322,083 VALUE FUND Annuity contracts in accumulation 473,993 272,868 4,649,445 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 369,558 503,031 585,771 (1,430,177) 6,185,618 6,213,801 INCOME & GROWTH PORTFOLIO Annuity contracts in accumulation 692,076 1,010,580 3,954,746 (2,033,469) 15,463,737 19,087,670 LEVERAGED ALLCAP PORTFOLIO Annuity contracts in accumulation 977,173 1,941,955 8,510,988 (3,289,670) 16,971,895 25,112,341 AMERICAN CENTURY VP FUNDS: BALANCED FUND Annuity contracts in accumulation 626,812 42,756 (373,958) (1,575,541) 4,732,298 3,452,367 INTERNATIONAL FUND Annuity contracts in accumulation (80,728) 370,470 2,677,680 (1,259,618) 5,791,227 7,499,031 CALVERT SOCIAL BALANCED PORTFOLIO Annuity contracts in accumulation 221,160 35,903 (6,720) 380,705 1,958,082 2,589,130
S-40 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 1999 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year FEDERATED INSURANCE SERIES: AMERICAN LEADERS FUND II Annuity contracts in accumulation $11,655,701 $9,006,979 ($13,940,497) ($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 417,336 1,150,293 3,009,771 (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 (459,868) 1,914,945 17,537,931 234,105 27,450,515 46,677,628 HIGH INCOME BOND FUND II Annuity contracts in accumulation 3,429,519 525,169 (3,482,849) (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 232,563 1,197,123 11,869,478 (1,894,959) 17,521,464 28,925,669 PRIME MONEY FUND II Annuity contracts in accumulation 284,037 2,223 (2,223) 306,114 8,067,320 8,657,471 U.S. GOVERNMENT SECURITIES FUND II Annuity contracts in accumulation 529,521 252,857 (1,085,066) (2,937,725) 16,054,824 12,814,411 UTILITY FUND II Annuity contracts in accumulation 1,703,210 1,436,932 (3,152,728) (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 5,793,712 7,476,209 (5,035,413) 7,411,679 176,108,721 191,754,908 GROWTH PORTFOLIO Annuity contracts in accumulation 13,956,409 5,777,289 33,718,335 17,013,720 138,516,768 208,982,521 HIGH INCOME PORTFOLIO Annuity contracts in accumulation 4,245,596 (2,480,388) 1,818,996 9,278,961 49,328,098 61,938,947 Annuity contracts in payment period 503,361 755,677 OVERSEAS PORTFOLIO Annuity contracts in accumulation 422,796 1,581,304 4,144,886 (3,946,889) 17,886,843 20,088,940 FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO Annuity contracts in accumulation 1,230,871 409,194 263,798 (799,139) 20,414,738 21,519,462 CONTRAFUND PORTFOLIO Annuity contracts in accumulation 4,155,125 15,587,326 21,616,930 30,664,230 162,974,413 234,998,024 INDEX 500 PORTFOLIO Annuity contracts in accumulation 196,112 19,542,751 7,362,436 1,630,498 141,735,838 170,467,635 INVESTMENT GRADE BOND PORTFOLIO Annuity contracts in accumulation 210,765 70,130 (402,945) (1,453,541) 5,695,641 4,120,050
S-41 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 1999 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO Annuity contracts in accumulation $2,863,809 $27,339,558 $92,030,766 $95,062,093 $57,368,774 $274,665,000 BALANCED PORTFOLIO Annuity contracts in accumulation 1,715,618 3,244,252 24,941,102 83,194,454 72,228,489 185,323,915 FLEXIBLE INCOME PORTFOLIO Annuity contracts in accumulation 1,138,116 147,199 (1,254,423) (1,081,920) 20,633,439 19,582,411 GROWTH PORTFOLIO Annuity contracts in accumulation (642,536) 7,909,529 44,597,338 101,412,913 68,058,273 213,572,309 Annuity contracts in payment period 1,585,189 9,348,397 WORLDWIDE GROWTH PORTFOLIO Annuity contracts in accumulation (3,385,958) 31,635,650 146,254,486 59,587,939 243,902,115 470,413,281 Annuity contracts in payment period 3,724,747 11,305,698 LEXINGTON FUNDS: EMERGING MARKETS FUND, INC. Annuity contracts in accumulation (14,369) (266,288) 1,775,730 (430,469) 1,509,423 2,574,027 NATURAL RESOURCES TRUST FUND Annuity contracts in accumulation (22,165) (316,185) 772,124 (1,219,704) 3,954,893 3,168,963 MFS FUNDS: GLOBAL GOVERNMENT SERIES (1) Annuity contracts in accumulation 77,487 7,270 (154,317) (301,164) 2,014,138 1,643,414 TOTAL RETURN SERIES Annuity contracts in accumulation 1,596,766 1,093,651 (1,983,927) 11,945,226 38,137,728 50,789,444 MITCHELL HUTCHINS SERIES TRUST: GROWTH & INCOME PORTFOLIO Annuity contracts in accumulation (2,947) 2,524 74,102 736,277 0 809,956 SMALL CAP PORTFOLIO Annuity contracts in accumulation 5,171 (67) 9,469 157,949 0 172,522 TACTICAL ALLOCATION PORTFOLIO Annuity contracts in accumulation 460,824 9,529 35,469 6,858,373 0 7,364,195 OPPENHEIMER FUNDS: AGGRESSIVE GROWTH FUND/VA (2) Annuity contracts in accumulation (228,766) 5,655,000 7,045,547 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 185,519 1,784,568 1,526,756 (1,636,196) 7,653,101 9,513,748 MAIN STREET GROWTH & INCOME FUND/VA (4) Annuity contracts in accumulation (134,847) 467,684 7,924,335 12,915,912 35,193,209 56,214,303 Annuity contracts in payment period 0 151,990
S-42 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 2000 (continued): 6. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CHANGES IN NET ASSETS (continued):
YEAR ENDED DECEMBER 31, 1999 Net Net Net Change in Increase (Decrease) Net Assets Net Realized Unrealized in Net Assets ---------- Investment Gain (Loss) Gain (Loss) from Unit Beginning End Income (Loss) on Investments on Investments Transactions of Year of Year STRATEGIC BOND FUND/VA (5) Annuity contracts in accumulation $572,117 ($208,339) ($60,353) $6,396,041 $12,897,019 $19,569,256 Annuity contracts in payment period 201,581 228,810 PORTFOLIO PARTNERS, INC. (PPI): PPI MFS EMERGING EQUITIES PORTFOLIO Annuity contracts in accumulation (407,825) 15,683,351 44,935,086 (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 (1,012,592) 4,690,269 15,357,529 (5,108,995) 88,610,687 102,536,898 PPI MFS VALUE EQUITY PORTFOLIO Annuity contracts in accumulation 663,657 2,175,318 13,243,961 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 780,667 9,268,050 2,777,929 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 1,255,333 5,270,752 15,908,462 (14,489,363) 118,791,854 126,069,747 Annuity contracts in payment period 56,523 723,814 TOTAL VARIABLE ANNUITY ACCOUNT B $312,954,293 $243,088,761 $510,456,415 $1,150,783,141 $3,956,568,422 $6,173,851,032
(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-43 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, 2000, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the condensed financial information for the year ended December 31, 2000. These financial statements and the 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 auditing standards generally accepted in the United States of America. 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, 2000, 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, 2000, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the condensed financial information for the year then ended, in conformity with accounting principles generally accepted in the United States of America. [KPMG LLP SIGNATURE] Hartford, Connecticut February 2, 2001 S-44 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Independent Auditors' Report...................... F-2 Consolidated Financial Statements: Consolidated Statements of Income for the One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Years Ended December 31, 1999 and 1998..... F-3 Consolidated Balance Sheets as of December 31, 2000 and 1999................. F-4 Consolidated Statements of Changes in Shareholder's Equity for the One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Years Ended December 31, 1999 and 1998........... F-5 Consolidated Statements of Cash Flows for the One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Years Ended December 31, 1999 and 1998....................................... F-6 Notes to Consolidated Financial Statements.... F-7
F-1 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, 2000 ("Successor Company") and December 31, 1999 ("Preacquisition Company"), and the related consolidated statements of income, changes in shareholder's equity and cash flows for the period from December 1, 2000 to December 31, 2000 ("Successor Company"), and for the period from January 1, 2000 to November 30, 2000 and the years ended December 31, 1999 and 1998 ("Preacquisition Company"). These consolidated financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the Successor Company's consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company and Subsidiaries at December 31, 2000, and the results of their operations and their cash flows for the period from December 1, 2000 to December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Preacquisition Company's consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company and Subsidiaries at December 31, 1999, and the results of their operations and their cash flows for the period from January 1, 2000 to November 30, 2000, and the years ended December 31, 1999 and 1998, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, effective November 30, 2000, ING America Insurance Holdings Inc. acquired all of the outstanding stock of Aetna Inc., Aetna Life Insurance and Annuity Company's indirect parent and sole shareholder in a business combination accounted for as a purchase. As a result of the acquisition, the consolidated financial information for the periods after the acquisition is presented on a different cost basis than that for the periods before the acquisition and, therefore, is not comparable. /s/ KPMG LLP Hartford, Connecticut March 27, 2001 F-2 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) CONSOLIDATED STATEMENTS OF INCOME (millions)
Preacquisition ------------------------------------------------ One month Eleven months ended ended Year ended Year ended December 31, November 30, December 31, December 31, 2000 2000 1999 1998 ------------- -------------- ------------- ------------- Revenue: Premiums $ 16.5 $ 137.7 $ 107.5 $ 79.4 Charges assessed against policyholders 36.4 424.6 388.3 324.3 Net investment income 78.6 833.8 886.3 871.8 Net realized capital (losses) gains 1.8 (37.2) (21.5) 10.4 Other income 13.4 148.7 129.7 100.2 ------ -------- -------- -------- Total revenue 146.7 1,507.6 1,490.3 1,386.1 ------ -------- -------- -------- Benefits and expenses: Current and future benefits 68.9 726.7 746.2 714.4 Operating expenses: Salaries and related benefits 29.9 187.5 153.0 141.0 Other 19.2 227.1 213.7 199.6 Amortization of deferred policy acquisition costs and value of business acquired 10.2 116.7 104.9 91.2 ------ -------- -------- -------- Total benefits and expenses 128.2 1,258.0 1,217.8 1,146.2 ------ -------- -------- -------- Income from continuing operations before income taxes 18.5 249.6 272.5 239.9 Income taxes 5.9 78.1 90.6 67.1 ------ -------- -------- -------- Income from continuing operations 12.6 171.5 181.9 172.8 Discontinued operations, net of tax: Income from operations -- -- -- 61.8 Amortization of deferred gain on sale -- 5.7 5.7 -- Immediate gain on sale -- -- -- 59.0 ------ -------- -------- -------- Net income $ 12.6 $ 177.2 $ 187.6 $ 293.6 ====== ======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-3 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) CONSOLIDATED BALANCE SHEETS (millions, except share data)
December 31, December 31, 2000 1999 ------------- ------------- ASSETS Investments: Debt securities available for sale, at fair value (amortized cost: $11,120.0 and $11,657.9) $11,244.7 $11,410.1 Equity securities, at fair value: Nonredeemable preferred stock (cost: $109.0 and $134.7) 100.7 130.9 Investment in affiliated mutual funds (cost: $9.6 and $63.5) 12.7 64.1 Common stock (cost: $2.2 and $6.7) 3.5 11.5 Short-term investments 109.4 74.2 Mortgage loans 4.6 6.7 Policy loans 339.3 314.0 Other investments 13.4 13.2 Securities pledged to creditors (amortized cost: $126.8) 129.0 -- --------- --------- Total investments 11,957.3 12,024.7 Cash and cash equivalents 796.3 694.4 Short-term investments under securities loan agreement 131.8 238.8 Accrued investment income 147.2 150.7 Premiums due and other receivables 82.9 298.3 Reinsurance recoverable 3,005.8 3,001.2 Current income taxes 40.6 -- Deferred income taxes -- 150.4 Deferred policy acquisition costs 12.3 1,046.4 Value of business acquired 1,780.9 -- Goodwill 2,297.4 -- Other assets 154.7 96.5 Separate Accounts assets 36,745.8 38,692.6 --------- --------- Total assets $57,153.0 $56,394.0 ========= ========= LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Future policy benefits $ 3,977.7 $ 3,850.4 Unpaid claims and claim expenses 29.6 27.3 Policyholders' funds left with the Company 11,125.6 11,121.7 --------- --------- Total insurance reserve liabilities 15,132.9 14,999.4 Payables under securities loan agreement 131.8 238.8 Current income taxes -- 14.7 Deferred income taxes 248.0 -- Other liabilities 549.9 1,062.8 Separate Accounts liabilities 36,745.8 38,692.6 --------- --------- Total liabilities 52,808.4 55,008.3 --------- --------- 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 4,303.8 431.9 Accumulated other comprehensive gain (loss) 25.4 (44.8) Retained earnings 12.6 995.8 --------- --------- Total shareholder's equity 4,344.6 1,385.7 --------- --------- Total liabilities and shareholder's equity $57,153.0 $56,394.0 ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-4 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)
Preacquisition ------------------------------------------------ One month Eleven months ended ended Year ended Year ended December 31, November 30, December 31, December 31, 2000 2000 1999 1998 ------------- -------------- ------------- ------------- Shareholder's equity, beginning of period $4,313.4 $1,385.7 $1,394.5 $1,853.3 Comprehensive income: Net income 12.6 177.2 187.6 293.6 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on securities ($28.7, $79.4, ($230.2), $18.2 pretax) (1) 18.6 51.6 (149.6) 11.9 -------- -------- -------- -------- Total comprehensive income 31.2 228.8 38.0 305.5 -------- -------- -------- -------- Capital contributions: Cash -- 73.5 -- 9.3 Assets -- 56.0 -- -- -------- -------- -------- -------- Total capital contributions -- 129.5 -- 9.3 -------- -------- -------- -------- Other changes -- 0.8 2.9 2.4 -------- -------- -------- -------- Common stock dividends -- (10.1) (49.7) (776.0) -------- -------- -------- -------- Adjustment for purchase accounting -- 2,578.7 -- -- -------- -------- -------- -------- Shareholder's equity, end of period $4,344.6 $4,313.4 $1,385.7 $1,394.5 ======== ======== ======== ========
(1) Net of reclassification adjustments. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-5 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS (millions)
Preacquisition --------------------------------------------------- One month Eleven months ended ended Year ended Year ended December 31, November 30, December 31, December 31, 2000 2000 1999 1998 ------------- ------------- ------------- ------------- Cash Flows from Operating Activities: Net income $ 12.6 $ 177.2 $ 187.6 $ 293.6 Adjustments to reconcile net income to net cash (used for) provided by operating activities: Net accretion of discount on investments (2.7) (32.6) (26.5) (29.5) Amortization of deferred gain on sale -- (5.7) (5.7) 0.0 Immediate gain on sale -- -- -- (59.0) Net realized capital gains (losses) (1.8) 37.2 21.5 (11.1) Changes in assets and liabilities: Decrease (increase) in accrued investment income 6.6 (3.1) 0.9 11.4 Decrease (increase) in premiums due and other receivables 31.1 (23.7) 23.3 (24.0) Decrease (increase) in policy loans 0.1 (25.4) (21.8) 177.4 Increase in deferred policy acquisition costs/value of business acquired (12.2) (136.6) (153.3) (132.8) Decrease in reinsurance loan to affilitate -- -- -- 397.2 Net (decrease) increase in universal life account balances (3.8) 23.8 55.7 122.9 (Decrease) increase in other insurance reserve liabilities (5.3) 85.6 (28.6) (41.8) Increase (decrease) in other liabilities and other assets 103.9 (75.2) (42.5) (35.3) (Decrease) increase in income taxes (14.3) 23.1 (259.8) 106.5 ------- ---------- --------- --------- Net cash provided by (used for) operating activities 114.2 44.6 (249.2) 775.5 ------- ---------- --------- --------- Cash Flows from Investing Activities: Proceeds from sales of fixed maturities Debt securities available for sale 233.0 10,083.2 5,890.1 6,790.2 Equity securities 1.5 118.4 111.2 150.1 Mortgage loans 0.1 2.1 6.1 0.3 Life Business -- -- -- 966.5 Investment maturities and collections of: Debt securities available for sale 53.7 573.1 1,216.5 1,296.3 Short-term investments 0.4 59.9 80.6 135.3 Cost of investment purchases in: Debt securities available for sale (230.7) (10,505.5) (7,099.7) (6,706.4) Equity securities (27.8) (17.6) (13.0) (125.7) Short-term investments (10.0) (113.1) (106.0) (83.9) Decrease (increase) in property and equipment 1.9 5.4 (5.7) Other, net 0.3 (4.0) 3.7 (2,725.9) ------- ---------- --------- --------- Net cash provided by (used for) investing activities 22.4 201.9 83.8 (312.2) ------- ---------- --------- --------- Cash Flows from Financing Activities: Deposits and interest credited for investment contracts 164.2 1,529.7 2,040.2 1,571.1 Withdrawals of investment contracts (156.3) (1,832.6) (1,680.8) (1,393.1) Capital contribution from HOLDCO -- 73.5 -- 9.3 Return of capital to Separate Account -- -- -- 1.7 Dividends paid to shareholder -- (10.1) (255.7) (570.0) Other, net (73.6) 22.0 126.7 (34.3) ------- ---------- --------- --------- Net cash (used for) provided by financing activities (65.7) (217.5) 230.4 (415.3) ------- ---------- --------- --------- Net increase in cash and cash equivalents 70.9 29.0 65.0 48.0 Effect of exchange rate changes on cash and cash equivalents -- 2.0 -- -- Cash and cash equivalents, beginning of period 725.4 694.4 629.4 581.4 ------- ---------- --------- --------- Cash and cash equivalents, end of period $ 796.3 $ 725.4 $ 694.4 $ 629.4 ======= ========== ========= ========= Supplemental cash flow information: Income taxes paid, net $ 20.3 $ 39.9 $ 316.9 $ 60.9 ======= ========== ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-6 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). On December 13, 2000, ING America Insurance Holdings, Inc., an indirect wholly owned subsidiary of ING, acquired Aetna Inc., comprised of the Aetna Financial Services business, of which the Company is a part, and the Aetna International business, for approximately $7.7 billion. The purchase price was comprised of approximately $5.0 billion in cash and the assumption of $2.7 billion of outstanding debt and other net liabilities. In connection with the acquisition, Aetna Inc. was renamed Lion Connecticut Holdings Inc. ("Lion"). At the time of the sale, Lion entered into certain transition services agreements with a former related party, Aetna U.S. Healthcare, which was renamed Aetna Inc. ("former Aetna"). For accounting purposes, the acquisition has been accounted for as of November 30, 2000 using the purchase method. The application of the purchase method, including the recognition of goodwill, is being pushed down and reflected on the financial statements of certain ARSI (a subsidiary of Lion) subsidiaries, including the Company. The Balance Sheet changes related to accounting for this purchase were entirely non-cash in nature and accordingly have been excluded from the pre-acquisition Consolidated Statement of Cash Flow for the eleven months ended November 30, 2000. The purchase price was allocated to assets and liabilities based on their respective fair values. This revaluation resulted in a net increase to assets, excluding the effects of goodwill, of $592.0 million and a net increase to liabilities of $310.6 million. The allocation of the purchase price to assets and liabilities is subject to further refinement. The net increase to assets reflects the write off of deferred acquisition costs of $1,183.0 million, which was the balance as of November 30, 2000, the establishment of value of business acquired of $1,780.9, an increase to other assets of $6.0 million and a decrease of $12.0 million in current income taxes. The increase to other assets reflects the write down of certain fixed assets and capitalized software costs resulting from conforming accounting policies, the establishment of a favorable lease asset and the reclassification of certain pension assets (previously reflected in other liabilities). The balances in other assets and current income taxes prior to push down accounting were $148.7 million and $52.6 million, respectively. The net increase to liabilities reflects an increase to insurance reserves of $60.0 million representing the revaluation of the reserves using current assumptions, an increase to deferred tax liabilities of $266.4 million primarily representing the deferred tax effect of the purchase accounting adjustments and a decrease to other liabilities of $15.8 million. The decrease in other liabilities includes the write-off of the deferred gain related to the sale of the individual life insurance business (refer to Note 3) partially offset by the establishment of a severance liability F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) and the revaluation of certain benefit plan liabilities. The balances in insurance reserves and other liabilities prior to push down accounting were $15,072.9 million and $565.7 million. With respect to deferred taxes, prior to push down accounting, the Company had a deferred tax asset of $18.4 million. As a result of the application of push down accounting, retained earnings immediately prior to the sale was reclassified to paid-in capital. Additionally, the Company established goodwill of $2.3 billion. Goodwill is being amortized over a period of 40 years. Unaudited proforma consolidated income from continuing operations and net income of the Company for the period from January 1, 2000 to November 30, 2000 and for the year-ended December 31, 1999, assuming that the acquisition of the Company occurred at the beginning of each period, would have been approximately $118.1 million and $123.5 million, respectively. The pro forma adjustments, which do not affect revenues, reflect primarily goodwill amortization, amortization of the favorable lease asset and the elimination of amortization of the deferred gain on sale associated with the life business. 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 company 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"), Aetna Investment Adviser Holding Company, Inc. ("IA Holdco") and Aetna Investment Services, LLC ("AIS"). ALIAC is a wholly owned subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO"), which is a wholly owned subsidiary of Aetna Retirement Services, Inc. ("ARSI"). ARSI is ultimately owned by ING Groep N.V. F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (ING). HOLDCO contributed AIS to the Company on June 30, 2000 and contributed IA Holdco to the Company on July 1, 1999 (refer to Note 2). The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The contributions of AIS and IA Holdco to the Company were 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 both companies. Certain reclassifications have been made to 1999 and 1998 financial information to conform to the 2000 presentation. NEW ACCOUNTING STANDARDS ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES In September 2000, the Financial Accounting Standard Board ("FASB") issued Financial Accounting Standard ("FAS") No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which replaces FAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This standard revises the accounting for securitizations, other financial asset transfers and collateral associated with securities lending transactions and requires certain additional disclosures. FAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. However, for recognition and disclosure of collateral and for additional disclosures related to securitization transactions, FAS No. 140 was effective for the Company's December 31, 2000 financial statements. With respect to the provisions effective December 31, 2000, the Company reclassified debt securities on loan to other institutions from "Debt Securities" to "Securities Pledged to Creditors" on the Company's Consolidated Balance Sheet. The Company does not expect the adoption of those provisions effective after March 31, 2001 to have a material effect on its financial position or results of operations (Refer to Note 4). DEPOSIT ACCOUNTING: ACCOUNTING FOR INSURANCE AND REINSURANCE CONTRACTS THAT DO NOT TRANSFER INSURANCE RISK On January 1, 2000, the Company adopted Statement of Position 98-7, Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk, issued by the American Institute of Certified Public Accountants. This statement 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. The adoption of this standard had no impact on the Company's financial position or results of operations. F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) FUTURE APPLICATION OF ACCOUNTING STANDARDS ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the FASB issued FAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This June 2000, further guidance related to accounting for derivative instruments and hedging activities was provided when the FASB issued FAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities--an Amendment of FASB Statement No. 133. This standard, as amended, 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 to the Company, of the adoption of this standard, as amended, will not have a material effect on the Company's financial position or results of operations. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from reported results using those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, money market instruments and other debt issues with a maturity of 90 days or less when purchased. INVESTMENTS Debt and equity securities are classified as available for sale and carried at fair value. 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 policyholders' 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 shareholder's equity, net of related income taxes. F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. In September 2000, the FASB issued FAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. In accordance with this new standard, general account securities on loan are reflected on the balance sheet as "Securities pledged to creditors", which includes the following:
Gross Gross December 31, 2000 Amortized Unrealized Unrealized Fair (Millions) Cost Gains Losses Value ---------------------------------------------------------------------------------------------- Debt securities $124.5 $5.3 $3.1 $126.7 Short-term investments 2.3 -- -- 2.3 ---------------------------------------------------------------------------------------------- Total securities pledged to creditors $126.8 $5.3 $3.1 $129.0 ----------------------------------------------------------------------------------------------
At December 31, 1999, the Company had securities pledged to creditors with a fair value of approximately $232.5 million reflected as debt securities. The investment in affiliated mutual funds represents an investment in Aetna managed mutual funds by the Company, and is carried at fair value. Mortgage loans and policy loans are carried at unpaid principal balances, net of impairment reserves. F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. GOODWILL Goodwill, which represents the excess of cost over the fair value of net assets acquired, is amortized on a straight-line basis over 40 years. The Company regularly evaluates the recoverability of goodwill. The carrying value of goodwill would be reduced through a direct write-off, if, in management's judgement, it was probable that projected future operating income (before amortization of goodwill) would not be sufficient on an undiscounted basis to recover the carrying value. Operating earnings considered in such an analysis are those of the entity acquired, if separately identifiable, or the business segment that acquired the entity if the entity's earnings are not separately identifiable. 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 F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 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. 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. Refer to "Principles of Consolidation" within Note 1 for related discussions regarding the application of the purchase method to deferred policy acquisition costs. VALUE OF BUSINESS ACQUIRED Value of business acquired ("VOBA") is an asset and represents the present value ofestimated net cash flows embedded in the Company's contracts acquired by ING. VOBA is amortized in proportion to estimated gross profits and adjusted to reflect actual gross profits over the contracts (up to 30 years for annuity contracts and pension contracts). VOBA is written off to the extent that it is determined that gross profits are not adequate to recover the asset. The estimated amount of VOBA to be amortized, net of interest, over the next five years is $104.3 million, $112.6 million, $114.3 million, $110.8 million and $106.3 million for the years 2001, 2002, 2003, 2004 and 2005, respectively. Actual amortization incurred during these years may vary as assumptions are modified to incorporate actual results. 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 2.0% to 9.5% for all years presented. Investment yield is based on the Company's experience. Mortality and withdrawal rate assumptions are based on relevant F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Company 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 2.0% to 14.0% 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 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 Account 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. F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Separate Accounts assets are carried at fair value. At December 31, 2000 and 1999, unrealized gains of $9.5 million and unrealized losses of $8.0 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 3.8% to 14.0% in 2000 and 3.7% to 12.0% in 1999. 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 balances 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, 2000 and 1999, $2,991 million and $2,989 million, respectively, is related to the reinsurance recoverable from Lincoln arising from the sale of the Company's domestic life insurance business. (Refer to Note 3). INCOME TAXES The Company is included in the consolidated federal income tax return of Lion through December 13, 2000. Subsequent to December 13, 2000 the Company will file a consolidated return with AICA. 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. RECENT DEVELOPMENTS CONTRIBUTIONS OF AIS AND IA HOLDCO FROM HOLDCO On June 30, 2000, HOLDCO contributed AIS to the Company. AIS is registered with the Securities and Exchange Commission as a broker/dealer and is a member of the National Association of Securities Dealers, Inc. It is also registered with the appropriate state securities authorities as a broker/dealer and is a Registered Investment Advisor. The principal operation of F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. RECENT DEVELOPMENTS (continued) AIS is acting as underwriter for ALIAC's manufactured products, as well as the sale of fixed and variable annuities and mutual funds through its registered representatives. 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, serves as underwriter to the Aetna Series Fund, Inc. and provides distribution services for other Company 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 was recognized immediately in net income and was largely attributed to access to the agency sales force and brokerage distribution channel. Approximately $5.7 million and $5.2 million (after tax) of the deferred gain was recognized during 2000 and 1999, respectively. 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. In conjunction with the accounting for the acquisition of the Aetna Financial Services business, of which the Company is a part, the deferred gain, which was previously part of other liabilities, was written off. (Refer to Note 1). The operating results of the domestic individual life insurance business are presented as Discontinued Operations. Revenues for the individual life segment were $652.2 million for 1998. Premiums ceded and reinsurance recoveries made in 2000 totaled $419.1 million and $416.1 million, respectively, and in 1999 totaled $476.5 million and $513.4 million, respectively. F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. INVESTMENTS Debt securities available for sale as of December 31 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair 2000 (Millions) Cost Gains Losses Value --------------------------------------------------------------------------------------------- U.S. government and government agencies and authorities $ 920.8 $ 34.3 $ 2.1 $ 953.0 States, municipalities and political subdivisions 0.3 -- -- 0.3 U.S. corporate securities: Utilities 282.2 13.8 6.2 289.8 Financial 1,753.1 33.8 21.2 1,765.7 Transportation/capital goods 660.2 21.4 11.3 670.3 Health care/consumer products 758.9 16.2 27.9 747.2 Natural resources 499.3 7.6 15.6 491.3 Other corporate securities 972.0 7.1 52.3 926.8 --------------------------------------------------------------------------------------------- Total U.S. corporate securities 4,925.7 99.9 134.5 4,891.1 --------------------------------------------------------------------------------------------- Foreign securities: Government, including political subdivisions 384.7 23.9 4.3 404.3 Utilities 122.9 18.6 -- 141.5 Other 31.2 -- 9.3 21.9 --------------------------------------------------------------------------------------------- Total foreign securities 538.8 42.5 13.6 567.7 --------------------------------------------------------------------------------------------- Residential mortgage-backed securities: Pass-throughs 1,390.3 37.1 4.1 1,423.3 Collateralized mortgage obligations 1,606.6 61.2 7.1 1,660.7 --------------------------------------------------------------------------------------------- Total residential mortgage-backed securities 2,996.9 98.3 11.2 3,084.0 --------------------------------------------------------------------------------------------- Commercial/Multifamily mortgage-backed securities 1,108.3 27.5 24.2 1,111.6 Other asset-backed securities 753.7 13.4 3.4 763.7 --------------------------------------------------------------------------------------------- Total debt securities, including debt securities pledged to creditors 11,244.5 315.9 189.0 11,371.4 Less: Debt securities pledged to creditors 124.5 5.3 3.1 126.7 --------------------------------------------------------------------------------------------- Debt securities $11,120.0 $310.6 $185.9 $11,244.7 =============================================================================================
F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. INVESTMENTS (continued) Debt securities available for sale as of December 31 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair 1999 (Millions) Cost Gains Losses Value --------------------------------------------------------------------------------------------- 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 --------------------------------------------------------------------------------------------- Debt securities $11,657.9 $112.8 $360.6 $11,410.1 =============================================================================================
F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. INVESTMENTS (continued) At December 31, 2000 and 1999, net unrealized appreciation (depreciation) of $126.9 million and $(247.8) million, respectively, on available-for-sale debt securities including debt securities pledged to creditors, herein after referred to as "total debt securities", included $92.9 million and $(189.7) 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 total debt securities for the year ended December 31, 2000 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called, or prepaid.
Amortized Fair (Millions) Cost Value ---------------------------------------------------------------------------- Due to mature: One year or less $ 405.4 $ 405.9 After one year through five years 2,272.8 2,299.2 After five years through ten years 1,754.3 1,731.5 After ten years 1,953.1 1,975.6 Mortgage-backed securities 4,105.2 4,195.5 Other asset-backed securities 753.7 763.7 ---------------------------------------------------------------------------- Less: Debt securities pledged to creditors 124.5 126.7 ============================================================================ Debt securities $11,120.0 $11,244.7 ============================================================================
At December 31, 2000 and 1999, debt securities carried at fair value of $8.6 million and $8.7 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, 2000. Included in the Company's total debt securities were residential collateralized mortgage obligations ("CMOs") supporting the following:
2000 1999 ------------------------ ------------------------ Amortized Fair Amortized Fair (Millions) Cost Value Cost Value ------------------------------------------------------------------------------------------------- Total residential CMOs (1) $1,606.6 $1,660.7 $1,683.1 $1,670.5 ================================================================================================= Percentage of total: Supporting experience rated products 80.6% 80.7% Supporting remaining products 19.4% 19.3% ------------------------------------------------------------------------------------------------- 100.0% 100.0% =================================================================================================
(1) At December 31, 2000 and 1999, approximately 84% and 81%, respectively, of the Company's residential CMO holdings were backed by government agencies such as GNMA, FNMA, and FHLMC.
F-19 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, 2000 and 1999, approximately 2% and 1%, 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 as of December 31 were as follows:
(Millions) 2000 1999 ----------------------------------------------------------------------------------- Amortized Cost $120.8 $204.9 Gross unrealized gains 6.0 12.5 Gross unrealized losses 9.9 10.9 ----------------------------------------------------------------------------------- Fair Value $116.9 $206.5 ===================================================================================
5. FINANCIAL INSTRUMENTS ESTIMATED FAIR VALUE The carrying values and estimated fair values of certain of the Company's financial instruments at December 31, 2000 and 1999 were as follows:
2000 1999 ----------------------- ----------------------- Carrying Fair Carrying Fair (Millions) Value Value Value Value ------------------------------------------------------------------------------------------------- Assets: Mortgage loans $ 4.6 $ 4.5 $ 6.7 $ 6.8 Liabilities: Investment contract liabilities: With a fixed maturity 1,041.0 982.3 1,055.3 991.0 Without a fixed maturity 10,084.6 9,549.9 10,066.4 9,452.8 -------------------------------------------------------------------------------------------------
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-20 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. WITHOUT A FIXED MATURITY: Fair value is estimated as the amount payable to the contractholder upon demand. However, the Company has the right under such contracts to delay payment of withdrawals which may ultimately result in paying an amount different than that determined to be payable on demand. OFF-BALANCE-SHEET AND OTHER FINANCIAL INSTRUMENTS FUTURES CONTRACTS: Futures contracts are used to manage interest rate risk in the Company's bond portfolio. Futures contracts represent commitments to either purchase or sell securities at a specified future date and at a specified price or yield. Futures contracts trade on organized exchanges and, therefore, have minimal credit risk. Cash settlements are made daily based on changes in the prices of the underlying assets. The notional amounts, carrying values and estimated fair values of the Company's open treasury futures as of December 31, 1998 were $250.9 million, $.1 million, and $.1 million, respectively. There were no open treasury futures at December 31, 2000 and 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 at December 31, 2000 were both $0.3 million. The carrying values and estimated fair values at December 31, 1999 were both $6.5 million. OPTIONS: As of December 31, 2000 and 1999, the Company earned $1.1 million and $0.4 million respectively, of investment income for writing call options on underlying securities. At December 31, 2000 and 1999, there were no option contracts outstanding. F-21 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, 2000 was as follows:
Amortized Fair (Millions) Cost Value ---------------------------------------------------------------------------------- Residential collateralized mortgage obligations $1,606.6 $1,660.7 Principal-only strips (included above) 28.1 32.1 Interest-only strips (included above) 8.2 9.7 Other structured securities with derivative characteristics (1) 51.5 51.5 ----------------------------------------------------------------------------------
(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:
One month Eleven months ended ended Year ended Year ended December 31, November 30, December 31, December 31, (Millions) 2000 2000 1999 1998 -------------------------------------------------------------------------------------------------------------- Debt securities $70.3 $768.9 $823.3 $798.8 Nonredeemable preferred stock 1.8 9.5 17.1 18.4 Investment in affiliated mutual funds 0.5 2.1 2.4 6.6 Mortgage loans 0.1 0.5 1.1 0.6 Policy loans 0.7 7.9 7.7 7.2 Cash equivalents 4.4 50.3 39.0 46.1 Other 2.6 13.1 15.3 15.5 -------------------------------------------------------------------------------------------------------------- Gross investment income 80.4 852.3 905.9 893.2 Less: investment expenses (1.8) (18.5) (19.6) (21.4) -------------------------------------------------------------------------------------------------------------- Net investment income $78.6 $833.8 $886.3 $871.8 ==============================================================================================================
Net investment income includes amounts allocable to experience rated contractholders of $55.9 million and $622.2 million for the one month and eleven month periods ended December 31, 2000 and November 30, 2000, respectively, and $659.6 million and $655.6 million for the years ended December 31, 1999 and 1998, respectively. Interest credited to contractholders is included in current and future benefits. F-22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY The Company paid $10.1 million, $255.7 million and $570.0 million in cash dividends to HOLDCO in 2000, 1999 and 1998, respectively. Of the $255.7 million paid in 1999, $206.0 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 Insurance Department of the State of Connecticut (the "Department") recognizes as net income and 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 $100.6 million, $133.9 million and $148.1 million for the years ended December 31, 2000, 1999 and 1998, respectively. Statutory capital and surplus was $931.1 million and $844.9 million as of December 31, 2000 and 1999, respectively. As of December 31, 2000, 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. For 2001, the Company is required to implement statutory accounting changes ratified by the NAIC and state insurance departments ("Codification"). The cumulative effect of Codification to the Company's statutory surplus as of January 1, 2001 is estimated to be an increase of $27.4 million. 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 gains (losses) on investments were as follows:
One month Eleven months ended ended Year ended Year ended December 31, November 30, December 31, December 31, (Millions) 2000 2000 1999 1998 ------------------------------------------------------------------------------------------------- Debt securities $1.2 $(36.3) $(23.6) $ 7.4 Equity securities 0.6 (0.9) 2.1 3.0 ------------------------------------------------------------------------------------------------- Pretax realized capital gains (losses) $1.8 $(37.2) $(21.5) $10.4 ================================================================================================= After-tax realized capital gains (losses) $1.3 $(24.3) $(14.0) $ 7.3 =================================================================================================
Net realized capital (losses) gains of $(16.8) million, $(36.7) million and $15.0 million for 2000, 1999 and 1998, 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 $45.1 million and $68.5 million at December 31, 2000 and 1999, respectively. F-23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (continued) Proceeds from the sale of total debt securities and the related gross gains and losses were as follows:
One month Eleven months ended ended Year ended Year ended December 31, November 30, December 31, December 31, (Millions) 2000 2000 1999 1998 ------------------------------------------------------------------------------------------------ Proceeds on sales $233.0 $10,083.2 $5,890.1 $6,790.2 Gross gains 1.4 2.5 10.5 98.8 Gross losses -- 39.0 34.1 91.4 ------------------------------------------------------------------------------------------------
Changes in shareholder's equity related to changes in accumulated other comprehensive income (unrealized capital gains and losses on securities including securities pledged to creditors, excluding those related to experience-rated contractholders) were as follows:
(Millions) 2000 1999 1998 --------------------------------------------------------------------------------------------------- Debt securities $ 92.1 $(199.2) $ 18.9 Equity securities (5.5) (3.4) (16.1) Other 21.5 (27.6) 15.4 --------------------------------------------------------------------------------------------------- Subtotal 108.1 (230.2) 18.2 Increase (decrease) in deferred income taxes (Refer to Note 10) 37.9 (80.6) 6.3 --------------------------------------------------------------------------------------------------- Net changes in accumulated other comprehensive income (loss) $ 70.2 $(149.6) $ 11.9 ===================================================================================================
F-24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (continued) Net unrealized capital gains (losses) allocable to experience-rated contracts of $92.9 million and $(189.7) million at December 31, 2000 and 1999, respectively, are reflected on the Consolidated Balance Sheets in Policyholders' funds left with the Company and are not included in shareholder's equity. Shareholder's equity included the following accumulated other comprehensive (loss) income, which is net of amounts allocable to experience-rated contractholders, at December 31:
(Millions) 2000 1999 1998 ----------------------------------------------------------------------------------------------------- Total debt securities: Gross unrealized capital gains $ 78.5 $ 18.6 $157.3 Gross unrealized capital losses (44.5) (76.7) (16.2) ----------------------------------------------------------------------------------------------------- 34.0 (58.1) 141.1 ----------------------------------------------------------------------------------------------------- Equity securities: Gross unrealized capital gains 6.0 12.5 13.1 Gross unrealized capital losses (9.9) (10.9) (8.1) ----------------------------------------------------------------------------------------------------- (3.9) 1.6 5.0 ----------------------------------------------------------------------------------------------------- Other: Gross unrealized capital gains 15.0 1.3 17.1 Gross unrealized capital losses (5.9) (13.7) (1.8) ----------------------------------------------------------------------------------------------------- 9.1 (12.4) 15.3 ----------------------------------------------------------------------------------------------------- Deferred income taxes (Refer to Note 10) 13.8 (24.1) 56.6 ----------------------------------------------------------------------------------------------------- Net accumulated other comprehensive income (loss) $ 25.4 $(44.8) $104.8 =====================================================================================================
Changes in accumulated other comprehensive income related to changes in unrealized gains (losses) on securities, including securities pledged to creditors (excluding those related to experience-rated contractholders) were as follows:
(Millions) 2000 1999 1998 ------------------------------------------------------------------------------------------------------ Unrealized holding gains (losses) arising during the year (1) $70.1 $(146.3) $38.3 Less: reclassification adjustment for (losses) gains and other items included in net income (2) (0.1) 3.3 26.4 ====================================================================================================== Net unrealized gains (losses) on securities $70.2 $(149.6) $11.9 ======================================================================================================
(1) Pretax unrealized holding gains (losses) arising during the year were $108.0 million, $(225.2) million and $58.8 million for 2000, 1999 and 1998, respectively. (2) Pretax reclassification adjustments for (losses) gains and other items included in net income were $(0.1) million, $5.0 million and $40.6 million for 2000, 1999 and 1998, respectively.
F-25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. SEVERANCE In December 2000, the Company, in accounting for its acquisition by ING, established a severance liability of $10.7 million related to actions taken or expected to be taken with respect to the integration of the Company's and ING's businesses. The severance liability is based on a plan to eliminate approximately 175 positions (primarily in the retail annuity operations). The severance liability is reflected in other liabilities in the Consolidated Balance Sheets. Severance actions are expected to be substantially completed by December 31, 2001. No significant severance actions took place in 2000. 10. INCOME TAXES The Company is included in the consolidated federal income tax return of Lion through December 13, 2000. For tax settlements related to tax periods ending on or prior to December 13, 2000, the purchase agreement between ING America Insurance Holdings, Inc. and the former Aetna provides for the settlement of balances owed by the Company based on an amount approximating the tax the Company would have incurred were it not a member of the consolidated group, and owed to the Company for the use of its tax saving attributes in the consolidated federal income tax return. Subsequent to December 13, 2000, as a result of the sale, the Company will be filing a consolidated return with AICA. The Company allocates to each member, an amount approximating the tax the member would have incurred were it not a member of the consolidated group, and credits the member for use of its tax saving attributes in the consolidated federal income tax return. Income taxes from continuing operations consist of the following:
One month Eleven months ended ended Year ended Year ended December 31, November 30, December 31, December 31, (Millions) 2000 2000 1999 1998 ------------------------------------------------------------------------------------------------- Current taxes (benefits): Federal $ 9.4 $ 5.3 $ 64.3 $ 257.9 State 0.2 2.6 2.5 3.0 Net realized capital (losses) gains 0.3 (11.5) (20.1) 16.8 ------------------------------------------------------------------------------------------------- 9.9 (3.6) 46.7 277.7 ------------------------------------------------------------------------------------------------- Deferred taxes (benefits): Federal (4.3) 83.2 31.3 (196.7) Net realized capital gains (losses) 0.3 (1.5) 12.6 (13.9) ------------------------------------------------------------------------------------------------- (4.0) 81.7 43.9 (210.6) ------------------------------------------------------------------------------------------------- Total $ 5.9 $ 78.1 $ 90.6 $ 67.1 =================================================================================================
F-26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. INCOME TAXES (continued) 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:
One month Eleven months ended ended Year ended Year ended December 31, November 30, December 31, December 31, (Millions) 2000 2000 1999 1998 ---------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes $ 18.5 $ 249.6 $ 272.5 $ 239.9 Tax rate 35% 35% 35% 35% ---------------------------------------------------------------------------------------------------------------- Application of the tax rate 6.4 87.4 95.4 84.0 Tax effect of: State income tax, net of federal benefit 0.1 1.7 1.6 2.0 Excludable dividends (0.9) (12.6) (6.1) (17.1) Other, net 0.3 1.6 (0.3) (1.8) ---------------------------------------------------------------------------------------------------------------- Income taxes $ 5.9 $ 78.1 $ 90.6 $ 67.1 ================================================================================================================
F-27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. 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:
(Millions) 2000 1999 ----------------------------------------------------------------------------------------------- Deferred tax assets: Deferred policy acquisition costs $ 44.8 $ -- Insurance reserves 306.3 323.1 Unrealized gains allocable to experience rated contracts 32.5 -- Net unrealized capital losses -- 90.5 Investment losses 9.0 1.3 Postretirement benefits other than pensions 5.8 24.8 Deferred compensation 65.6 42.5 Sale of individual life insurance business -- 44.9 Other 21.1 23.7 ----------------------------------------------------------------------------------------------- Total gross assets 485.1 550.8 ----------------------------------------------------------------------------------------------- Deferred tax liabilities: Value of business acquired 623.3 -- Deferred policy acquisition costs -- 324.0 Market discount 4.9 6.5 Net unrealized capital gains 46.3 -- Unrealized losses allocable to experience rated contracts -- 66.4 Depreciation 4.4 3.5 Sale of Individual life insurance business 15.1 -- Excludable dividends 5.0 -- Other 34.1 -- ----------------------------------------------------------------------------------------------- Total gross liabilities 733.1 400.4 ----------------------------------------------------------------------------------------------- Net deferred tax (liability) asset $(248.0) $150.4 ===============================================================================================
Net unrealized capital gains and losses are presented in shareholder's equity net of deferred taxes. As of December 31, 2000 and 1999, no valuation allowance was required for unrealized capital gains and losses. 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, 2000. 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. F-28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. INCOME TAXES (continued) The Internal Revenue Service (the "Service") has completed examinations of the consolidated federal income tax returns of Lion 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. 11. BENEFIT PLANS ALIAC, in conjunction with ING, has noncontributory defined benefit pension plans covering substantially all employees. The plans provide pension benefits based on years of service and average annual compensation (measured over 60 consecutive months of highest earnings in a 120 - month period). Contributions are determined using the Projected Unit Credit Method and, for qualified plans subject to ERISA requirements, are limited to the amount that are tax-deductible. The accumulated benefit obligation and plan assets are recorded by ALIAC. As of the measurement date (i.e. December 13, 2000), fair value of plan assets exceed projected benefit obligations. Allocated pretax charges to operations for the former Aetna pension plan (based on the Company's total salary cost as a percentage of former Aetna's total salary cost) were $3.7 million and $6.6 million for the years ended December 31, 2000 and 1999, respectively. There were no charges in 1998 due to favorable plan asset performance. Effective January 1, 1999 ALIAC, in conjunction with former Aetna, changed the formula for providing pension benefits from the existing final average pay formula to a cash balance formula, which credits employees annually with an amount equal to a percentage of eligible pay based on age and years of service as well as an interest credit based on individual account balances. The formula also provides for a transition period until December 1, 2006, which allows certain employees to receive vested benefits at the higher of the final average pay or cash balance formula. The changing of this formula will not have a material effect on ALIAC's results of operations, liquidity or financial condition. In addition to providing pension benefits, ALIAC, in conjunction with ING, 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. There is a cap on the portion of the cost paid by the Company relating to medical and dental benefits. Retirees are generally required to contribute to the plans based on their years of service with the Company. The costs to the Company associated with the former Aetna postretirement plans for 2000, 1999 and 1998 were $1.2 million, $2.1 million and $1.0 million, respectively. ALIAC, in conjunction with ING, has a non-qualified pension plan covering certain agents. The plan provides pension benefits based on annual commission earnings. As of the measurement date (i.e. December 13, 2000), the projected benefit obligation exceeded the fair value of plan assets. The Company, in conjunction with ING, 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 2000, 1999 and 1998 were $1.4 million, $2.1 million and $1.4 million, respectively. F-29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 11. BENEFIT PLANS (continued) Incentive Savings Plan--Substantially all employees are eligible to participate in a savings plan under which designated contributions, which may be invested in certain investments are matched, up to 5% of compensation, by ING. Pretax charges to operations for former Aetna the incentive savings plan were $9.0 million, $7.7 million and $5.3 million in 2000, 1999 and 1998, respectively. Stock Plans--ALIAC, in conjunction with former Aetna, had a stock incentive plan that provided for stock options, deferred contingent common stock or equivalent cash awards or restricted stock to employees. Certain executive, middle management and non-management employees were granted options to purchase common stock of former Aetna at or above the market price on the date of grant. Options generally became 100% vested three years after the grant was made, with one-third of the options vesting each year. The former Aetna did 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 were, from time to time, granted incentive units which were rights to receive common stock or an equivalent value in cash. The sale of ALIAC to ING America Insurance Holdings, Inc by former Aetna caused all outstanding stock options to vest immediately. The costs to the Company associated with the former Aetna stock plans for 2000, 1999 and 1998, were $2.7 million, $0.4 million and $4.2 million, respectively. During 2001, the benefits plans offered by ALIAC to its employees and agents will be transitioned to plans directly offered by ING. These plans are substantially similar to those offered by ALIAC, in conjunction with ING, and any differences are not expected to be material in nature. Effective January 1, 1998, Aeltus established an additional deferred incentive compensation plan, designed to attract, retain and incent key members of Aeltus. The plan had a five year vesting period. Payments under the plan were conditioned upon continued employment and were based upon an imputed share price of Aeltus at the end of the vesting period. The plan value was determined annually and the cost of the plan was expensed ratably over the vesting period. A change in control at Aeltus, as defined in the plan, would cause immediate full vesting of all outstanding shares. The purchase of Aetna Inc. by ING meets this definition. As a result, all outstanding shares became fully vested based on Aeltus's imputed value at the date of the sale and were subsequently paid out in early 2001. The appropriate annual share of the cost of the plan, including the additional cost in 2000 associated with this full vesting, has been reflected in salaries and related benefits in the Consolidated Statements of Income for each of the three years ended December 31, 2000. The costs to Aeltus associated with the deferred incentive compensation plan for 2000, 1999 and 1998, were $42.2 million, $4.7 million and $3.1 million, respectively. 12. RELATED PARTY TRANSACTIONS INVESTMENT ADVISORY AND OTHER FEES ALIAC and Aeltus serve as investment advisors and administrators to the Company's mutual funds and variable funds (collectively, the Funds). Company Funds pay Aeltus or ALIAC, as F-30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 12. RELATED PARTY TRANSACTIONS (continued) investment advisor or administrator, a daily fee which, on an annual basis, ranged, depending on the fund, from 0.33% to 1.15% of their average daily net assets. All of the funds managed by ALIAC and certain of the Funds managed by Aeltus are subadvised by investment advisors, in which case, Aeltus or ALIAC pays a subadvisory fee to the investment advisors. 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 3.40% 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 $506.3 million, $424.2 million and $349.0 million in 2000, 1999 and 1998, respectively. CAPITAL TRANSACTIONS The Company received capital contributions in the form of cash and assets of $73.5 million, and $56.0 million, respectively from HOLDCO in 2000. In 1998, the Company received capital contributions in the form of cash of $9.3 million from HOLDCO. The Company received no capital contribution in 1999. Refer to Note 7 for dividends paid to HOLDCO. OTHER Premiums due and other receivables include $4.7 million and $10.5 million due from affiliates in 2000 and 1999, respectively. Other liabilities include $4.1 million and $1.9 million due to affiliates for 2000 and 1999, respectively. Former Aetna transferred to the Company $.4 million, $.8 million and $1.7 million based on its decision not to settle state tax liabilities for the years 2000, 1999 and 1998, respectively, as permitted under the tax sharing arrangement, which is reported in other changes in retained earnings. Certain administrative and support functions of the Company are provided by former Aetna and its affiliates for a specified transition period. At the end of the transition period, these functions will be provided by ING affiliates. The financial statements reflect allocated charges for these services based upon measures appropriate for the type and nature of the service provided. 13. 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-31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13. 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. Effective December 31, 1988, the Company entered into a modified coinsurance reinsurance agreement ("MODCO") with Aetna Life Insurance Company ("Aetna Life"), (formerly an affiliate of the 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, with the exception of certain supplementary contracts with reserves of $74.9 million and $81.9 million as of December 31, 2000 and 1999, respectively, was sold to Lincoln (refer to Note 3). The operating results of the domestic individual life business are presented as Discontinued Operations. Premiums of $15.8 million, $17.9 million and $336.3 million and current and future benefits of $34.6 million, $8.6 million and $341.1 million, were assumed in 2000, 1999 and 1998, respectively. Investment income of $17.0 million was generated from a reinsurance loan to affiliate for the year ended December 31, 1998. Prior to the sale of the domestic individual life insurance business to Lincoln on October 1, 1998, the Company's retention limit per individual life was $2.0 million and amounts in excess of this limit, up to a maximum of $8.0 million on any new individual life business was reinsured with Aetna Life on a yearly renewable term basis. The premium amount related to this agreement was $2.0 million for 1998. This agreement was terminated effective October 1, 1998. Effective October 1, 1997, the Company entered into a reinsurance agreement with Aetna Life, (formerly an affiliate of the Company) 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 in 1998. 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, (formerly an affiliate of the Company) 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 $29.2 million and $33.4 million were maintained for this contract as of December 31, 2000 and 1999, respectively. F-32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13. REINSURANCE (continued) The following table includes premium amounts ceded/assumed.
Ceded to Assumed Direct Other from Other Net (Millions) Amount Companies Companies Amount --------------------------------------------------------------------------------------------- 2000 ----------------------------------------- Premiums: Discontinued Operations $366.6 $382.4 $ 15.8 $ -- Accident and Health Insurance 15.2 15.2 -- -- Annuities 160.4 7.1 0.9 154.2 --------------------------------------------------------------------------------------------- Total earned premiums $542.2 $404.7 $ 16.7 $154.2 ============================================================================================= 1999 ----------------------------------------- Premiums: Discontinued Operations $460.1 $478.0 $ 17.9 $ -- Accident and Health Insurance 33.4 33.4 -- -- Annuities 111.5 4.9 0.9 107.5 --------------------------------------------------------------------------------------------- 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 =============================================================================================
F-33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. SEGMENT INFORMATION Summarized financial information for the Company's principal operations was as follows:
Investment Year ended December 31, 2000 Financial Management Discontinued (Millions) (1) Products (2) Services (2) Operations (2) Other (2) Total ------------------------------------------------------------------------------------------------------------------ Revenue from external customers $ 692.1 $138.2 -- $(53.0) $ 777.3 Net investment income 905.8 2.8 -- 3.8 912.4 ------------------------------------------------------------------------------------------------------------------ Total revenue excluding net realized capital (losses) gains $ 1,597.9 $141.0 -- $(49.2) $ 1,689.7 ================================================================================================================== Amortization of deferred policy acquisition costs $ 115.6 $ 11.3 $ 126.9 ------------------------------------------------------------------------------------------------------------------ Income taxes (benefits) $ 79.0 $ 9.0 -- $ (4.0) $ 84.0 ------------------------------------------------------------------------------------------------------------------ Operating earnings (losses) (3) $ 204.7 $ 9.7 -- $ (7.3) $ 207.1 Net realized capital (losses) gains, net of tax (23.1) 0.1 -- -- (23.0) ------------------------------------------------------------------------------------------------------------------ Income (loss) from continuing operations 181.6 9.8 -- (7.3) 184.1 Discontinued operations, net of tax: Amortization of deferred gain on sale (4) -- -- $ 5.7 -- 5.7 ------------------------------------------------------------------------------------------------------------------ Net income (loss) $ 181.6 $ 9.8 $ 5.7 $ (7.3) $ 189.8 ================================================================================================================== Segment assets $54,117.7 $ 44.1 $2,991.2 -- $57,153.0 ------------------------------------------------------------------------------------------------------------------ Expenditures for long-lived assets (5) -- -- -- $ 3.4 $ 3.4 ------------------------------------------------------------------------------------------------------------------ Balance of long-lived assets -- -- -- $ 54.3 $ 54.3 ------------------------------------------------------------------------------------------------------------------
(1) Year ended 2000 data reflects an aggregation of the pre-acquisition period of the eleven months ended November 30, 2000 and the post-acquisition period of one month ended December 31, 2000. (2) Financial Products include: deferred and immediate annuity contracts, mutual funds, distribution services for annuities and mutual funds and 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's mutual funds and affiliate's separate accounts; and trustee, administrative and other 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. (3) 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. (4) Taxes on the amortization of deferred gain on sale amounted to $3.3 million. (5) Expenditures of long-lived assets represent additions to property and equipment not allocable to business segments.
F-34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. SEGMENT INFORMATION (continued)
Investment Year ended December 31, 1999 Financial Management Discontinued (Millions) Products (1) Services (1) Operations (1) Other (1) Total ---------------------------------------------------------------------------------------------------------------------- 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) $ 87.5 $ 16.5 -- $(13.4) $ 90.1 ---------------------------------------------------------------------------------------------------------------------- Operating earnings (losses) (2) $ 192.8 $ 28.1 -- $ (7.5) $ 213.4 Other item (3) -- -- -- (17.5) (17.5) Net realized capital losses, net of tax (14.0) -- -- -- (14.0) ---------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 178.8 28.1 -- (25.0) 181.9 Discontinued operations, net of tax: Amortization of deferred gain on sale (4) -- -- $ 5.7 -- 5.7 ---------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 178.8 $ 28.1 $ 5.7 $(25.0) $ 187.6 ====================================================================================================================== Segment assets $53,362.1 $ 36.6 $2,989.0 -- $56,387.7 ---------------------------------------------------------------------------------------------------------------------- Expenditures for long-lived assets (5) -- -- -- $ 3.9 $ 3.9 ---------------------------------------------------------------------------------------------------------------------- Balance of long-lived assets -- -- -- $ 12.2 $ 12.2 ----------------------------------------------------------------------------------------------------------------------
(1) Financial Products include: deferred and immediate annuity contracts, mutual funds, distribution services for annuities and mutual funds and 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's mutual funds and affiliate's separate accounts; and trustee, administrative and other 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. (4) Taxes on the amortization of deferred gain on sale amounted to $3.2 million. (5) Expenditures of long-lived assets represent additions to property and equipment not allocable to business segments.
F-35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. SEGMENT INFORMATION (continued)
Investment Year ended December 31, 1998 Financial Management Discontinued (Millions) Products (1) Services (1) Operations (1) Other (1) Total ----------------------------------------------------------------------------------------------------------------- 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) $ 68.2 $14.7 -- $(15.8) $ 67.1 ----------------------------------------------------------------------------------------------------------------- Operating earnings (2) $ 171.0 $24.0 -- $ (7.1) $ 187.9 Other item (3) -- -- -- (22.4) (22.4) Net realized capital gains, net of tax 7.3 -- -- -- 7.3 ----------------------------------------------------------------------------------------------------------------- Income from continuing operations 178.3 24.0 -- (29.5) 172.8 Discontinued operations, net of tax: Income from operations (4) -- -- $ 61.8 -- 61.8 Immediate gain on sale (4) -- -- 59.0 -- 59.0 ----------------------------------------------------------------------------------------------------------------- Net income (loss) $ 178.3 $24.0 $ 120.8 $(29.5) $ 293.6 ================================================================================================================= Segment assets $44,367.4 $13.4 $2,946.4 -- $47,327.2 ----------------------------------------------------------------------------------------------------------------- Expenditures for long-lived assets (5) -- -- -- $ 6.4 $ 6.4 ----------------------------------------------------------------------------------------------------------------- Balance of long-lived assets -- -- -- $ 12.2 $ 12.2 -----------------------------------------------------------------------------------------------------------------
(1) Financial Products include: deferred and immediate annuity contracts, mutual funds, distribution services for annuities and mutual funds and 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's mutual funds and affiliate's separate accounts; and trustee, administrative and other 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. (4) Taxes on the income from operations and the immediate gain on sale amounted to $32.1million and $29.3 million, respectively. (5) Expenditures of long-lived assets represent additions to property and equipment not allocable to business segments.
F-36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. COMMITMENTS AND CONTINGENT LIABILITIES LEASES In conjunction with the acquisition by ING, the Company entered into with or assumed from a former affiliate operating leases for office space. Since December 13, 2000, rent expense for these leases was immaterial. The future net minimum payments under noncancelable leases for 2001 through 2005 are estimated to be $25.5 million, $24.5 million, $21.5 million, $19.1 million and $16.3 million, respectively, and 29.9 million, thereafter. 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, 2000 and 1999, there were no off-balance sheet commitments. LITIGATION In recent years, life insurance companies have been named as defendants in class action lawsuits relating to life insurance sales practices. The Company is currently a defendant in one such lawsuit. A purported class action complaint was filed in the United States District Court for the Middle District of Florida on June 30, 2000, by Helen Reese, Richard Reese, Villere Bergeron and Allan Eckert against ALIAC (the "Reese Complaint"). The Reese Complaint seeks compensatory and punitive damages and injunctive relief from ALIAC. The Reese Complaint claims that ALIAC engaged in unlawful sales practices in marketing life insurance policies. ALIAC has moved to dismiss the Reese Complaint for failure to state a claim upon which relief can be granted. This litigation is in the preliminary stages. The Company intends to defend the action vigorously. The Company is also involved in other lawsuits arising, for the most part, in the ordinary course of its business operations. While the outcome of these other lawsuits cannot be determined at this time, after consideration of the defenses available to the Company, applicable insurance coverage and any related reserves established, these other lawsuits are 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-37 FORM NO. SAI 09515-01 ALIAC ED. May 2001 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, 2000 - Statement of Operations for the year ended December 31, 2000 - Statements of Changes in Net Assets for the years ended December 31, 2000 and 1999 - Condensed Financial Information for the year ended December 31, 2000 - Notes to Financial Statements - Independent Auditors' Report Financial Statements of Aetna Life Insurance and Annuity Company: - Independent Auditors' Report - Consolidated Statements of Income for the One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Years Ended December 31, 1999 and 1998 - Consolidated Balance Sheets as of December 31, 2000 and 1999 - Consolidated Statements of Changes in Shareholder's Equity for the One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Years Ended December 31, 1999 and 1998 - Consolidated Statements of Cash Flows for the One Month Ended December 31, 2000, the Eleven Months Ended November 30, 2000 and for the Years Ended December 31, 1999 and 1998 - 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) (3.3) Broker-Dealer Agreement dated June 7, 2000 between Aetna Life Insurance and Annuity Company and Aetna Investment Services, Inc. (AISI) and Letter of Assignment to AISI (4) (3.4) Underwriting Agreement dated November 17, 2000 between Aetna Life Insurance and Annuity Company and Aetna Investment Services, LLC(4) (4.1) Variable Annuity Contract (A050SP96)(5) (4.2) Variable Annuity Contract (A050SP99)(6) (4.3) Endorsement SPIAE99 to Variable Annuity Contract A050SP99(6) (4.4) Endorsement SPIAE-01 to Variable Annuity Contract A050SP99 (4.5) Endorsement SPIAEVW99 to Variable Annuity Contracts A050SP99 and SPIA(GR)99(6) (4.6) Endorsement SPIAEW99 to Variable Annuity Contracts A050SP99 and SPIA(GR)99(6) (4.7) Endorsement SPIAEVPG99 to Variable Annuity Contracts A050SP99 and SPIA(GR)99(6) (4.8) Endorsement SPIAEVMI-01 to Variable Annuity Contract A050SP99 and SPIA(GR)99 (4.9) Endorsement E401SP96 to Variable Annuity Contracts A050SP99 and SPIA(GR)99(6) (4.10) Endorsement E403SP96 to Variable Annuity Contracts A050SP99 and SPIA(GR)99(6) (4.11) Endorsement SPIA457-99 to Variable Annuity Contracts A050SP99 and SPIA(GR)99(6) (4.12) Variable Annuity Contract (SPIA(GR)99)(6) (4.13) Variable Annuity Contract Certificate (SPIA(GR)-99CERT)(6) (4.14) Endorsement SPIAE(GR)99 to Variable Annuity Contract SPIA(GR)99 and Certificate SPIA(GR)-99CERT(6) (4.15) Endorsement SPIAEVW(GR)99 to Variable Annuity Contract SPIA(GR)99 and Certificate SPIA(GR)-99CERT(6) (4.16) Endorsement SPIAEW(GR)99 to Variable Annuity Contract SPIA(GR)99 and Certificate SPIA(GR)-99CERT(6) (4.17) Endorsement SPIAEVPG(GR)99 to Variable Annuity Contract SPIA(GR)99 and Certificate SPIA(GR)-99CERT(6) (4.18) Endorsement SPIAE401(GR)99 to Variable Annuity Contract SPIA(GR)99 and Certificate SPIA(GR)-99CERT(6) (4.19) Endorsement SPIAE403(GR)99 to Variable Annuity Contract SPIA(GR)99 and Certificate SPIA(GR)-99CERT(6) (4.20) Endorsement SPIAE457(GR)99 to Variable Annuity Contract SPIA(GR)99 and Certificate SPIA(GR)-99CERT(6) (4.21) Endorsement SPIAEIRA(GR)99 to Variable Annuity Contract SPIA(GR)99 and Certificate SPIA(GR)-99CERT(6) (5.1) Variable Annuity Contract Application (82941(2/99))(6) (5.2) Variable Annuity Contract Application for New York (82950(2/99))(6) (6.1) Certificate of Incorporation of Aetna Life Insurance and Annuity Company(7) (6.2) Amendment to Certificate of Incorporation of Aetna Life Insurance and Annuity Company(8) (6.3) By-Laws as amended September 17, 1997 of Aetna Life Insurance and Annuity Company(9) (7) Not applicable (8.1) Fund Participation Agreement by and among AIM Variable Insurance Funds, Inc., A I M Distributors, Inc. and Aetna Life Insurance and Annuity Company dated June 30, 1998(10) (8.2) Amendment No. 1 dated October 1, 2000 to Participation Agreement by and among AIM Variable Insurance Funds (formerly AIM Variable Insurance Funds, Inc.), A I M Distributors, Inc. and Aetna Life Insurance and Annuity Company dated June 30, 1998(11) (8.3) First Amendment dated November 17, 2000 to Participation Agreement by and among AIM Variable Insurance Funds (formerly AIM Variable Insurance Funds, Inc.), A I M Distributors, Inc. and Aetna Life Insurance and Annuity Company dated June 30, 1998(11) (8.4) Service Agreement between Aetna Life Insurance and Annuity Company and AIM effective June 30, 1998(10) (8.5) First Amendment dated October 1, 2000 to the Service Agreement between Aetna Life Insurance and Annuity Company and AIM Advisors, Inc. effective June 30, 1998(4) (8.6) Fund Participation Agreement by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series, and Aeltus Investment Management, Inc. dated as of May 1, 1998(2) (8.7) 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(12) (8.8) 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(13) (8.9) 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(14) (8.10) 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(14) (8.11) Fifth Amendment dated February 27, 2001 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, February 11, 2000 and May 1, 2000 (8.12) 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) (8.13) 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(12) (8.14) 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(14) (8.15) 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(14) (8.16) 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(8) (8.17) 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(15) (8.18) 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(16) (8.19) 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) (8.20) 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(13) (8.21) Service Agreement between Aetna Life Insurance and Annuity Company and Fidelity Investments Institutional Operations Company dated as of November 1, 1995(17) (8.22) 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(15) (8.23) Service Contract between Fidelity Distributors Corporation and Aetna Life Insurance and Annuity Company dated May 2, 1997(12) (8.24) Fund Participation Agreement among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation dated December 8, 1997(18) (8.25) 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(12) (8.26) 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(13) (8.27) Amendment dated as of August 1, 2000 to Fund Participation Agreement among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation dated December 8, 1997, as amended on October 12, 1998 and December 1, 1999(19) (8.28) Service Agreement between Janus Capital Corporation and Aetna Life Insurance and Annuity Company dated December 8, 1997(17) (8.29) First Amendment dated as of August 1, 2000 to Service Agreement between Janus Capital Corporation and Aetna Life Insurance and Annuity Company dated December 8, 1997(19) (8.30) Distribution and Shareholder Services Agreement - Service Shares of Janus Aspen Series (for Insurance Companies) dated August 1, 2000 between Janus Distributors, Inc. and Aetna Life Insurance and Annuity Company(19) (8.31) Fund Participation Agreement dated March 11, 1997 between Aetna Life Insurance and Annuity Company and Oppenheimer Variable Annuity Account Funds and Oppenheimer Funds, Inc.(20) (8.32) 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(13) (8.33) Service Agreement effective as of March 11, 1997 between Oppenheimer Funds, Inc. and Aetna Life Insurance and Annuity Company(20) (9) Opinion and Consent of Counsel (10) Consent of Independent Auditors (11) Not applicable (12) Not applicable (13) Schedule for Computation of Performance Data(21) (14.1) Powers of Attorney(22) (14.2) Authorization for Signatures(3) 1. Incorporated by reference to Post-Effective Amendment No. 6 to Registration Statement on Form N-4 (File No. 33-75986), as filed on April 22, 1996. 2. Incorporated by reference to Registration Statement on Form N-4 (File No. 333-56297), as filed on June 8, 1998. 3. Incorporated by reference to Post-Effective Amendment No. 5 to Registration Statement on Form N-4 (File No. 33-75986), as filed on April 12, 1996. 4. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration Statement on Form N-4 (File No. 333-49176), as filed on November 30, 2000. 5. Incorporated by reference to Registration Statement on Form N-4 (File No. 333-09515), as filed on August 2, 1996. 6. 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. 7. 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. 8. 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. 9. 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. 10. 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. 11. Incorporated by reference to Post-Effective Amendment No. 23 to Registration Statement on Form N-4 (File No. 33-75988), as filed on April 10, 2001. 12. 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. 13. 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. 14. 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. 15. 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. 16. 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. 17. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-88720), as filed on June 28, 1996. 18. Incorporated by reference to Post-Effective Amendment No. 10 to Registration Statement on Form N-4 (File No. 33-75992), as filed on December 31, 1997. 19. Incorporated by reference to Post-Effective Amendment No. 22 to Registration Statement on Form N-4 (File No. 333-01107), as filed on August 14, 2000. 20. 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. 21. 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. 22. Incorporated by reference to Post-Effective Amendment No. 2 to Registration Statement on Form S-2 (File No. 333-34014), as filed on April 4, 2001. ITEM 25. DIRECTORS AND PRINCIPAL OFFICERS OF THE DEPOSITOR* ---------------------------------------------------------------
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH DEPOSITOR ---------------- ------------------------------------ Thomas J. McInerney** Director and President Wayne R. Huneke*** Director and Chief Financial Officer Robert C. Salipante**** Director P. Randall Lowery*** Director Mark A. Tullis*** Director Deborah Koltenuk** Vice President and Corporate Controller Paula Cludray-Engelke**** Secretary Brian Murphy** Vice President and Chief Compliance Officer
* These individuals may also be directors and/or officers of other affiliates of the Company. ** The principal business address of all directors and officers listed is 151 Farmington Avenue, Hartford, Connecticut 06156. *** The principal business address of these Directors and Officers is 5780 Powers Ferry Road, NW, Atlanta, Georgia 30327-4390. **** The principal business address of this Director and this Officer is 20 Washington Avenue South, Minneapolis, Minnesota 55401. ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT ---------------------------------------------------------------------------- Incorporated herein by reference to Item 26 of Post-Effective Amendment No. 18 to the Registration Statement on Form N-4 (File No. 33-81216), as filed on April 9, 2001. ITEM 27. NUMBER OF CONTRACT OWNERS ---------------------------------- As of February 28, 2001, there were 114,329 individuals holding interests in variable annuity contracts funded through Variable Annuity Account B. ITEM 28. INDEMNIFICATION ------------------------ Section 33-779 of the Connecticut General Statutes ("CGS") 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 the CGS. Reference is hereby made to Section 33-771(e) of the CGS regarding indemnification of directors and Section 33-776(d) of CGS regarding indemnification of officers, employees and agents of Connecticut corporations. These statutes provide in general that Connecticut corporations incorporated prior to January 1, 1997 shall, except to the extent that their certificate of incorporation expressly provides otherwise, indemnify their directors, officers, employees and agents against "liability" (defined as the obligation to pay a judgment, settlement, penalty, fine, including an excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with respect to a proceeding) when (1) a determination is made 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, employee or agent of the corporation. Consistent with the statute, ING Groep N.V. 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. Section 20 of the Aetna Investment Services, LLC (AIS) Limited Liability Company Agreement provides that AIS will indemnify certain persons against any loss, damage, claim or expenses (including legal fees) incurred by such person if he is made a party or is threatened to be made a party to a suit or proceeding because he was a member, officer, director, employee or agent of AIS, as long as he acted in good faith on behalf of AIS and in a manner reasonably believed to be within the scope of his authority. An additional condition requires that no person shall be entitled to indemnity if his loss, damage, claim or expense was incurred by reason of his gross negligence or willful misconduct. This indemnity provision is authorized by and is consistent with Title 8, Section 145 of the General Corporation Law of the State of Delaware. ITEM 29. PRINCIPAL UNDERWRITER ------------------------------ (a) In addition to serving as the principal underwriter for the Registrant, Aetna Investment Services, LLC (AIS) also acts as the principal underwriter for Portfolio Partners, Inc. (a management investment company registered under the Investment Company Act of 1940 (1940 Act)). Additionally, AIS acts as the principal underwriter for Variable Life Account B of Aetna Life Insurance and Annuity Company (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). AIS 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) The following are the directors and officers of the Principal Underwriter:
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH BUSINESS ADDRESS PRINCIPAL UNDERWRITER ---------------- --------------------- Marie Augsberger* Director and President Allan Baker* Director and Senior Vice President Robert L. Francis** Director and Senior Vice President Steven A. Haxton* Senior Vice President Gary J. Hegedus* Senior Vice President Deborah Koltenuk* Vice President, Treasurer and Chief Financial Officer Therese Squillacote* Vice President and Chief Compliance Officer John F. Todd* Corporate Secretary and Counsel (Chief Legal Officer) Martin T. Conroy* Vice President and Assistant Treasurer Reginald Bowen* Vice President Christina Lareau* Vice President Dwyatt McClain* Vice President Terran Titus* Vice President William T. Abramowicz Vice President 2525 Cabot Dr., Ste. 300 Lisle, IL 60532 Douglas J. Ambrose** Vice President Louis E. Bachetti Vice President 581 Main Street, 4th Floor, Woodbridge, NJ 07095 NAME AND PRINCIPAL POSITIONS AND OFFICES WITH BUSINESS ADDRESS PRINCIPAL UNDERWRITER ---------------- --------------------- Ronald R. Barhorst Vice President 7676 Hazard Ctr. Dr. San Diego, CA 92108 Robert H. Barley*** Vice President Steven M. Bresler Vice President 6430 South Fiddler's Green Cir, Ste 210, Englewood, CO 80111 David Brounley*** Vice President Daniel P. Charles Vice President 5 Penn Plaza, 11th Floor New York, NY 10001-1879 Brian D. Comer* Vice President Albert J. DiCristofaro, Jr. Vice President 8911 Capitol of TX Hwy., Bldg 2, Ste. 2210 Austin, TX 78759 John B. Finigan Vice President 1601 Trapelo Rd. Waltham, MA 02451 Brian P. Harrington Vice President 12701 Fair Lakes Cir., Ste. 470 Fairfax, VA 22033 Bernard P. Heffernon**** Vice President William S. Jasien**** Vice President Jess D. Kravitz** Vice President George D. Lessner Vice President 1755 N. Collins Blvd, Ste. 350 Richardson, TX 75080 Katherine E. Lewis Vice President 2675 N. Mayfair Rd., Ste. 501 Milwaukee, WI 53226 NAME AND PRINCIPAL POSITIONS AND OFFICES WITH BUSINESS ADDRESS PRINCIPAL UNDERWRITER ---------------- --------------------- Susan J. Lewis Vice President 16530 Ventura Blvd., Ste 600 Encino, CA 91436 James F. Lille Vice President 159 Wolf Rd., 1st Fl. Albany, NY 12205 David J. Linney Vice President 2900 N. Loop W., Ste. 180 Houston, TX 77092 Richard T. Mason Vice President 440 S. Warren St., Suite 702 Syracuse, NY 13202 Joseph F. McClain* Vice President Pamela Mulvey* Vice President W. Michael Montgomery Vice President 5100 W. Lemon St., Ste 213 Tampa, FL 33609 Scott T. Neeb** Vice President Patrick F. O'Christie Vice President The Pavilions, 1700 Lyons Rd., Ste D Dayton, OH 45458 Paulette Playce Vice President Two City Place Dr., Ste. 300 St. Louis, MO 63141 Marcellous J. Reed Vice President 2677 N. Main St., Ste. 500 Santa Ana, CA 92705 Charles A. Sklader Vice President 7720 N. 16th St., Ste. 150 Phoenix, AZ 85020 NAME AND PRINCIPAL POSITIONS AND OFFICES WITH BUSINESS ADDRESS PRINCIPAL UNDERWRITER ---------------- --------------------- Frank W. Snodgrass Vice President 150 4th Ave., N., Ste. 410 Nashville, TN 37219 S. Bradford Vaughan, Jr. Vice President 601 Union St., Ste. 810 Seattle, WA 98101 Mark Woolhiser Vice President 26957 Northwestern Hwy., Ste. 150 Southfield, MI 48034 David A. Kelsey* Assistant Vice President
* The principal business address of these directors and officers is 151 Farmington Avenue, Hartford, Connecticut 06156 ** The principal business address of these directors and officers is 6140 Stonehedge Mall Rd., Ste. 375, Pleasanton, California 94588 *** The principal business address of these officers is 100 Corporate Pl., 3rd Fl., Rocky Hill, Connecticut 06067 **** The principal business address of these officers is 10740 Nall Ave, Ste. 120, Overland Park, Kansas 66211 (c) Compensation from January 1, 2000 to December 31, 2000:
(1) (2) (3) (4) (5) NAME OF NET UNDERWRITING COMPENSATION ON PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION* ----------- ---------- ------------- ----------- ------------- Aetna Life Insurance and $1,638,784 $85,764,442 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. Of this amount, $7,212,372 is attributable to deductions for mortality and expense risk guarantees and contract charges for such contracts during December 2000. Compensation from January 1, 2000 to December 31, 2000:
(1) (2) (3) (4) (5) NAME OF NET UNDERWRITING COMPENSATION ON PRINCIPAL DISCOUNTS AND REDEMPTION OR BROKERAGE UNDERWRITER COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION** ----------- ----------- ------------- ----------- -------------- Aetna $1,126,164 Investment Services, LLC
** Reflects compensation paid to AIS attributable to regulatory and operating expenses associated with the distribution of all products issued by Aetna Life Insurance and Annuity Company and Aetna Insurance Company of America during 2000. Of this amount, $15,443 is attributable to fees paid to AIS in connection with its activities as distributor and principal underwriter in December 2000 for all products issued by the Registrant for Variable Annuity Account B. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS ----------------------------------------- All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the rules under it relating to the securities described in and issued under this Registration Statement are located at the home office of the Depositor as follows: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156 ITEM 31. MANAGEMENT SERVICES ---------------------------- Not applicable ITEM 32. UNDERTAKINGS --------------------- Registrant hereby undertakes: (a) to file a post-effective amendment to this registration statement on Form N-4 as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than sixteen months old for as long as payments under the variable annuity contracts may be accepted; (b) to include as part of any application to purchase a contract offered by a prospectus which is part of this registration statement on Form N-4, a space that an applicant can check to request a Statement of Additional Information; and (c) to deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-4 promptly upon written or oral request. (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. 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 18th day of April, 2001. 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. 13 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 ) ) ) Wayne R. Huneke* Director and Chief Financial Officer ) April ----------------------------------- ) 18, 2001 Wayne R. Huneke ) ) ) Randy Lowery* Director ) ----------------------------------- ) Phillip R. Lowery ) ) ) ) Robert C. Salipante* Director ) ----------------------------------- ) Robert C. Salipante ) ) ) Mark A. Tullis* Director ) ----------------------------------- ) Mark A. Tullis ) ) )
Deborah Koltenuk* Corporate Controller ) ----------------------------------- ) Deborah Koltenuk ) By: /s/ J. Neil McMurdie ---------------------------------------------------------- J. Neil McMurdie *Attorney-in-Fact
VARIABLE ANNUITY ACCOUNT B EXHIBIT INDEX
EXHIBIT NO. EXHIBIT 99-B.4.4 Endorsement SPIAE-01 to Variable Annuity Contract A050SP99 ------------- 99-B.4.8 Endorsement SPIAEVMI-01 to Variable Annuity Contract A050SP99 and SPIA(GR)99 ------------- 99-B.8.11 Fifth Amendment dated February 27, 2001 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, February 11, 2000 and May 1, 2000 ------------- ------------- 99-B.9 Opinion and Consent of Counsel ------------- 99-B.10 Consent of Independent Auditors -------------