-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KfAsZlTEjWCcAp8folUQmck9/VTeLA+vE8cKgkwI62LWxI54Fy5DtU5IAyOD4P07 oxBao0n8SiBp0KoaPO0BOQ== 0000950146-98-000643.txt : 19980417 0000950146-98-000643.hdr.sgml : 19980417 ACCESSION NUMBER: 0000950146-98-000643 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19980416 EFFECTIVENESS DATE: 19980416 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARIABLE ANNUITY ACCOUNT B OF AETNA LIFE INS & ANNUITY CO CENTRAL INDEX KEY: 0000103005 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-75996 FILM NUMBER: 98595671 BUSINESS ADDRESS: STREET 1: 151 FARMINGTON AVE CITY: HARTFORD STATE: CT ZIP: 06156 BUSINESS PHONE: 2032734808 MAIL ADDRESS: STREET 1: AETNA LIFE & CASUALTY STREET 2: 151 FARMINGTON AVE CITY: HARTFORD STATE: CT ZIP: 06156 FORMER COMPANY: FORMER CONFORMED NAME: VARIABLE ANNUITY ACCOUNT B OF AETNA VARIABLE ANNUITY LIFE IN DATE OF NAME CHANGE: 19791108 485BPOS 1 As filed with the Securities and Exchange Registration No. 33-75996* Commission on April 16, 1998 Registration No. 811-2512 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 - -------------------------------------------------------------------------------- POST-EFFECTIVE AMENDMENT NO. 14 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and Amendment to REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 - -------------------------------------------------------------------------------- Variable Annuity Account B of Aetna Life Insurance and Annuity Company Aetna Life Insurance and Annuity Company 151 Farmington Avenue, RE4A, 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, RE4A, 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, 1998 pursuant to paragraph (b) of Rule 485 -------- *Pursuant to Rule 429(a) under the Securities Act of 1933, Registrant has included a combined prospectus under this Registration Statement which includes all the information which would currently be required in a prospectus relating to the securities covered by Registration Statement No. 2-52448 and the individual deferred compensation contracts covered by Registration Statement No. 33-76000. VARIABLE ANNUITY ACCOUNT B CROSS REFERENCE SHEET
FORM N-4 ITEM NO. PART A (PROSPECTUS) LOCATION 1 Cover Page...................................... Cover Page 2 Definitions..................................... Definitions 3 Synopsis........................................ Prospectus Summary; Fee Table 4 Condensed Financial Information................. Condensed Financial Information 5 General Description of Registrant, Depositor and Portfolio Companies............... The Company; Variable Annuity Account B; The Funds 6 Deductions and Expenses......................... Charges and Deductions; Distribution 7 General Description of Variable Annuity Contracts....................................... Purchase; Miscellaneous 8 Annuity Period.................................. Annuity Period 9 Death Benefit................................... Death Benefit During Accumulation Period; Death Benefit Payable During the Annuity Period 10 Purchases and Contract Value.................... Purchase; Contract Valuation 11 Redemptions..................................... Right to Cancel; Withdrawals 12 Taxes........................................... Tax Status 13 Legal Proceedings............................... Miscellaneous - Legal Matters and Proceedings 14 Table of Contents of the Statement of Contents of the Statement of Additional Additional Information.......................... Information
FORM N-4 PART B (STATEMENT OF ADDITIONAL ITEM NO. INFORMATION) LOCATION 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................................ Annuity 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. VARIABLE ANNUITY ACCOUNT B GROUP VARIABLE ANNUITY CONTRACTS FOR EMPLOYER-SPONSORED DEFERRED COMPENSATION PLANS MAY 1, 1998 SUPPLEMENT TO MAY 1, 1998 PROSPECTUS PRODUCERS' DEFERRED COMPENSATION PLAN PRODUCERS' INCENTIVE SAVINGS PLAN This supplement relates to the Producers' Deferred Compensation Plan and the Producers' Incentive Savings Plan (the "Plans") for career agents and certain brokers of Aetna Life Insurance Company and Aetna Life Insurance and Annuity Company. The Plans have met the criteria allowing for the reduction or elimination of certain charges under the Contract. Therefore, no maintenance fee or deferred sales charge will be deducted under the Contract. (See "Maintenance Fee--Reduction or Elimination of Maintenance Fee" and "Deferred Sales Charge--Reduction or Elimination of Deferred Sales Charge.") Form No. XCS.75996-98AB VARIABLE ANNUITY ACCOUNT B GROUP VARIABLE ANNUITY CONTRACTS FOR EMPLOYER-SPONSORED DEFERRED COMPENSATION PLANS MAY 1, 1998 SUPPLEMENT TO MAY 1, 1998 PROSPECTUS The following is a negotiated provision regarding the deferred sales charge applicable to the participants of the American Chamber of Commerce Executives Deferred Compensation Plan. (See "Deferred Sales Charge--Reduction or Elimination of Deferred Sales Charge.") In addition to the applicable reasons listed in this Prospectus, a deferred sales charge is not deducted for any Account Value which is withdrawn due to the Participant's separation from service. Form No. XCS.75996-98CC PROSPECTUS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Contracts offered in connection with this Prospectus are group deferred variable annuity contracts ("Contracts") issued by Aetna Life Insurance and Annuity Company (the "Company"). The Contracts are available through participation in (1) employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals not subject to Section 457 of the Internal Revenue Code of 1986, as amended ("Code") or by taxable organizations for their employees and/or independent contractors ("Non-Section 457 Plans"); or (2) employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals that are subject to Code Section 457 for their employees and/or independent contractors ("Section 457 Plans") (collectively referred to as "Plans"). Only group contracts are currently offered for sale; however, "Contracts" shall also refer to employer-owned individual Contracts issued in connection with Plans in the past. The Contracts provide that contributions may be allocated to one or more of the Credited Interest Options or to one or more of the Subaccounts of Variable Annuity Account B, a separate account of the Company. The Subaccounts invest directly in shares of the following Funds: [bullet] Aetna Ascent VP (formerly known as Aetna Ascent Variable Portfolio) [bullet] Aetna Balanced VP, Inc. (formerly known as Aetna Investment Advisers Fund, Inc.) [bullet] Aetna Income Shares d/b/a Aetna Bond VP [bullet] Aetna Crossroads VP (formerly known as Aetna Crossroads Variable Portfolio) [bullet] Aetna Growth VP (formerly known as Aetna Variable Growth Portfolio) [bullet] Aetna Variable Fund d/b/a Aetna Growth and Income VP [bullet] Aetna High Yield VP [bullet] Aetna Index Plus Large Cap VP (formerly known as Aetna Variable Index Plus Portfolio) [bullet] Aetna Index Plus Mid Cap VP [bullet] Aetna Index Plus Small Cap VP [bullet] Aetna International VP [bullet] Aetna Legacy VP (formerly known as Aetna Legacy Variable Portfolio) [bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP [bullet] Aetna Real Estate Securities VP [bullet] Aetna Small Company VP (formerly known as Aetna Variable Small Company Portfolio) [bullet] Aetna Value Opportunity VP (formerly known as Aetna Variable Capital Appreciation Portfolio) [bullet] Calvert Social Balanced Portfolio (formerly known as Calvert Responsibly Invested Portfolio) [bullet] Fidelity VIP Equity-Income Portfolio [bullet] Fidelity VIP Growth Portfolio [bullet] Fidelity VIP Overseas Portfolio [bullet] Fidelity VIP II Contrafund Portfolio [bullet] Janus Aspen Aggressive Growth Portfolio [bullet] Janus Aspen Balanced Portfolio [bullet] Janus Aspen Flexible Income Portfolio [bullet] Janus Aspen Growth Portfolio [bullet] Janus Aspen Worldwide Growth Portfolio [bullet] Lexington Natural Resources Trust* [bullet] Oppenheimer Global Securities Fund [bullet] Oppenheimer Strategic Bond Fund [bullet] Portfolio Partners MFS Emerging Equities Portfolio [bullet] Portfolio Partners MFS Research Growth Portfolio [bullet] Portfolio Partners MFS Value Equity Portfolio [bullet] Portfolio Partners Scudder International Growth Portfolio [bullet] Portfolio Partners T. Rowe Price Growth Equity Portfolio * This Fund is only available for investment by Participants who established an account under the Contract before May 1, 1998. As soon as all such Participants have redirected their allocations to other investment options, the Fund will be closed to all new investment (except reinvested dividends and capital gains earned on amounts already invested in the Fund through the Separate Account). The Credited Interest Options currently available under the Contract are the Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account. Except as specifically mentioned, this Prospectus describes only investments through the Separate Account. A brief description of each of the Credited Interest Options is contained in Appendices to this Prospectus. Additional information concerning the Guaranteed Accumulation Account is contained in a separate prospectus. The availability of the Funds and the Credited Interest Options is subject to applicable regulatory authorization. Not all Funds or Credited Interest Options may be available in all jurisdictions, under all Contracts, or in all Plans. Please check with your employer to determine option availability. (See "Investment Options.") This Prospectus provides investors with the information that they should know about the Separate Account before investing in the Contract through the Separate Account. Additional information about the Separate Account is contained in a Statement of Additional Information ("SAI") which is available at no charge. The SAI has been filed with the Securities and Exchange Commission and is incorporated herein by reference. The Table of Contents for the SAI is printed on page 19 of this Prospectus. An SAI may be obtained by indicating the request on the enrollment form or on the prospectus receipt contained in this Prospectus, or by calling the number listed under the "Inquiries" section of the Prospectus Summary. You may also obtain an SAI for any of the Funds by calling that phone number. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE FUNDS AND GUARANTEED ACCUMULATION ACCOUNT. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL INFORMATION AND OTHER INFORMATION ABOUT THE SEPARATE ACCOUNT REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) CAN BE FOUND IN THE SEC'S WEB SITE AT http://www.sec.gov. THE SECURITIES OFFERED BY THIS PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1, 1998. TABLE OF CONTENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DEFINITIONS ......................................................DEFINITIONS--1 PROSPECTUS SUMMARY ...................................................SUMMARY--1 FEE TABLE ..........................................................FEE TABLE--1 CONDENSED FINANCIAL INFORMATION ............................................. 1 THE COMPANY ................................................................. 1 VARIABLE ANNUITY ACCOUNT B .................................................. 1 INVESTMENT OPTIONS .......................................................... 1 The Funds .................................................................. 1 Credited Interest Options .................................................. 4 PURCHASE .................................................................... 5 Contract Availability ...................................................... 5 Contract Purchase .......................................................... 5 Purchase Payments .......................................................... 5 Right to Cancel ............................................................ 6 Transfer Credits ........................................................... 6 CHARGES AND DEDUCTIONS ...................................................... 6 Daily Deductions from the Separate Account ................................. 6 Maintenance Fee ............................................................ 7 Deferred Sales Charge ...................................................... 7 Fund Expenses .............................................................. 8 Premium and Other Taxes .................................................... 8 CONTRACT VALUATION .......................................................... 9 Account Value .............................................................. 9 Accumulation Units ......................................................... 9 Net Investment Factor ...................................................... 9 TRANSFERS ................................................................... 9 Dollar Cost Averaging Program .............................................. 10 WITHDRAWALS ................................................................. 10 SYSTEMATIC DISTRIBUTION OPTIONS ............................................. 10 DEATH BENEFIT DURING ACCUMULATION PERIOD .................................... 11 ANNUITY PERIOD .............................................................. 12 Annuity Period Elections ................................................... 12 Annuity Options ............................................................ 12 Annuity Payments ........................................................... 13 Charges Deducted During the Annuity Period ................................. 13 Death Benefit Payable During the Annuity Period ............................ 13 TAX STATUS .................................................................. 14 Introduction ............................................................... 14 Taxation of the Company .................................................... 14 Tax Status of the Contract ................................................. 14 Contracts Used With Certain Retirement Plans ............................... 14 Section 457 Plans .......................................................... 15 Plans of Non-Section 457 Tax-Exempt Organizations and Taxable Organizations 15 MISCELLANEOUS ............................................... 16 Voting Rights .............................................. 16 Modification of the Contract ............................... 17 Distribution ............................................... 17 Performance Reporting ...................................... 17 Transfer of Ownership; Assignment .......................... 18 Delay or Suspension of Payments ............................ 18 Legal Matters and Proceedings .............................. 18 YEAR 2000 .................................................. 18 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ......... 19 APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT ................. 20 APPENDIX II--FIXED ACCOUNT .................................. 21 APPENDIX III--FIXED PLUS ACCOUNT ............................ 22 APPENDIX IV--CONDENSED FINANCIAL INFORMATION ................ 24 NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. DEFINITIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- As used in this Prospectus, the following terms have the meanings shown: Account: A record established for each Participant, as directed by the Contract Holder, to identify contract values during the Accumulation Period. Account Year: A period of twelve months measured from the date on which an Account is established (the effective date) or from an anniversary of such effective date. Account Value: The total dollar value of amounts held in an Account as of any Valuation Date during the Accumulation Period. Accumulation Period: The period during which Purchase Payment(s) credited to an Account are invested to fund future Annuity payments. Accumulation Unit: A measure of the value of each Subaccount before Annuity payments begin. Aggregate Purchase Payment(s): The sum of all Purchase Payment(s) made under a Contract. Annuitant: The person on whose life or life expectancy the Annuity payments are based. Annuity: A series of payments for life, for a definite period or a combination of the two. Annuity Period: The period during which Annuity payments are made. Annuity Unit: A measure of the value of each Subaccount selected during the Annuity Period. Code: The Internal Revenue Code of 1986, as amended. Company (we, us): Aetna Life Insurance and Annuity Company. Contracts: The group and individual deferred, variable annuity contracts described in this Prospectus. Contract Beneficiary: The Contract Holder is the Contract Beneficiary. Contract Holder: The entity which owns the Contract and to which the Contract is issued. Credited Interest Options: The fixed interest options under the Contract. The Credited Interest Options currently consist of the Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account, each of which is described in an appendix to this Prospectus. Amounts allocated to the Credited Interest Options are included in the Account Value. Fund(s): An open-end management investment company whose shares are purchased by the Separate Account to fund the benefits provided by the Contracts. Home Office: The Company's principal executive offices located at 151 Farmington Avenue, Hartford, Connecticut 06156. Non-Section 457 Plan(s): Employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals not subject to Code Section 457 and by taxable organizations for their employees and/or independent contractors. Participant (you): A person participating in a Plan maintained by an eligible organization. The terms of the Plan govern Participant benefits. Plan(s): Employer-sponsored deferred compensation plans sponsored by tax-exempt organizations and/or taxable organizations for their employees or independent contractors (or both). Plan Account: The record established for a Contract Holder of the net Purchase Payments accumulated under a Contract where Accounts are not maintained. - -------------------------------------------------------------------------------- DEFINITIONS - 1 Plan Beneficiary: The person entitled to receive benefits under the Plan in the event of the Participant's death. Purchase Payment(s): The gross payment(s) made to the Company under a Contract. Purchase Payment Period: For "Installment Purchase Payment Accounts" the period of time for completion of the agreed upon annual number and amount of Purchase Payments. For example, if it is determined that the Purchase Payment Period will consist of 12 payments per year and only 11 payments are made, the Purchase Payment Period is not completed until the twelfth Purchase Payment is made. Section 457 Plan(s): Employer-sponsored deferred compensation plans sponsored by non-governmental tax-exempt organizations for deferrals that are subject to Code Section 457 for their employees and/or independent contractors. Separate Account: Variable Annuity Account B, a separate account established by the Company for the purpose of funding variable annuity contracts issued by the Company. Subaccount(s): The portion of the assets of the Separate Account that is allocated to a particular Fund. Each Subaccount invests in the shares of only one corresponding Fund. Valuation Date: The date and time at which the Accumulation Unit Value and Annuity Unit Value of a Subaccount is calculated. Currently, this calculation occurs after the close of business of the New York Stock Exchange on any normal business day, Monday through Friday, that the New York Stock Exchange is open. - -------------------------------------------------------------------------------- DEFINITIONS - 2 PROSPECTUS SUMMARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONTRACTS OFFERED The Contracts offered in connection with this Prospectus are group deferred variable annuity contracts issued by Aetna Life Insurance and Annuity Company (the "Company"). The purpose of the Contract is to accumulate values and to provide benefits upon retirement to Participants under: (1) Employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals not subject to Code Section 457 and by taxable organizations for their employees and/or independent contractors ("Non-Section 457 Plans"), and (2) Employer-sponsored deferred compensation plans sponsored by non-governmental tax-exempt organizations for deferrals that are subject to Code Section 457 for their employees and/or independent contractors ("Section 457 Plans"). CONTRACT PURCHASE The Contract may be purchased by eligible organizations on behalf of a group made up of their employees and/or independent contractors. An Account is established for eligible employees by completing the enrollment form (and any other required forms) and submitting them to the Company. Purchase Payments can be applied to the Contract either through a lump-sum transfer from a pre-existing plan or through periodic salary reductions or employer contributions. (See "Purchase.") FREE LOOK PERIOD Contract Holders have the right to cancel their Contract within 10 days after receiving it (or as otherwise allowed by state law) by returning it to us along with a written notice of cancellation. Unless state law requires otherwise, the amount received upon cancellation under this provision will reflect the investment performance of the Purchase Payments deposited in the Separate Account while invested. In certain cases, this may be less than the amount of the Purchase Payments. (See "Purchase--Right to Cancel.") INVESTMENT OPTIONS The Company has established Variable Annuity Account B, a registered unit investment trust, for the purpose of funding the variable portion of the Contracts. The Separate Account is divided into Subaccounts which invest directly in shares of the Funds described herein. The Contract allows investment in any or all of the Subaccounts, as well as in the Credited Interest Options described below. The total number of investment options that may be selected at any one time is limited. For a complete list of the Funds available under the Contracts, a description of the investment objectives of each of the Funds and their investment advisers, and a description of the limitations on the number of investment options, see "Investment Options--The Funds" in this Prospectus, as well as the prospectuses for each of the Funds. The Contract also provides for investment in Credited Interest Options, which earn fixed rates of interest. The fixed options available under the Contract are the Guaranteed Accumulation Account ("GAA"), the Fixed Account, and the Fixed Plus Account. (See the appendices to this Prospectus.) CHARGES AND DEDUCTIONS Certain charges are associated with these Contracts. These charges include daily deductions from the Separate Account (the mortality and expense risk charge and an administrative charge), any annual maintenance fee, and premium and other taxes. The Funds also incur certain fees and expenses which are deducted directly from the Funds. A deferred sales charge may apply upon a full or partial withdrawal of the Account Value. (See the Fee Table and "Charges and Deductions.") - -------------------------------------------------------------------------------- SUMMARY - 1 TRANSFERS Prior to the Annuity Date, and subject to certain limitations, Account Values may be transferred among the Subaccounts and the Credited Interest Options without charge. Transfers can be requested in writing or by telephone in accordance with the Company's transfer procedures. (See Appendices I, II and III for a full description of the restrictions applicable to transfers from the Credited Interest Options.) (See "Transfers.") WITHDRAWALS The Contract Holder may withdraw all or a part of the Account Value prior to the Annuity Date by properly completing a disbursement form and sending it to the Company. Limitations apply to withdrawals from the Fixed Plus Account. Certain charges may be assessed upon withdrawal. The withdrawals may also be subject to income tax. (See "Withdrawals.") The Contract also offers certain Systematic Distribution Options during the Accumulation Period to persons meeting certain criteria. Systematic Distribution Options are not available in all states and may not be suitable in every situation. (See "Systematic Distribution Options.") DEATH BENEFIT The Contract provides that a death benefit is payable to the Contract Beneficiary upon the death of the Participant before the Annuity Date. The Contract Holder may direct that we make such payment to the Plan Beneficiary. The amount of the death benefit will be equal to the Account Value. Until the election of a method of payment, the Account Value will remain invested under the Contract. The Contract Holder on behalf of a Plan Beneficiary may elect to receive the proceeds in a lump-sum or under any of the payment options available under the Contract. However, the Code requires that distributions begin within a certain time period. (See "Death Benefit During Accumulation Period.") After Annuity Payments have commenced, a death benefit may be payable to the Contract Beneficiary depending upon the terms of the Contract and the Annuity Option selected. (See "Annuity Period--Death Benefit Payable During the Annuity Period.") THE ANNUITY PERIOD On the Annuity Date, the Contract Holder, on your behalf, may elect to begin receiving Annuity Payments on either a fixed, variable or combination of fixed and variable basis. If a variable payout is selected, the payments will vary with the investment performance of the Subaccount(s) selected. The Company reserves the right to limit the number of Subaccounts that may be available during the Annuity Period. (See "Annuity Period.") TAXES Contributions and earnings are not generally taxed until paid or made available under the employer's Plan. Withholding for income tax may be imposed on certain withdrawals. (See "Tax Status.") INQUIRIES Questions, inquiries or requests for additional information can be directed to your agent or local representative, or you may contact the Company as follows: [bullet] Write to: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156-1277 Attention: Customer Service [bullet] Call Customer Service: 1-800-525-4225 (for automated transfers or changes in the allocation of Account Values, call: 1-800-262-3862) - -------------------------------------------------------------------------------- SUMMARY - 2 FEE TABLE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This Fee Table describes the various charges and expenses associated with the Contract during the Accumulation Period. For amounts deducted during the Annuity Period, see "Annuity Period--Charges Deducted During the Annuity Period." No sales charge is paid when the Contract is purchased. Some expenses may vary as explained under "Charges and Deductions." The charges and expenses shown below do not include premium taxes that may be applicable. For more information regarding expenses paid out of assets of a particular Fund, see the Fund's prospectus. CONTRACT HOLDER TRANSACTION EXPENSES Deferred Sales Charge. (as a percentage of the amount withdrawn)*: INSTALLMENT PURCHASE PAYMENT ACCOUNTS Purchase Payment Periods Completed Deduction - --------------------------------- ---------- Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or more but less than 10 2% More than 10 0% SINGLE PURCHASE PAYMENTS ACCOUNTS Account Years Completed Deduction - --------------------------------- ---------- Less than 5 5% 5 or more but less than 6 4% 6 or more but less than 7 3% 7 or more but less than 8 2% 8 or more but less than 9 1% 9 or more 0% Annual Contract Maintenance Fee--Installment Purchase Payment Accounts ... $ 20.00** --Single Purchase Payment Accounts ........ $ 0.00
* The total amount deducted for the deferred sales charge will not exceed 8.5% of the total Purchase Payments applied to the Account. ** The maintenance fee will generally be deducted annually from each Installment Purchase Payment Account during the Accumulation Period. The amount of the maintenance fee may be reduced or eliminated. See "Charges and Deductions Maintenance Fee." The amount shown is the maximum maintenance fee that can be deducted under the Contract. SEPARATE ACCOUNT ANNUAL EXPENSES (Daily deductions, equal to the percentage shown on an annual basis, made from amounts allocated to the variable options under each Contract.) For all Contracts except those for which an administrative expense charge is imposed (see "Charges and Deductions"), Separate Account annual expenses are: Mortality and Expense Risk Charge ......... 1.25% Administrative Expense Charge ............. 0.00% ---- Total Separate Account Charges ........... 1.25% ==== For Contracts for which an administrative expense charge is imposed (see "Charges and Deductions"), Separate Account annual expenses are: Mortality and Expense Risk Charge ......... 1.25% Administrative Expense Charge ............. 0.25% ---- Total Separate Account Charges ........... 1.50% ==== - -------------------------------------------------------------------------------- FEE TABLE - 1 FUND ANNUAL EXPENSES The following table illustrates the advisory fees and other expenses applicable to the Funds. Except as noted, the following figures are a percentage of average net assets and, except where otherwise indicated, are based on figures for the year ended December 31, 1997. A Fund's "Other Expenses" include operating costs of the Fund. The expenses shown below are reflected in the Fund's net asset value and are not deducted from the Individual Account Current Value under the Contract.
Investment Advisory Fees(1) Other Expenses (after expense (after expense Total Fund reimbursement) reimbursement) Annual Expenses ------------------ ---------------- ---------------- Aetna Ascent VP(2)(3) 0.57% 0.23% 0.80% Aetna Balanced VP, Inc.(3) 0.50% 0.10% 0.60% Aetna Bond VP(3) 0.40% 0.10% 0.50% Aetna Crossroads VP(2)(3) 0.55% 0.25% 0.80% Aetna Growth VP(2)(3) 0.16% 0.64% 0.80% Aetna Growth and Income VP(3) 0.50% 0.09% 0.59% Aetna High Yield VP(2)(3) 0.47% 0.33% 0.80% Aetna Index Plus Large Cap VP(2)(3) 0.32% 0.23% 0.55% Aetna Index Plus Mid Cap VP(2)(3) 0.27% 0.33% 0.60% Aetna Index Plus Small Cap VP(2)(3) 0.27% 0.33% 0.60% Aetna International VP(2)(3) 0.77% 0.38% 1.15% Aetna Legacy VP(2)(3) 0.49% 0.31% 0.80% Aetna Money Market VP(3) 0.25% 0.10% 0.35% Aetna Real Estate Securities VP(2)(3) 0.62% 0.33% 0.95% Aetna Small Company VP(2)(3) 0.35% 0.60% 0.95% Aetna Value Opportunity VP(2)(3) 0.20% 0.60% 0.80% Calvert Social Balanced Portfolio(4) 0.69% 0.12% 0.81% Fidelity VIP Equity-Income Portfolio(5) 0.50% 0.08% 0.58% Fidelity VIP Growth Portfolio(5) 0.60% 0.09% 0.69% Fidelity VIP Overseas Portfolio(5) 0.75% 0.17% 0.92% Fidelity VIP II Contrafund Portfolio(5) 0.60% 0.11% 0.71% Janus Aspen Aggressive Growth Portfolio(6) 0.73% 0.03% 0.76% Janus Aspen Balanced Portfolio(6) 0.76% 0.07% 0.83% Janus Aspen Flexible Income Portfolio 0.65% 0.10% 0.75% Janus Aspen Growth Portfolio(6) 0.65% 0.05% 0.70% Janus Aspen Worldwide Growth Portfolio(6) 0.66% 0.08% 0.74% Lexington Natural Resources Trust 1.00% 0.25% 1.25% Oppenheimer Global Securities Fund 0.70% 0.06% 0.76% Oppenheimer Strategic Bond Fund 0.75% 0.08% 0.83% Portfolio Partners MFS Emerging Equities Portfolio(7)(8) 0.68% 0.13% 0.81% Portfolio Partners MFS Research Growth Portfolio(7)(8) 0.70% 0.15% 0.85% Portfolio Partners MFS Value Equity Portfolio(7) 0.65% 0.25% 0.90% Portfolio Partners Scudder International Growth Portfolio(7) 0.80% 0.20% 1.00% Portfolio Partners T. Rowe Price Growth Equity Portfolio(7) 0.60% 0.15% 0.75%
- ------------------ (1) Certain of the Fund advisers reimburse the Company for administrative costs incurred in connection with administering the Funds as variable funding options under the Contract. These reimbursements are paid out of the investment advisory fees and are not charged to investors. (2) Effective May 1, 1998, the Portfolios' adviser has agreed to waive a portion of its fee or to reimburse certain expenses so that aggregate expenses do not exceed the total expenses shown above. These fee waiver/expense reimbursement arrangements will increase total return and may be modified or terminated at any time. Without these fee waiver/expense reimbursement arrangements Management Fees and Total Expenses for the Portfolio would be higher. Management Fees and Total Expenses would be as follows: 0.60% and 0.83% for Ascent VP; 0.60% and 0.85% for Crossroads VP; 0.60% and 1.24% for Growth VP; 0.65% and 0.98% for High Yield VP; 0.35% and 0.58% for Index Plus Large Cap VP; 0.40% and 0.73% for Index Plus Mid Cap VP; 0.40% and 0.73% for Index Plus Small Cap VP; 0.85% and 1.23% for International VP; 0.60% and 0.91% for Legacy VP; 0.75% and 1.08% for Real Estate Securities VP; 0.75% and 1.35% for Small Company VP; and 0.60% and 1.20% for Value Opportunity VP, respectively. - -------------------------------------------------------------------------------- FEE TABLE - 2 (3) Prior to May 1, 1998, the investment adviser provided administrative services to the Fund and assumed the Fund's ordinary recurring direct costs under an Administrative Services Agreement. Effective May 1, 1998, the investment adviser will continue to provide administrative services to the Fund but will no longer assume all of the Fund's ordinary recurring direct costs under the Administrative Services Agreement. The Administrative Fee is 0.075% on the first $5 billion in assets and 0.050% on all assets over $5 billion. The "Other Expenses" shown are not based on actual figures for the year ended December 31, 1997, but reflect the fee payable under the new Administrative Services Agreement and estimates of the Fund's ordinary recurring direct costs. High Yield VP, Index Plus Mid Cap VP, Index Plus Small Cap VP, International VP and Real Estate Securities VP commenced operations in December 1997, therefore, estimates are based on expenses incurred for similar funds. Actual expenses incurred may be more or less than the amounts shown above. (4) The figures above are based on expenses for the fiscal year 1997, and have been restated to reflect an increase in transfer agency expenses of 0.01% for the Portfolio expected to be incurred in 1998. "Management Fees" includes a performance adjustment which, depending on performance, could cause the fee to be as high as 0.85% or as low as 0.55%. "Other Expenses" reflect an indirect fee of 0.03% (relating to an expense offset arrangement with the Portfolio's custodian). Net fund operating expenses after reductions for fees paid indirectly (again, restated) would be 0.78%. (5) A portion of the brokerage commissions that certain Funds pay was used to reduce Fund expenses. In addition, certain Funds have entered into arrangements with their custodian whereby credits realized, as a result of uninvested cash balances were used to reduce custodian expenses. Including these reductions, the total operating expenses would have been 0.57% for Equity-Income Portfolio; 0.67% for Growth Portfolio; 0.90% for Overseas Portfolio: and 0.68% for Contrafund Portfolio. (6) Management fees for Aggressive Growth, Balanced, Growth and Worldwide Growth Portfolios reflect a reduced fee schedule effective July 1, 1997. The management fees shown above are based on the new rate applied to net assets as of December 31, 1997. Other expenses are based on gross expenses of the Shares before expense offset arrangements for the fiscal year ended December 31, 1997. The information for each Portfolio is net of fee waivers or reductions from Janus Capital. Fee reductions for the Aggressive Growth, Balanced, Growth and Worldwide Growth Portfolios reduce the management fee to the level of the corresponding Janus retail fund. Other waivers, if applicable, are first applied against the management fee and then against other expenses. Without such waivers or reductions, the Management Fee, Other Expenses and Total Operating Expenses for the Shares would have been 0.74%, 0.04%, and 0.78% for Aggressive Growth Portfolio; 0.77%, 0.06%, and 0.83% for Balanced Portfolio; 0.74%, 0.04%, and 0.78% for Growth Portfolio; and 0.72%, 0.09%, and 0.81% for Worldwide Growth Portfolio, respectively. Janus Capital may modify or terminate the waivers or reductions at any time upon at least 90 days' notice to the Trustees. (7) Each Portfolio's aggregate expenses are contractually limited to the advisory and administrative fees disclosed above. The investment adviser will not seek an increase in its advisory or administrative fee at any time prior to May 1, 1999. (8) The advisory fee is 0.70% of the first $500 million in assets and 0.65% on the excess. - -------------------------------------------------------------------------------- FEE TABLE - 3 HYPOTHETICAL ILLUSTRATION (EXAMPLE) THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW. WITHOUT ADMINISTRATIVE EXPENSE CHARGE: The following Examples illustrate the expenses that would have been paid assuming a $1,000 investment in the Contract and a 5% return on assets. This example assumes that no administrative expense charge is imposed. For the purposes of these Examples, the maximum maintenance fee of $20.00 that can be deducted under the Contract has been converted to a percentage of assets equal to 0.007%.
EXAMPLE A --------------------------------------- If you withdraw your entire Account Value at the end of the periods shown, you would pay the following expenses, including any applicable deferred sales charge: 1 year 3 years 5 years 10 years -------- --------- --------- ---------- Aetna Ascent VP $72 $119 $168 $239 Aetna Balanced VP, Inc. $70 $113 $159 $218 Aetna Bond VP $69 $110 $154 $207 Aetna Crossroads VP $72 $119 $168 $239 Aetna Growth VP $72 $119 $168 $239 Aetna Growth and Income VP $70 $113 $158 $217 Aetna High Yield VP $72 $119 $168 $239 Aetna Index Plus Large Cap VP $70 $112 $156 $212 Aetna Index Plus Mid Cap VP $70 $113 $159 $218 Aetna Index Plus Small Cap VP $70 $113 $159 $218 Aetna International VP $76 $129 $185 $274 Aetna Legacy VP $72 $119 $168 $239 Aetna Money Market VP $68 $106 $147 $191 Aetna Real Estate Securities VP $74 $123 $176 $254 Aetna Small Company VP $74 $123 $176 $254 Aetna Value Opportunity VP $72 $119 $168 $239 Calvert Social Balanced Portfolio $72 $119 $169 $240 Fidelity VIP Equity-Income Portfolio $70 $113 $158 $216 Fidelity VIP Growth Portfolio $71 $116 $163 $227 Fidelity VIP Overseas Portfolio $73 $122 $174 $251 Fidelity VIP II Contrafund Portfolio $71 $116 $164 $229 Janus Aspen Aggressive Growth Portfolio $72 $118 $167 $234 Janus Aspen Balanced Portfolio $73 $120 $170 $242 Janus Aspen Flexible Income Portfolio $72 $118 $166 $233 Janus Aspen Growth Portfolio $71 $116 $164 $228 Janus Aspen Worldwide Growth Portfolio $72 $117 $166 $232 Lexington Natural Resources Trust $77 $132 $190 $284 Oppenheimer Global Securities Fund $72 $118 $167 $234 Oppenheimer Strategic Bond Fund $73 $120 $170 $242 Portfolio Partners MFS Emerging Equities Portfolio $72 $119 $169 $240 Portfolio Partners MFS Research Growth Portfolio $73 $120 $171 $244 Portfolio Partners MFS Value Equity Portfolio $73 $122 $173 $249 Portfolio Partners Scudder International Growth Portfolio $74 $125 $178 $259 Portfolio Partners T. Rowe Price Growth Equity Portfolio $72 $118 $166 $233 EXAMPLE B -------------------------------------- If you do not withdraw your Account Value, or if you annuitize at the end of the periods shown, you would pay the following expenses (no deferred sales charge is reflected):* 1 year 3 years 5 years 10 years -------- --------- --------- --------- Aetna Ascent VP $21 $64 $111 $239 Aetna Balanced VP, Inc. $19 $58 $100 $218 Aetna Bond VP $18 $55 $ 95 $207 Aetna Crossroads VP $21 $64 $111 $239 Aetna Growth VP $21 $64 $111 $239 Aetna Growth and Income VP $19 $58 $100 $217 Aetna High Yield VP $21 $64 $111 $239 Aetna Index Plus Large Cap VP $18 $57 $ 98 $212 Aetna Index Plus Mid Cap VP $19 $58 $100 $218 Aetna Index Plus Small Cap VP $19 $58 $100 $218 Aetna International VP $24 $75 $128 $274 Aetna Legacy VP $21 $64 $111 $239 Aetna Money Market VP $16 $51 $ 87 $191 Aetna Real Estate Securities VP $22 $69 $118 $254 Aetna Small Company VP $22 $69 $118 $254 Aetna Value Opportunity VP $21 $64 $111 $239 Calvert Social Balanced Portfolio $21 $65 $111 $240 Fidelity VIP Equity-Income Portfolio $19 $58 $ 99 $216 Fidelity VIP Growth Portfolio $20 $61 $105 $227 Fidelity VIP Overseas Portfolio $22 $68 $117 $251 Fidelity VIP II Contrafund Portfolio $20 $62 $106 $229 Janus Aspen Aggressive Growth Portfolio $20 $63 $109 $234 Janus Aspen Balanced Portfolio $21 $65 $112 $242 Janus Aspen Flexible Income Portfolio $20 $63 $108 $233 Janus Aspen Growth Portfolio $20 $61 $106 $228 Janus Aspen Worldwide Growth Portfolio $20 $63 $108 $232 Lexington Natural Resources Trust $25 $78 $133 $284 Oppenheimer Global Securities Fund $20 $63 $109 $234 Oppenheimer Strategic Bond Fund $21 $65 $112 $242 Portfolio Partners MFS Emerging Equities Portfolio $21 $65 $111 $240 Portfolio Partners MFS Research Growth Portfolio $21 $66 $113 $244 Portfolio Partners MFS Value Equity Portfolio $22 $68 $116 $249 Portfolio Partners Scudder International Growth Portfolio $23 $71 $121 $259 Portfolio Partners T. Rowe Price Growth Equity Portfolio $20 $63 $108 $233
- ------------------ * This Example would not apply if a nonlifetime variable Annuity option is selected, and a lump-sum settlement is requested within three years after Annuity payments start, since the lump-sum payment will be treated as a withdrawal during the Accumulation Period and will be subject to any deferred sales charge that would then apply. (Refer to Example A.) - -------------------------------------------------------------------------------- FEE TABLE - 4 HYPOTHETICAL ILLUSTRATION (EXAMPLE) THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW. WITH ADMINISTRATIVE EXPENSE CHARGE: The following Examples illustrate the expenses that would have been paid assuming a $1,000 investment in the Contract and a 5% return on assets. This example assumes that an administrative expense charge of 0.25% annually is imposed. For the purposes of these Examples, the maximum maintenance fee of $20.00 that can be deducted under the Contract has been converted to a percentage of assets equal to 0.007%.
EXAMPLE A --------------------------------------- If you withdraw your entire Account Value at the end of the periods shown, you would pay the following expenses, including any applicable deferred sales charge: 1 year 3 years 5 years 10 years -------- --------- --------- ---------- Aetna Ascent VP $75 $126 $180 $264 Aetna Balanced VP, Inc. $73 $120 $171 $244 Aetna Bond VP $72 $118 $166 $233 Aetna Crossroads VP $75 $126 $180 $264 Aetna Growth VP $75 $126 $180 $264 Aetna Growth and Income VP $73 $120 $170 $243 Aetna High Yield VP $75 $126 $180 $264 Aetna Index Plus Large Cap VP $72 $119 $168 $239 Aetna Index Plus Mid Cap VP $73 $120 $171 $244 Aetna Index Plus Small Cap VP $73 $120 $171 $244 Aetna International VP $78 $136 $197 $299 Aetna Legacy VP $75 $126 $180 $264 Aetna Money Market VP $70 $113 $159 $218 Aetna Real Estate Securities VP $76 $130 $188 $279 Aetna Small Company VP $76 $130 $188 $279 Aetna Value Opportunity VP $75 $126 $180 $264 Calvert Social Balanced Portfolio $75 $126 $181 $265 Fidelity VIP Equity-Income Portfolio $73 $120 $170 $242 Fidelity VIP Growth Portfolio $74 $123 $175 $253 Fidelity VIP Overseas Portfolio $76 $130 $186 $276 Fidelity VIP II Contrafund Portfolio $74 $124 $176 $255 Janus Aspen Aggressive Growth Portfolio $74 $125 $179 $260 Janus Aspen Balanced Portfolio $75 $127 $182 $267 Janus Aspen Flexible Income Portfolio $74 $125 $178 $259 Janus Aspen Growth Portfolio $74 $123 $176 $254 Janus Aspen Worldwide Growth Portfolio $74 $124 $178 $258 Lexington Natural Resources Trust $79 $139 $202 $309 Oppenheimer Global Securities Fund $74 $125 $179 $260 Oppenheimer Strategic Bond Fund $75 $127 $182 $267 Portfolio Partners MFS Emerging Equities Portfolio $75 $126 $181 $265 Portfolio Partners MFS Research Growth Portfolio $75 $128 $183 $269 Portfolio Partners MFS Value Equity Portfolio $76 $129 $185 $274 Portfolio Partners Scudder International Growth Portfolio $77 $132 $190 $284 Portfolio Partners T. Rowe Price Growth Equity Portfolio $74 $125 $178 $259 EXAMPLE B -------------------------------------- If you do not withdraw your Account Value, or if you annuitize at the end of the periods shown, you would pay the following expenses (no deferred sales charge is reflected):* 1 year 3 years 5 years 10 years -------- --------- --------- --------- Aetna Ascent VP $23 $72 $123 $264 Aetna Balanced VP, Inc. $21 $66 $113 $244 Aetna Bond VP $20 $63 $108 $233 Aetna Crossroads VP $23 $72 $123 $264 Aetna Growth VP $23 $72 $123 $264 Aetna Growth and Income VP $21 $66 $113 $243 Aetna High Yield VP $23 $72 $123 $264 Aetna Index Plus Large Cap VP $21 $64 $111 $239 Aetna Index Plus Mid Cap VP $21 $66 $113 $244 Aetna Index Plus Small Cap VP $21 $66 $113 $244 Aetna International VP $27 $83 $141 $299 Aetna Legacy VP $23 $72 $123 $264 Aetna Money Market VP $19 $58 $100 $218 Aetna Real Estate Securities VP $25 $77 $131 $279 Aetna Small Company VP $25 $77 $131 $279 Aetna Value Opportunity VP $23 $72 $123 $264 Calvert Social Balanced Portfolio $23 $72 $124 $265 Fidelity VIP Equity-Income Portfolio $21 $65 $112 $242 Fidelity VIP Growth Portfolio $22 $69 $118 $253 Fidelity VIP Overseas Portfolio $25 $76 $129 $276 Fidelity VIP II Contrafund Portfolio $22 $69 $119 $255 Janus Aspen Aggressive Growth Portfolio $23 $71 $121 $260 Janus Aspen Balanced Portfolio $24 $73 $125 $267 Janus Aspen Flexible Income Portfolio $23 $71 $121 $259 Janus Aspen Growth Portfolio $22 $69 $118 $254 Janus Aspen Worldwide Growth Portfolio $23 $70 $120 $258 Lexington Natural Resources Trust $28 $86 $146 $309 Oppenheimer Global Securities Fund $23 $71 $121 $260 Oppenheimer Strategic Bond Fund $24 $73 $125 $267 Portfolio Partners MFS Emerging Equities Portfolio $23 $72 $124 $265 Portfolio Partners MFS Research Growth Portfolio $24 $74 $126 $269 Portfolio Partners MFS Value Equity Portfolio $24 $75 $128 $274 Portfolio Partners Scudder International Growth Portfolio $25 $78 $133 $284 Portfolio Partners T. Rowe Price Growth Equity Portfolio $23 $71 $121 $259
- ------------------ * This Example would not apply if a nonlifetime variable Annuity option is selected, and a lump-sum settlement is requested within three years after Annuity payments start, since the lump-sum payment will be treated as a withdrawal during the Accumulation Period and will be subject to any deferred sales charge that would then apply. (Refer to Example A.) - -------------------------------------------------------------------------------- FEE TABLE - 5 CONDENSED FINANCIAL INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Condensed Financial Information for the accumulation units under the Contract is shown in Appendix IV. THE COMPANY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Aetna Life Insurance and Annuity Company (the "Company") is the issuer of the Contract, and as such, it is responsible for providing the insurance and annuity benefits under the Contract. The Company is a stock life insurance company organized under the insurance laws of the State of Connecticut in 1976. Through a merger, it succeeded to the business of Aetna Variable Annuity Life Insurance Company (formerly Participating Annuity Life Insurance Company), an Arkansas life insurance company organized in 1954. The Company is engaged in the business of issuing life insurance policies and variable annuity contracts in all states of the United States. The Company's principal executive offices are located at 151 Farmington Avenue, Hartford, Connecticut 06156. The Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc., which is in turn a wholly owned subsidiary of Aetna Retirement Services, Inc., and an indirect wholly owned subsidiary of Aetna Inc. VARIABLE ANNUITY ACCOUNT B - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Company established Variable Annuity Account B (the "Separate Account") in 1976 as a segregated asset account for the purpose of funding its variable annuity contracts. The Separate Account is registered as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act"), and meets the definition of "separate account" under federal securities laws. The Separate Account is divided into "Subaccounts" which do not invest directly in stocks, bonds or other investments. Instead, each Subaccount buys and sells shares of a corresponding Fund. Although the Company holds title to the assets of the Separate Account, such assets are not chargeable with liabilities arising out of any other business conducted by the Company. Income, gains or losses of the Separate Account are credited to or charged against the assets of the Separate Account without regard to other income, gains, or losses of the Company. All obligations arising under the Contracts are obligations of the Company. INVESTMENT OPTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE FUNDS The Contract Holder (or you if allowed by the Contract Holder) may allocate Purchase Payments to one or more of the Subaccounts as designated on the enrollment form. In turn, the Subaccounts invest in the corresponding Funds at net asset value. The total number of investment options that you may select at any one time is limited to 18. Each Subaccount selected, the Fixed Account, Fixed Plus Account and each classification of the Guaranteed Accumulation Account counts as one option. The Contract Holder may decide to offer only a select number of Funds under its Plan or may decide to change the Funds it offers. In addition, the Company may add, withdraw or substitute Funds, subject to the conditions in the Contract and to compliance with regulatory requirements. The availability of the Funds may also be subject to applicable regulatory authorization. Not all Funds may be available in all jurisdictions, under all Contracts, or in all Plans. The investment results of the Funds described below are likely to differ significantly and there is no assurance that any of the Funds will achieve their respective investment objectives. Except where otherwise noted, all of the Funds are diversified, as defined in the 1940 Act. [bullet] Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers Fund, Inc.) seeks to maximize investment return, consistent with reasonable safety of principal - -------------------------------------------------------------------------------- 1 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.(1) [bullet] Aetna Income Shares d/b/a Aetna Bond VP seeks to maximize total return, consistent with reasonable risk, through investments in a diversified portfolio consisting primarily of debt securities.(1) [bullet] Aetna Variable Fund d/b/a Aetna Growth and Income VP seeks to maximize total return through investments in a diversified portfolio of common stocks and securities convertible into common stock.(1) [bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP seeks to provide high current return, consistent with preservation of capital and liquidity, through investment in high-quality money market instruments. An investment in the Fund is neither insured nor guaranteed by the U.S. Government.(1) [bullet] Aetna Generation Portfolios, Inc.-Aetna Ascent VP (formerly Aetna Ascent Variable Portfolio) seeks to provide capital appreciation. The Portfolio is designed for investors who have an investment horizon exceeding 15 years and who have a high level of risk tolerance.(1) [bullet] Aetna Generation Portfolios, Inc.-Aetna Crossroads VP (formerly Aetna Crossroads Variable Portfolio) seeks to provide total return (i.e., income and capital appreciation, both realized and unrealized). The Portfolio is designed for investors who have an investment horizon exceeding 10 years and who have a moderate level of risk tolerance.(1) [bullet] Aetna Generation Portfolios, Inc.-Aetna Legacy VP (formerly Aetna Legacy Variable Portfolio) seeks to provide total return consistent with preservation of capital. The Portfolio is designed for investors who have an investment horizon exceeding five years and who have a low level of risk tolerance.(1) [bullet] Aetna Variable Portfolios, Inc.-Aetna Growth VP (formerly Aetna Variable Growth Portfolio) seeks growth of capital through investment in a diversified portfolio of common stocks and securities convertible into common stocks believed to offer growth potential.(1) [bullet] Aetna Variable Portfolios, Inc.-Aetna High Yield VP seeks high current income and growth of capital primarily through investment in a diversified portfolio of fixed income securities rated lower than BBB- by Standard and Poor's Corporation or lower than Baa3 by Moody's Investors Service, Inc.(1) [bullet] Aetna Variable Portfolios, Inc.-Aetna Index Plus Large Cap VP (formerly Aetna Variable Index Plus Portfolio) seeks to outperform the total return performance of publicly traded common stocks represented in the S&P 500 Composite Stock Price Index.(1) [bullet] Aetna Variable Portfolios, Inc.-Aetna Index Plus Mid Cap VP seeks to outperform the total return performance of publicly traded common stocks represented in the S&P 400.(1) [bullet] Aetna Variable Portfolios, Inc.-Aetna Index Plus Small Cap VP seeks to outperform the total return performance of publicly traded common stocks represented by the S&P SmallCap 600 Index, a stock market index composed of 600 common stocks selected by Standard and Poor's Corporation.(1) [bullet] Aetna Variable Portfolios, Inc.-Aetna International VP seeks long-term capital growth primarily through investment in a diversified portfolio of common stocks principally traded in countries outside of the United States. Aetna International VP will not target any given level of current income.(1) [bullet] Aetna Variable Portfolios, Inc.-Aetna Real Estate Securities VP seeks maximum total return primarily through investment in a diversified portfolio of equity securities issued by real estate companies, the majority of which are real estate investment trusts (REITs).(1) [bullet] Aetna Variable Portfolios, Inc.-Aetna Small Company VP (formerly Aetna Variable Small Company Portfolio) 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.(1) [bullet] Aetna Variable Portfolios, Inc.-Aetna Value Opportunity VP (formerly Aetna Variable Capital Appreciation Portfolio) seeks growth of capital primarily through investment in a diversified portfolio of common stocks and securities convertible into common stock.(1) - -------------------------------------------------------------------------------- 2 [bullet] Calvert Social Balanced Portfolio (formerly Calvert Responsibly Invested Balanced Portfolio) is a nondiversified portfolio that seeks to achieve a total return above the rate of inflation through an actively managed, nondiversified portfolio of common and preferred stocks, bonds and money market instruments which offer income and capital growth opportunity and which satisfy the social criteria established for the Portfolio.(2) [bullet] Fidelity Investments Variable Insurance Products Fund--Equity-Income Portfolio seeks reasonable income by investing primarily in income-producing equity securities. In selecting investments, the Fund also considers the potential for capital appreciation.(3) [bullet] Fidelity Investments Variable Insurance Products Fund--Growth Portfolio seeks capital appreciation by investing mainly in common stocks, although its investments are not restricted to any one type of security.(3) [bullet] Fidelity Investments Variable Insurance Products Fund--Overseas Portfolio seeks long-term growth by investing mainly in foreign securities (at least 65% of the Fund's total assets in securities of foreign issuers). Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuation.(3) [bullet] Fidelity Investments Variable Insurance Products Fund II--Contrafund Portfolio seeks maximum total return over the long-term by investing mainly in securities of companies whose value the investment adviser believes is not fully recognized by the public.(3) [bullet] Janus Aspen Series--Aggressive Growth Portfolio is a nondiversified portfolio that seeks long-term growth of capital. The Portfolio pursues its investment objective by normally investing at least 50% of its equity assets in securities issued by medium-sized companies. Medium-sized companies are those whose market capitalizations fall within the range of companies in the S&P MidCap 400 Index, which as of December 31, 1997 included companies with capitalizations between approximately $213 million and $13.7 billion, but which is expected to change on a regular basis.(4) [bullet] Janus Aspen Series--Balanced Portfolio seeks long-term capital growth, consistent with preservation of capital and balanced by current income. The Portfolio pursues its investment objective by, under normal circumstances, investing 40%-60% of its assets in securities selected primarily for their growth potential and 40%-60% of its assets in securities selected primarily for their income potential.(4) [bullet] Janus Aspen Series--Flexible Income Portfolio seeks to obtain maximum total return, consistent with preservation of capital. The Portfolio pursues its investment objective primarily through investments in income-producing securities. Total return is expected to result from a combination of current income and capital appreciation. The Portfolio invests in all types of income-producing securities and may have substantial holdings of debt securities rated below investment grade (e.g., junk bonds).(4) [bullet] Janus Aspen Series--Growth Portfolio seeks long-term growth of capital in a manner consistent with the preservation of capital. The Portfolio pursues its investment objective by investing primarily in common stocks of issuers of any size. This Portfolio generally invests in larger, more established issuers.(4) [bullet] Janus Aspen Series--Worldwide Growth Portfolio seeks long-term growth of capital in a manner consistent with preservation of capital. The Portfolio pursues its investment objective primarily through investments in common stocks of foreign and domestic issuers.(4) [bullet] Lexington Natural Resources Trust is a nondiversified portfolio that seeks long-term growth of capital through investment primarily in common stocks of companies which own or develop natural resources and other basic commodities or supply goods and services to such companies. This Fund is only available for investment by Participants who established an Individual Account under the Contract before May 1, 1998. As soon as all such Participants have redirected their allocations to other investment options, the Fund will be closed to all new investment (except reinvested dividends and capital gains earned on amounts already invested in the Fund through the Separate Account. [bullet] Oppenheimer Global Securities Fund seeks long-term capital appreciation by investing a substantial portion of its assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special situations which are considered to have appreciation possibilities but which may be considered to be speculative.(6) [bullet] Oppenheimer Strategic Bond Fund seeks a high level of current income principally derived from interest on debt securities and seeks to enhance such income by writing covered call options on debt securities. The Fund intends to invest principally in (i) foreign government and corporate debt securities, (ii) securities of the U.S. Government and its agencies and instrumentalities ("U.S. Government securities"), and (iii) lower-rated high yield domestic debt - -------------------------------------------------------------------------------- 3 securities, commonly known as "junk bonds," which are subject to a greater risk of loss of principal and nonpayment of interest than higher-rated securities. These securities may be considered to be speculative. Current income is not an objective.(6) [bullet] Portfolio Partners, Inc.--MFS Emerging Equities Portfolio seeks to provide long-term growth of capital. Dividend and interest income from portfolio securities, if any, is incidental to the Portfolio's investment objective.(7a) [bullet] Portfolio Partners, Inc.--MFS Research Growth Portfolio seeks long-term growth of capital and future income.(7a) [bullet] Portfolio Partners, Inc.--MFS Value Equity Portfolio seeks capital appreciation. Dividend income, if any, is a consideration incidental to the Portfolio's objective of capital appreciation.(7a) [bullet] Portfolio Partners, Inc.--Scudder International Growth Portfolio seeks long-term growth of capital primarily through a diversified portfolio of marketable foreign equity securities.(7b) [bullet] Portfolio Partners, Inc.--T. Rowe Price Growth Equity Portfolio seeks long-term growth of capital and, secondarily, to increase dividend income by investing primarily in common stocks of well established growth companies.(7c) Investment Advisers for each of the Funds: (1) Aeltus Investment Management, Inc. (2) Calvert Asset Management Company, Inc. (3) Fidelity Management & Research Company (4) Janus Capital Corporation (5) Lexington Management Corporation (adviser); Market Systems Research Advisors, Inc. (subadviser) (6) OppenheimerFunds, Inc. (7) Aetna Life Insurance and Annuity Company (adviser); (a) Massachusetts Financial Services Company (subadviser) (b) Scudder Kemper Investments, Inc. (subadviser) (c) T. Rowe Price Associates, Inc. (subadviser) Risks Associated with Investment in the Funds. Some of the Funds may use instruments known as derivatives as part of their investment strategies. The use of certain derivatives may involve high risk of volatility to a Fund, and the use of leverage in connection with such derivatives can also increase risk of losses. Some of the Funds may also invest in foreign or international securities which involve greater risks than U.S. investments. More comprehensive information, including a discussion of potential risks, is found in the current prospectus for each Fund which is distributed with and accompanies this Prospectus. You should read the Fund prospectuses and consider carefully, and on a continuing basis, which Fund or combination of Funds is best suited to your long-term investment objectives. Additional prospectuses and Statements of Additional Information for this Prospectus and for each of the Funds can be obtained from the Company's Home Office at the address and telephone number listed under the "Inquiries" section of the Prospectus Summary. Conflicts of Interest (Mixed and Shared Funding). Shares of the Funds are sold to each of the Subaccounts for funding the variable annuity contracts issued by the Company. Shares of the Funds may also be sold to other insurance companies for the same purpose. This is referred to as "shared funding." Shares of the Funds may also be used for funding variable life insurance contracts issued by the Company or by third parties. This is referred to as "mixed funding." Because the Funds available under the Contract are sold to fund variable annuity contracts and variable life insurance policies issued by us or by other companies, certain conflicts of interest could arise. If a conflict of interest were to occur, one of the separate accounts might withdraw its investment in a Fund, which might force that Fund to sell portfolio securities at disadvantageous prices, causing its per share value to decrease. Each Fund's Board of Directors or Trustees has agreed to monitor events in order to identify any material irreconcilable conflicts which might arise and to determine what action, if any, should be taken to address such conflict. CREDITED INTEREST OPTIONS Purchase Payments may be allocated to one or more of the Credited Interest Options available under the Contract, as described below. The Contract Holder may elect not to offer all Credited Interest Options under its Plan. [bullet] The Guaranteed Accumulation Account (GAA) is a credited interest option through which we guarantee stipulated rates of interest for stated periods of time. Amounts must remain in the GAA for the full guaranteed term to receive the quoted interest rates, or a market value adjustment (which may be positive or negative) will be applied. (See Appendix I.) - -------------------------------------------------------------------------------- 4 [bullet] The Fixed Account is a part of the Company's general account. The Fixed Account guarantees a minimum interest rate, as specified in the Contract. The Company may credit higher interest rates from time to time. Transfers from the Fixed Account are limited. (See Appendix II.) [bullet] The Fixed Plus Account is also a part of the Company's general account and guarantees a minimum interest rate, as specified in the Contract. The Company may credit higher interest rates at its discretion. Withdrawals and transfers from the Fixed Plus Account are limited. (See Appendix III.) PURCHASE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONTRACT AVAILABILITY The Contracts are designed for (1) employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals not subject to Section 457 of the Internal Revenue Code of 1986, as amended ("Code") or by taxable organizations for their employees and/or independent contractors ("Non- Section 457 Plans"); or (2) employer-sponsored deferred compensation plans sponsored by non-governmental tax-exempt organizations for deferrals that are subject to Code Section 457 for their employees and/or independent contractors ("Section 457 Plans"). The Contract is generally owned by the employer, and an Account is established for each Participant, as directed by the Contract Holder, to identify contract values during the Accumulation Period. A Participant's record under the Contract is known as his or her "Account." The Contract is available to Plans subject to Code Section 457 only if the Plan is not sponsored by a governmental employer. For such Section 457 Plans and for all Non-Section 457 Plans, all amounts of compensation deferred, all property and rights purchased with such amounts, and all income attributable to such amounts, property or rights remains solely the property and rights of the employer, and is subject to the claims of the employer's general creditors. The Contract will therefore be part of the employer's general assets, subject to the claims of its general creditors. Benefits available to you are governed exclusively by the provisions of the Plan and are backed only by the general assets of the employer. Some of the options and elections available under the Contract may not be available to you under the provisions of your Plan. Contact your employer for information regarding your Plan. CONTRACT PURCHASE Eligible organizations may acquire a Contract by submitting an application to the Company. Once we approve the forms, a Contract is issued to the employer as the Contract Holder. You may participate in the Plan by submitting an enrollment form to the Company. The Company must accept or reject the application or enrollment form within two business days of receipt. If the application or enrollment form is incomplete, the Company may hold any forms and accompanying Purchase Payments for five days. Purchase Payments may be held for a longer period pending acceptance of the forms only with consent of the Participant, or under certain circumstances described below, with the consent of the group Contract Holder. Under limited circumstances the Company may agree, with respect to a particular Plan, to hold Purchase Payments for longer than the five business days, based on the consent of the group Contract Holder, in which case these Purchase Payments will be deposited in the Aetna Money Market VP Subaccount until the forms are completed. PURCHASE PAYMENTS Generally, two types of Purchase Payments may be made under the Contract, and depending upon which type of payment is made, different Accounts may be established for each payment type. Continuing, periodic payments will be placed in "Installment Purchase Payment Accounts." Installment Purchase Payments must be at least $100 per month ($1,200 annually) per Participant. No payment may be less than $25. Lump-sum transfers of amounts accumulated under a pre-existing plan may be placed in "Single Purchase Payment Accounts" in accordance with the Company's procedures in effect at the time of purchase. The Code imposes a maximum limit on annual Purchase Payments which may be excluded from a Participant's gross income for Section 457 Plan Participants. Such limit is generally the lesser of $8,000 as adjusted to reflect changes in the cost of living, or 331/2% of your includible compensation (25% of gross compensation). For Contracts sold to taxable organizations, this Contract may be aggregated with other Annuity contracts purchased by the Contract Holder from us (and our affiliates) on or after October 21, 1988 for purposes of determining the taxable portion of payments from this Contract. (See "Tax Status.") - -------------------------------------------------------------------------------- 5 Allocation of Purchase Payments. Purchase Payments will initially be allocated to the Subaccounts or Credited Interest Options as specified by the Contract Holder (or you, if authorized by the Contract Holder) on the enrollment form. Changes in such allocation may be made in writing or by telephone transfer. Allocations must be in whole percentages, and there may be limitations on the number of investment options that can be selected at any one time. (See "Investment Options--The Funds.") RIGHT TO CANCEL The Contract Holder may cancel participation under the Contract without penalty by returning it to the Company with a written notice of cancellation. In most states, Contract Holders have ten days to exercise this right; some states allow a longer free look period. When we receive the request for cancellation, we will return the Account Value, unless the laws of the state in which the Contract was issued require that we return the initial Purchase Payment (if greater than the Account Value). In states that do not require a return of Purchase Payments, the purchaser bears the entire investment risk for amounts allocated among the Subaccounts during the free look period. Account Values will be determined as of the Valuation Date on which we receive the request for cancellation at our Home Office. TRANSFER CREDITS The Company may provide a transfer credit on "transferred assets," subject to certain conditions and state approvals. Transferred assets are the value of contributions made on your behalf under this Plan or a prior plan before such amounts are applied to this Contract. The transfer credit equals a percentage of the transferred assets remaining in the Contract after a specified period of time. Once a transfer credit is applied to your Contract, all provisions of the Contract apply. This benefit is provided on a nondiscriminatory basis. If a transfer credit is due under the Contract, you will be provided with additional information specific to the Contract. CHARGES AND DEDUCTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT Mortality and Expense Risk Charge. The Company makes a daily deduction from each of the Subaccounts for the mortality and expense risk charge. The charge is equal, on an annual basis, to 1.25% of the daily net assets of the Subaccounts and compensates the Company for the assumption of mortality and expense risks under the Contract. The mortality risks are those assumed for our promise to make lifetime payments according to Annuity rates specified in the Contract. The expense risk is the risk that the actual expenses for costs incurred under the Contract will exceed the maximum costs that can be charged under the Contract. If the amount deducted for mortality and expense risks is not sufficient to cover the mortality costs and expense shortfalls, the loss is borne by the Company. If the deduction is more than sufficient, the excess may be used to recover distribution expense relating to the Contracts and as a source of profit for the Company. The Company expects to make a profit from the mortality and expense risk charge. Administrative Expense Charge. The Company reserves the right to make a deduction from each of the Subaccounts for an administrative expense charge. The administrative expense charge compensates the Company for administrative expenses that exceed revenues from the maintenance fee described below. The charge is set at a level which does not exceed the average expected cost of the administrative services to be provided while the Contract is in force. The Company does not expect to make a profit from this charge. Effective April 4, 1997, the administrative expense charge during the Accumulation Period equals, on an annual basis, 0.25% of the daily net assets allocated to the Subaccounts for Contracts effective prior to October 31, 1996 where the number of Participants with assets in the Contract is less than 30 as of November 30, 1996 and the Contract Holder has chosen not to elect one of the Company's electronic standards for cash collection and application of Participant contribution data. There is currently no administrative expense charge assessed during the Accumulation Period for any other Contracts. In addition, the administrative expense charge will not be imposed for Participants who enrolled in a group Contract or became covered under an individual Contract prior to November 5, 1984. - -------------------------------------------------------------------------------- 6 MAINTENANCE FEE During the Accumulation Period, the Company will deduct an annual maintenance fee from each Installment Purchase Payment Account on its anniversary date. The maintenance fee is to reimburse the Company for some of its administrative expenses relating to the establishment and maintenance of the Accounts. The maximum maintenance fee that can be deducted under the Contract is $20. However, under group Contracts, the maintenance fee may be reduced or eliminated depending upon certain criteria described below. The maintenance fee will be deducted on a pro rata basis from each Subaccount and Credited Interest Option in which the Account is invested. If the Account Value is withdrawn, the full maintenance fee will be deducted at the time of withdrawal. Reduction or Elimination of the Maintenance Fee. The annual maintenance fee may be reduced or eliminated under various conditions as agreed to by us and the Contract Holder in writing. Any reduction or elimination of the annual maintenance fee will reflect differences in administrative costs and services after taking into consideration factors such as the following: [bullet] the size, characteristics, and nature of the group to which a Contract is issued; [bullet] the level of our anticipated expenses in administering the Contract, such as billing for Purchase Payments, producing periodic reports, providing for the direct payment of Contract charges rather than having them deducted from Contract Values, and any other factors pertaining to the level and expense of administrative services which will be provided under the Contract. Any reduction or elimination of maintenance fees will not be unfairly discriminatory against any person. We will make any reduction in annual maintenance fees according to our own rules in effect at the time an application for a Contract is approved. We reserve the right to change these rules from time to time. DEFERRED SALES CHARGE Withdrawals of all or a portion of the Account Value may be subject to a deferred sales charge. The deferred sales charge is a percentage of the amount withdrawn from the Subaccounts, the Fixed Account or the Guaranteed Accumulation Account. No deferred sales charge is deducted from amounts withdrawn from the Fixed Plus Account. For Installment Purchase Payment Accounts, the deferred sales charge is based on the number of completed Purchase Payment Periods. For Single Purchase Payment Accounts, it is based on the number of Account Years that have elapsed since the Account's effective date. The amount of the deferred sales charge is determined in accordance with the schedule set forth in the following tables: INSTALLMENT PURCHASE PAYMENT ACCOUNTS Purchase Payment Deferred Sales Periods Completed Charge Deduction - ------------------------------ ----------------- Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or more but less than 10 2% More than 10 0% SINGLE PURCHASE PAYMENT ACCOUNTS Account Years Deferred Sales Completed Charge Deduction - ----------------------------- ----------------- Less than 5 5% 5 or more but less than 6 4% 6 or more but less than 7 3% 7 or more but less than 8 2% 8 or more but less than 9 1% 9 or more 0% If you transfer the total account value under another deferred compensation annuity contract issued by the Company to an Account under this Contract, the effective date of the new Account will be the same effective date as your former contract for purposes of calculating the applicable deferred sales charge under this Contract. A deferred sales charge will not be deducted from any portion of the Account Value which is: [bullet] applied to provide Annuity benefits; [bullet] withdrawn on or after the tenth anniversary of the effective date of the Account or Plan Account; [bullet] paid due to the death of the Participant; [bullet] withdrawn due to the election of a Systematic Distribution Option (see "Systematic Distribution Options"); [bullet] paid where the Account Value is $3,500 or less and no amount has been withdrawn or used to purchase Annuity benefits during the prior 12 months. If more than one Account is being fully withdrawn on behalf of - -------------------------------------------------------------------------------- 7 a Participant, all Account Values will be added together to determine eligibility for the $3,500 exemption. This provision is not available under Plan Accounts (where Accounts are not maintained by the Company) or applicable to the withdrawal of all Accounts under one Contract established with the Company; [bullet] withdrawn from an Installment Purchase Payment Account by a Participant who is at least age 59 1/2 and who has completed nine Purchase Payment Periods; or [bullet] for Section 457 Plans only, withdrawn due to a hardship resulting from an unforeseeable emergency, as specified in the Code. The deduction for the deferred sales charge will not exceed 8.5% of the total Purchase Payments actually made to the Account. The Company does not anticipate that the deferred sales charge will cover all sales and administrative expenses which it incurs in connection with the Contract; the difference will be covered by the general assets of the Company which are attributable, in part, to the mortality and expense risk charge described above. Reduction or Elimination of the Deferred Sales Charge. For a particular Plan, we may reduce, waive or eliminate the deferred sales charge. Any reduction, waiver or elimination of such charges will reflect differences or expected differences in the amounts of unrecovered distribution costs or services of the types that the charge is intended to defray. When considering whether to reduce or eliminate such charges or to grant such a waiver, we will take into account factors which may include the following: [bullet] the number of Participants under the Plan; [bullet] the expected level of assets or cash flow under the Plan; [bullet] the level of agent involvement in sales activities; [bullet] the level of our sales-related expenses; [bullet] the specific distribution provisions under the Plan; [bullet] the Plan's purchase of one or more other variable Annuity contracts from us and the features of those contracts; [bullet] the level of employer involvement in determining eligibility for distributions under the Contract; and [bullet] our assessment of financial risk to the Company relating to surrenders. Any reduction, waiver or elimination of deferred sales charges will not be unfairly discriminatory against any person. We may also negotiate provisions regarding the deferred sales charge with respect to Contracts issued to certain employer groups or associations which have negotiated on behalf of its employees. All variations in, or elimination of, provisions regarding the deferred sales charge resulting from such negotiations will be offered uniformly to all employees within the group. For specific information on fees applicable to your Account please call the number listed under the "Inquiries" section of the Prospectus Summary. We will make any reduction in deferred sales charge according to our own rules in effect at the time an application for a Contract is approved. We reserve the right to change these rules from time to time. FUND EXPENSES Each Fund incurs certain expenses which are paid out of its net assets. These expenses include, among other things, the investment advisory or "management" fee. The expenses of the Funds are illustrated in the Fee Table in this Prospectus and described more fully in the accompanying Fund prospectuses. PREMIUM AND OTHER TAXES Several states and municipalities impose a premium tax on Annuities. These taxes currently range from 0% to 4%. The Company reserves the right to deduct premium tax against Purchase Payments or Account Values at any time, but no earlier than when we have a tax liability under state law. The Company's current practice is to deduct for premium taxes at the time of complete withdrawal or annuitization. In addition to the premium tax, the Company reserves the right to assess a charge for any state or federal taxes due against the Contract or the Separate Account assets. - -------------------------------------------------------------------------------- 8 CONTRACT VALUATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ACCOUNT VALUE Until the Annuity Date, the Account Value is the total dollar value of amounts held in the Account as of any Valuation Date. The Account Value at any given time is based on the value of the units held in each Subaccount, plus the value of amounts held in any of the Credited Interest Options. ACCUMULATION UNITS The value of your interests in a Subaccount is expressed as the number of "Accumulation Units" that you hold multiplied by an "Accumulation Unit Value" (or "AUV") for each unit. The AUV on any Valuation Date is determined by multiplying the value on the immediately preceding Valuation Date by the net investment factor of that Subaccount for the period between the immediately preceding Valuation Date and the current Valuation Date. (See "Net Investment Factor" below.) The Accumulation Unit Value will be affected by the investment performance, expenses and charges of the applicable Fund and is reduced each day by a percentage that accounts for the daily assessment of mortality and expense risk charge and the administrative charge (if any). Initial Purchase Payments will be credited to your Account at the AUV next computed following our acceptance of the enrollment form, as described under "Purchase--Contract Purchase." Each subsequent Purchase Payment (or amount transferred) received by the Company by the close of business of the New York Stock Exchange will be credited to your Account at the AUV next computed following our receipt of your payment or transfer request. The value of an Accumulation Unit may increase or decrease. NET INVESTMENT FACTOR The net investment factor is used to measure the investment performance of a Subaccount from one Valuation Date to the next. The net investment factor for a Subaccount for any valuation period is equal to the sum of 1.0000 plus the net investment rate. The net investment rate equals: (a) the net assets of the Fund held by the Subaccount on the current Valuation Date, minus (b) the net assets of the Fund held by the Subaccount on the preceding Valuation Date, plus or minus (c) taxes or provisions for taxes, if any, attributable to the operation of the Subaccount; (d) divided by the total value of the Subaccount's Accumulation and Annuity Units the preceding Valuation Date; (e) minus a daily charge at the annual effective rate of 1.25% for mortality and expense risks and up to 0.25% as an administrative expense charge. The net investment rate may be either positive or negative. TRANSFERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- At any time prior to the Annuity Date, the Contract Holder, or you (if permitted by the Contract Holder), can transfer amounts held under the Contract from one Subaccount to another. Transfers between the Credited Interest Options and the Subaccounts are subject to certain restrictions. (See Appendices I, II and III.) A request for transfer can be made either in writing or, subject to the Contract Holder's approval, by telephone. All transfers must be in accordance with the terms of the Contract and your Plan, as applicable. The Company currently allows unlimited transfers of accumulated amounts to available investment options without charge. The transfer amount may not be less than $500. The total number of investment options in which you may invest at any one time is limited. (See "Investment Options--The Funds.") Any transfer will be based on the Accumulation Unit Value next determined after the Company receives a valid transfer request at its Home Office. Transfers are not available during the Annuity Period. Subject to the Contract Holder's approval, you have the right to make transfers among Funds by telephone. We have enacted procedures to prevent abuses of Account transactions by telephone, including requiring the use of a personal identification number (PIN) to execute transactions. You are responsible - -------------------------------------------------------------------------------- 9 for safeguarding your PIN, and for keeping Account information confidential. Although the Company's failure to follow reasonable procedures may result in the Company's liability for any losses due to unauthorized or fraudulent telephone transfers, the Company will not be liable for following instructions communicated by telephone which it reasonably believes to be genuine. Any losses incurred pursuant to actions taken by the Company in reliance on telephone instructions reasonably believed to be genuine shall be borne by you. To ensure authenticity, we record all calls on the 800 line. Note: All Account information and transactions permitted are subject to the terms of the Plan(s). DOLLAR COST AVERAGING PROGRAM You may establish automated transfers of Account Values on a monthly or quarterly basis through the Company's Dollar Cost Averaging Program, if available under your Plan. There is no additional charge for the Program. Dollar Cost Averaging is a system for investing a fixed amount of money at regular intervals over a period of time. Dollar Cost Averaging does not ensure a profit nor guarantee against loss in a declining market. You should consider your financial ability to continue purchases through periods of low price levels. For additional information, please refer to the "Inquiries" section of the Prospectus Summary which describes how you can obtain further information. Effective May 1, 1998, dollar cost averaging is not permitted into the Lexington Natural Resources Trust. WITHDRAWALS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject to the limitations on withdrawals from the Fixed Plus Account, the Contract Holder may withdraw all or a portion of the Account Value at any time during the Accumulation Period. To request a withdrawal, the Contract Holder, on your behalf, must properly complete a disbursement form and send it to our Home Office. Payments for withdrawal requests will be made in accordance with SEC requirements, but normally not later than seven calendar days following our receipt of a disbursement form. Under a 457 Plan, payout elections may not be changed once payments have commenced. Withdrawals may be requested in one of the following forms: [bullet] Full Withdrawal of the Contract or an Account: The amount paid for a full withdrawal will be the Account Value(s) allocated to the Subaccounts, the Guaranteed Accumulation Account (plus or minus a market value adjustment) (see Appendix I), and the Fixed Account, minus any applicable deferred sales charge and maintenance fee due, plus the amount available for withdrawal from the Fixed Plus Account (see Appendix III). [bullet] Partial Withdrawals (Percentage): The amount paid will be the percentage of the Account Value(s) requested minus any applicable deferred sales charge; however, the amount available for withdrawal from the Fixed Plus Account is limited (see Appendix III). [bullet] Partial Withdrawal (Specified Dollar Amount): The amount paid will be the dollar amount requested. However, the amount withdrawn from the Account will equal the amount requested plus any applicable deferred sales charge. The amount available for withdrawal from the Fixed Plus Account is limited (see Appendix III). For any partial withdrawal, amounts will be withdrawn proportionately from each Subaccount or Credited Interest Option in which the Account is invested unless otherwise requested in writing. All amounts paid will be based on Account Values next determined after we receive a request for withdrawal at our Home Office, or on such later date as the disbursement form may specify. SYSTEMATIC DISTRIBUTION OPTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Company offers certain withdrawal options under the Contract that are not considered annuity options ("Systematic Distribution Options"). To exercise these options, the Account Value must meet the minimum dollar amounts and age criteria applicable to that option. - -------------------------------------------------------------------------------- 10 The Systematic Distribution Options currently available under the Contract include the following: [bullet] SWO--Systematic Withdrawal Option. SWO is a series of partial withdrawals from the Account based on a payment method you select. It is designed for those who want a periodic income while retaining investment flexibility for amounts accumulated under a Contract. [bullet] ECO--Estate Conservation Option. ECO is available to Section 457 Plan Participants only. It offers the same investment flexibility as SWO but is designed for those who want to receive only the minimum distribution that the Code requires each year. Under ECO, the Company calculates the minimum distribution amount required by law at age 70-1/2 (or retirement, if later), and pays you that amount once a year. (See "Tax Status.") Other Systematic Distribution Options may be added from time to time. Additional information relating to any of the Systematic Distribution Options may be obtained from your local representative or from the Company at its Home Office. If you select one of the Systematic Distribution Options, the Account will retain all of the rights and flexibility permitted under the Contract during the Accumulation Period. The Account Value will continue to be subject to the charges and deductions described in this Prospectus. Taking a withdrawal under one of these Systematic Distribution Options may have tax consequences. Any person concerned about tax implications should consult a competent tax advisor prior to electing an option. Once elected, a Systematic Distribution Option may be revoked by the Contract Holder at any time by submitting a written request to our Home Office. Any revocation will apply only to the amount not yet paid. Once an option is revoked, it may not be elected again, nor may any other Systematic Distribution Option be elected. The Company reserves the right to discontinue the availability of one or all of these Systematic Distribution Options at any time, and/or to change the terms of future elections. To determine whether the Systematic Distribution Options are available under your Plan, and to assess the terms and conditions that may apply, you should check with your employer. DEATH BENEFIT DURING ACCUMULATION PERIOD - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Contract provides that a death benefit is payable to the Contract Beneficiary(ies) upon the death of the Participant before the Annuity Date. The Contract Holder may direct that we make such payment to the Plan Beneficiary. The amount of the death benefit will be equal to the Account Value. Death benefit proceeds may be paid: [bullet] in a lump sum; [bullet] in accordance with any of the Annuity Options available under the Contract; or [bullet] under any Systematic Distribution Option available under the Contract (if the Plan Beneficiary is your spouse). The Contract Holder on behalf of a Plan Beneficiary may instead elect to leave the Account Value invested in the Contract. However, the Code limits how long the death benefit proceeds may be left in this option (see below). When paying the Contract Beneficiary, we will determine the Account Value on the Valuation Date following the date on which we receive proof of death acceptable to the Company. Interest, if any, will be paid from the date of death at a rate no less than required by law. We will mail payment to the Contract Beneficiary within seven days after we receive proof of death. The Code requires that distribution of death proceeds begin within a certain period of time. For Non-Section 457 Plans, if required by the Code, the entire value must be distributed within five years after the date of death unless an Annuity option is elected within one year. For Section 457 Plans, generally, either payments must begin by December 31 of the year following the year of your death, or the entire value of your benefits must be distributed by December 31 of the fifth year following the year of your death. If your Plan Beneficiary is your spouse, he or she is not required to begin distributions until the year you would have attained age 70-1/2. In no event may payments extend beyond the life expectancy of the Plan Beneficiary or any period certain greater than the Plan Beneficiary's life expectancy. - -------------------------------------------------------------------------------- 11 If no elections are made, no distributions will be made. Failure to commence distributions within the above time periods can result in tax penalties. Regardless of the method of payment, death benefit proceeds will generally be taxed to the beneficiary in the same manner as if you had received those payments. (See "Tax Status.") ANNUITY PERIOD - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ANNUITY PERIOD ELECTIONS For Section 457 Plans, the Code requires that minimum annual distributions of the Account Value must begin by April 1st of the calendar year following the calendar year in which a Participant attains age 70-1/2 or retires, if later. In addition, distributions must be in a form and amount sufficient to satisfy the Code requirements. These requirements may be satisfied by the election of certain Annuity options or Systematic Distribution Options. (See "Tax Status.") At least 30 days prior to the Annuity Date, the Contract Holder must notify us in writing of the following: [bullet] the date on which you would like to start receiving Annuity payments; [bullet] the Annuity option under which you want your payments to be calculated and paid; [bullet] whether the payments are to be made monthly, quarterly, semi-annually or annually; and [bullet] the investment option(s) used to provide Annuity payments (i.e., a fixed Annuity using the general account or any of the Subaccounts available at the time of annuitization). As of the date of this Prospectus, Aetna Growth and Income VP, Aetna Bond VP and Aetna Balanced VP, Inc. are the only Subaccounts available. Annuity payments will not begin until an Annuity option has been selected. Until a date and option are elected, the Account or Plan Account will continue in the Accumulation Period. Once Annuity payments begin, the Annuity option may not be changed, nor may transfers be made among the investment options(s) selected. ANNUITY OPTIONS The Contract Holder may choose one of the following Annuity options: Lifetime Annuity Options: Option 1--Life Annuity--An Annuity with payments ending on the Annuitant's death. Option 2--Life Annuity with Guaranteed Payments--An annuity with payments guaranteed for 5, 10, 15 or 20 years, or such other periods as the Company may offer at the time of annuitization. Option 3--Life Income based Upon the Lives of Two Payees--An Annuity will be paid during the lives of the Annuitant and a second Annuitant, with 100%, 66-2/3% or 50% of the payment to continue after the first death, or 100% of the payment to continue at the death of the second Annuitant and 50% of the payment to continue at the death of the Annuitant. Option 4--Life Income based Upon the Lives of Two Payees--An Annuity with payments for a minimum of 120 months, with 100% of the payment to continue after the first death. If Option 1 or 3 is elected, it is possible that only one Annuity payment will be made if the Annuitant under Option 1, or the surviving Annuitant under Option 3, should die prior to the due date of the second Annuity payment. Once lifetime Annuity payments begin, the Annuitant cannot elect to receive another form of benefit. Nonlifetime Annuity Options: Option 1--Payments for a Specified Period--payments will continue for a specified period of time, as provided for under your Contract. Under the nonlifetime option, the type of Annuity (fixed or variable) and the number of years that may be selected are determined by the investment options used prior to annuitization. For amounts held in the Fixed Plus Account, the Annuity must be paid on a fixed basis and payments may be made for 5-30 years. For amounts held in the Subaccounts, the Guaranteed Accumulation Account or the Fixed Account, an Annuity may be selected on a fixed or variable basis and payments may be made for 3-30 years. If this option is elected on a variable basis, the Contract Holder may request at any time during the payment period that the present value of all or any portion of the remaining variable payments be paid in one sum. However, any lump-sum elected before three years of payments have been completed - -------------------------------------------------------------------------------- 12 will be treated as a withdrawal during the Accumulation Period and any applicable deferred sales charge will be assessed. (See "Charges and Deductions Deferred Sales Charge.") The nonlifetime option is not available on a variable basis under a Contract which provides for immediate Annuity benefits. We may also offer additional Annuity options under the Contract from time to time. ANNUITY PAYMENTS Date Payouts Start. When payments start, the age of the Annuitant plus the number of years for which payments are guaranteed must not exceed 95. Annuity payments may not extend beyond (a) the life of the Annuitant, (b) the joint lives of the Annuitant and Plan Beneficiary, (c) a period certain greater than the Annuitant's life expectancy, or (d) a period certain greater than the joint life expectancies of the Annuitant and Plan Beneficiary. Amount of Each Annuity Payment. The amount of each payment depends on the size of the Account Value, how you allocate it between fixed and variable payouts, and the Annuity option chosen. No election may be made that would result in the first Annuity payment of less than $20, or total yearly Annuity payments of less than $100. If the Account or Plan Account Value on the Annuity Date is insufficient to elect an option for the minimum amount specified, a lump-sum payment must be elected. If Annuity Payments are to be made on a variable basis, the first and subsequent payments will vary depending on the assumed net investment rate selected (3-1/2% or 5% per annum). Selection of a 5% rate causes a higher first payment, but Annuity Payments will increase thereafter only to the extent that the net investment rate exceeds 5% on an annualized basis. Annuity Payments would decline if the rate were below 5%. Use of the 3-1/2% assumed rate causes a lower first payment, but subsequent payments would increase more rapidly or decline more slowly as changes occur in the net investment rate. (See the Statement of Additional Information for further discussion on the impact of selecting an assumed net investment rate.) CHARGES DEDUCTED DURING THE ANNUITY PERIOD We make a daily deduction for mortality and expense risks from any amounts held on a variable basis. Therefore, electing the nonlifetime option on a variable basis will result in a deduction being made even though we assume no mortality risk. We may also deduct a daily administrative charge from amounts held under the variable options. (See "Charges and Deductions.") DEATH BENEFIT PAYABLE DURING THE ANNUITY PERIOD If an Annuitant dies after Annuity Payments have begun, any death benefit payable will depend on the terms of the Contract and the Annuity option selected. If Option 1 or Option 3 was elected, Annuity Payments will cease on the death of the Annuitant under Option 1 or the death of the surviving Annuitant under Option 3. If Lifetime Option 2 or Option 4 was elected and the death of the Annuitant under Option 2, or the surviving Annuitant under Option 4, occurs prior to the end of the guaranteed minimum payment period, we will pay to the beneficiary in a lump-sum, unless otherwise requested, the present value of the guaranteed Annuity payments remaining. If the nonlifetime option was elected, and the Annuitant dies before all payments are made, the value of any remaining payments may be paid in a lump-sum to the Plan Beneficiary (unless otherwise requested), and no deferred sales charge will be imposed. For Non-Section 457 Plans, if required by the Code, and if there is a death benefit payable under the Annuity option elected, the remaining values must be distributed at least as rapidly as under the original method of distribution. For Section 457 Plans, if there is a death benefit payable under the Annuity option elected, Annuity Payments must be distributed to your beneficiary at least as rapidly as under the original method of distribution and in substantially nonincreasing amounts. Any lump-sum payment paid under the applicable lifetime or nonlifetime Annuity options will be made within seven calendar days after proof of death acceptable to us, and a request for payment are received at our Home Office. The value of any death benefit proceeds will be determined as of the next Valuation Date after we receive acceptable proof of death and a request for payment. Under Options 2 and 4, such value will be reduced by any payments made after the date of death. - -------------------------------------------------------------------------------- 13 TAX STATUS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INTRODUCTION The following provides a general discussion and is not intended as tax advice. This discussion reflects the Company's understanding of current federal income tax law. Such laws may change in the future, and it is possible that any change could be retroactive (i.e., effective prior to the date of the change). This discussion does not consider any applicable state or other tax laws. The Company makes no guarantee regarding the tax treatment of any Contract or transaction involving a Contract. The ultimate effect of federal income taxes on the amounts held under a Contract, on Annuity payments, and on the economic benefit to the Contract Holder, Participant or Plan Beneficiary may depend upon the tax status of the individual concerned. Any person concerned about these tax implications should consult a competent tax advisor before initiating any transaction. TAXATION OF THE COMPANY The Company is taxed as a life insurance company under the Code. Since the Separate Account is not an entity separate from the Company, it will not be taxed separately as a "regulated investment company" under the Code. Investment income and realized capital gains are automatically applied to increase reserves under the Contracts. Under existing federal income tax law, the Company believes that the Separate Account's investment income and realized net capital gains will not be taxed to the extent that such income and gains are applied to increase the reserves under the Contracts. The Company does not anticipate that it will incur any federal income tax liability attributable to the Separate Account and, therefore, the Company does not intend to make provisions for any such taxes. However, if changes in the federal tax laws or interpretations thereof result in the Company being taxed on income or gains attributable to the Separate Account, then the Company may impose a charge against the Separate Account (with respect to some or all Contracts) in order to set aside provisions to pay such taxes. TAX STATUS OF THE CONTRACT With respect to Contracts sold to taxable organizations, Section 817(h) of the Code requires that the investments of the Funds be "adequately diversified" in accordance with Treasury Regulations in order for the Contracts to qualify as annuity contracts with 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 affect how the Fund's assets may be invested. In certain circumstances, owners of variable annuity contracts that are taxable organizations may be considered the owners, for federal income tax purposes, of the assets of the separate accounts used to support their contracts. In these circumstances, income and gains from the separate account assets would be includible in the variable contract owner's gross income. One of the circumstances that has raised this issue is the number of funding options available under the Contract. The Company reserves the right to modify the Contract as necessary to attempt to prevent a Contract Holder from being considered the owner of a pro rata share of the assets of the Separate Account. CONTRACTS USED WITH CERTAIN RETIREMENT PLANS In General: The Contract may be purchased and used in connection with: (1) Employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals not subject to Code Section 457 and by taxable organizations for their employees and/or independent contractors; and (2) Employer-sponsored deferred compensation plans sponsored by non-governmental tax-exempt organizations for deferrals that are subject to Code Section 457 for their employees and/or independent contractors. The Company makes no attempt to provide more than general information about use of the Contracts with the various types of retirement plans. Participants as well as beneficiaries are cautioned that the rights of any person to any benefits under the Contracts may be subject to the terms and conditions of the plans themselves, in addition to the terms and conditions of the Contract issued in connection with such plans. Some retirement plans are subject to distribution and other requirements that are not incorporated in the provisions of the Contracts. Purchasers are responsible for determining that contributions, distributions and other transactions with respect to the Contracts satisfy applicable laws and should consult their legal counsel and tax advisor regarding the suitability of the Contract. - -------------------------------------------------------------------------------- 14 SECTION 457 PLANS Section 457 provides for certain deferred compensation plans. These plans may be offered with respect to service for state governments, local governments, political subdivisions, agencies, instrumentalities and certain affiliates of such entities, and non-governmental tax exempt organizations. These plans are subject to various restrictions on contributions and distributions. The plans may permit participants to specify the form of investment for their deferred compensation account. The Contract is made available to plans subject to Code Section 457 only if the plan is sponsored by a non-government tax exempt employer. Under such plans, all amounts of compensation deferred, all property and rights purchased with such amounts and all income attributable to such amounts, property, and rights remains solely the property and rights of the employer and is subject to the claims of the employer's general creditors. Depending on the terms of the particular plan, the employer may be entitled to draw on deferred amounts for purposes unrelated to its Section 457 plan obligations. In general, all amounts received under a Section 457 plan are taxable and reportable to the IRS as taxable income. This includes payments for death benefits, periodic and nonperiodic distribution. Also, all amounts except death benefit proceeds are subject to federal income tax withholding as wages. If we make payments directly to a Participant on behalf of the employer as Contract Holder, we will withhold federal taxes (state taxes, if applicable). The Code imposes a maximum limit on annual Purchase Payments which may be excluded from your gross income. For Section 457 plan participants, the current limit is generally the lesser of $8,000, as adjusted to reflect changes in the cost of living, or 33-1/3% of your includible compensation (25% of gross compensation). Minimum Distribution Requirements. The Code has required distribution rules for Section 457 plans. Distributions must generally begin by April 1 of the calendar year following the calendar year in which you attain age 70-1/2 or retire, whichever occurs later. In general, Annuity payments must be distributed over your life or the joint lives of you and your Plan Beneficiary, or over a period not greater than your life expectancy or the joint life expectancies of you and your Plan Beneficiary. Also, any distribution payable over a period of more than one year must be made in substantially non-increasing amounts. If you die after the required minimum distribution has commenced, distributions to your Plan Beneficiary must be made at least as rapidly as under the method of distribution in effect at the time of your death. However, if the minimum required distribution is calculated each year based on your single life expectancy or the joint life expectancies of you and your Plan Beneficiary, the regulations for Code Section 401(a)(9) provide specific rules for calculating the minimum required distributions at your death. For example, if you have elected ECO with the calculation based on your single life expectancy, and the life expectancy is recalculated each year, your recalculated life expectancy becomes zero in the calendar year following your death and the entire remaining interest must be distributed to your Plan Beneficiary by December 31 of the year following your death. The rules are complex and you should consult your tax advisor before electing the method of calculation to satisfy the minimum distribution requirements. If you die before the required minimum distribution has commenced, your entire interest must be distributed by December 31 of the calendar year containing the fifth anniversary of the date of your death. Alternatively, payments may be made over the life of the Plan Beneficiary or over a period not extending beyond the life expectancy of the Plan Beneficiary (not to exceed 15 years for a non-spousal Plan Beneficiary) provided the distribution begins by December 31 of the calendar year following the calendar year of your death. If the Plan Beneficiary is your spouse, distribution must begin by the later of December 31 of the calendar year following the calendar year of your death or December 31 of the calendar year in which you would have attained age 70-1/2. If you fail to receive the minimum required distribution for any tax year, a 50% excise tax is imposed on the required amount that was not distributed. PLANS OF NON-SECTION 457 TAX-EXEMPT ORGANIZATIONS AND TAXABLE ORGANIZATIONS Effective January 1, 1987, certain rules applicable to deferred compensation plans of state and local governments (Section 457 of the Code) were extended to deferred compensation plans sponsored by tax-exempt employers. While no limitation is imposed on deferrals under deferred compensation plans of taxable employers, each participant in a plan subject to Section 457 currently has a maximum allowable annual deferral of $8,000, as - -------------------------------------------------------------------------------- 15 adjusted to reflect changes in the cost of living, or 33-1/3% of the participant's includible compensation (25% of gross compensation). However, the Code does allow the following "grandfathering" provisions for those who were participants in tax-exempt employer deferred compensation plans, as of August 16, 1986. (1) Section 457 shall not apply to amounts deferred from taxable years beginning before January 1, 1987. (2) Section 457 shall not apply to amounts deferred from taxable years beginning after December 31, 1986 provided (a) a deferral agreement was in writing on August 16, 1986, and (b) as of August 16, 1986, the agreement provided for a deferral of a fixed amount or of an amount determined pursuant to a fixed formula, and (c) the agreement has not been modified as to amount or formula after August 16, 1986. Only individuals may participate under a Section 457 plan subject to the Section 457 rules. Therefore, corporations may not participate in tax-exempt employer deferred compensation plans unless they qualify under the "grandfathering" provisions. Any reference in this Prospectus to Section 457 plans relates only to contributions subject to Section 457 of the Code and these references do not apply to "grandfathered" contributions. In general, all amounts received under these plans are taxable and, except for death benefit payments, are subject to federal income tax withholding as wages. This includes payments for periodic and nonperiodic distributions. Under plans sponsored by taxable organizations, such payments made to a participant are generally deductible by the contract holder as compensation paid to the participant. If we make payments directly to a Participant or beneficiary on behalf of the employer as Contract Holder, we will report to the IRS the taxable income and we will withhold federal taxes (and state taxes, if applicable) for payments to Participants. The owner of a Contract who is not a natural person must generally include in income any increase in the excess of the Account Value over the "investment in the contract" during the taxable year. There are some exceptions to this rule and prospective owners that are not natural persons may wish to discuss this with a competent tax advisor. For contracts sold to taxable organizations, Section 72(e)(11) of the Code provides that annuity contracts issued by the same insurer (and its affiliates) to the same contract holder during a calendar year shall be treated as a single annuity contract. This means that any amount received under this contract, or any other contract subject to this provision, prior to the contract's Annuity starting date will be taxable (and possibly subject to the 10% penalty tax) to the extent of the combined income in all such contracts. For purposes of this section, immediate annuity contracts, and contracts used to fund qualified pension and profit-sharing plans under Section 401(a) of the Code, Annuity plans under Sections 403(a) or 403(b) of the Code, and individual retirement annuities and accounts under Section 408 of the Code are not aggregated. MISCELLANEOUS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- VOTING RIGHTS Each Contract Holder may direct us in the voting of shares at meetings of shareholders of the appropriate Fund(s). The number of votes to which each Contract Holder may give direction will be determined as of the record date. The number of votes each Contract Holder is entitled to direct with respect to a particular Fund during the Accumulation Period is equal to the portion of the current value of the Contract attributable to that Fund, divided by the net asset value of one share of that Fund. During the Annuity Period, the number of votes is equal to the valuation reserve applicable to the portion of the Contract attributable to that Fund, divided by the net asset value of one share of that Fund. In determining the number of votes, fractional votes will be recognized. Where the value of the Contract or valuation reserve relates to more than one Fund, the calculation of votes will be performed separately for each Fund. Each Contract Holder will receive a notice of each meeting of shareholders of that Fund, together with any proxy solicitation materials, and a statement of the number of votes attributable to the Contract. Votes attributable to Contract Holders who do not direct us - -------------------------------------------------------------------------------- 16 will be cast by us in the same proportion as the votes for which we have received directions. MODIFICATION OF THE CONTRACT The Company may change the Contract as required by federal or state law. In addition, the Company may, upon 30 days written notice to the Contract Holder, make other changes to group Contracts that would apply only to individuals who become Participants under that Contract after the effective date of such changes. If the Contract Holder does not agree to a change, no new Participants will be covered under the Contract. Certain changes will require the approval of appropriate state or federal regulatory authorities. DISTRIBUTION The Company will serve as Principal Underwriter for the securities sold by this Prospectus. The Company is registered as a broker-dealer with the Securities and Exchange Commission and is a member of the National Association of Securities Dealers, Inc. (NASD). As Underwriter, the Company will contract with one or more registered broker-dealers ("Distributors"), including at least one affiliate of the Company, to offer and sell the Contracts. All persons offering and selling the Contracts must be registered representatives of the Distributors and must also be licensed as insurance agents to sell variable annuity contracts. These registered representatives may also provide services to Participants in connection with establishing their Accounts under the Contract. Persons offering and selling the Contracts may receive commissions in connection with the sale of the Contracts. The maximum percentage amount that the Company will ever pay as commission with respect to any given Purchase Payment is with respect to those made during the first year of Purchase Payments under an Account. That percentage amount will range from 1% to 6% of those Purchase Payments. The Company may also pay renewal commissions on Purchase Payments made after the first year and, under group contracts, asset-based service fees. The average of all payments made by the Company is estimated to equal approximately 3% of the total Purchase Payments made over the life of an average Contract. In addition, some sales personnel may receive various types of non-cash compensation as special sales incentives, including trips and educational and/or business seminars. Supervisory and other management personnel of the Company may receive compensation that will vary based on the relative profitability to the Company of the funding options you select. Funding options that invest in Funds advised by the Company or its affiliates are generally more profitable to the Company. The Company may also reimburse the Distributor for certain actual expenses. The name of the Distributor and the registered representative responsible for your Account are set forth on your enrollment form. Commissions and sales related expenses are paid by the Company and are not deducted from Purchase Payments. (See "Charges and Deductions--Deferred Sales Charge.") Occasionally, we may pay commissions and fees to Distributors which are affiliated or associated with the Contract Holder or the Participants. We may also enter into agreements with some entities associated with the Contract Holder or Participants in which we would agree to pay the entity for certain services in connection with administering the Contracts. In both these circumstances there may be an understanding that the Distributor or entity would endorse the Company as a provider of the Contract. You will be notified if you are purchasing a Contract that is subject to these arrangements. PERFORMANCE REPORTING From time to time, the Company may advertise different types of historical performance for the Subaccounts of the Separate Account. The Company may advertise the "standardized average annual total returns" of the Subaccounts, calculated in a manner prescribed by the SEC, as well as the "non-standardized returns." "Standardized average annual total returns" are computed according to a formula in which a hypothetical investment of $1,000 is applied to the Subaccount and then related to the ending redeemable values over the most recent one, five and ten-year periods (or since contributions were first received in the Subaccount, if less than the full period). Standardized returns will reflect the reduction of all recurring charges during each period (e.g., mortality and expense risk charge, annual maintenance fee, administrative expense charge (if any) and any applicable deferred sales charge). "Non-standardized returns" will be calculated in a similar manner, except that non-standardized figures will not reflect the deduction of any applicable deferred sales charge (which 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 be computed from the Fund inception dates. - -------------------------------------------------------------------------------- 17 The Company may also advertise certain ratings, rankings or other information related to the Company, the Subaccounts or the Funds. Further details regarding performance reporting and advertising are described in the Statement of Additional Information. TRANSFER OF OWNERSHIP; ASSIGNMENT No assignment of a Contract will be binding on us unless made in writing and sent to us at our Home Office. The Company will use reasonable procedures to confirm that the assignment is authentic, including verification of signature. If the Company fails to follow its procedures, it would be liable for any losses to you directly resulting from the failure. Otherwise, we are not responsible for the validity of any assignment. The rights of the Owner and the interest of the Annuitant and any Beneficiary will be subject to the rights of any assignee of record. DELAY OR SUSPENSION OF PAYMENTS The Company reserves the right to suspend or postpone the date of payment for any benefit or values (a) on any Valuation Date on which the New York Stock Exchange ("Exchange") is closed (other than customary weekend and holiday closings) or when trading on the Exchange is restricted; (b) when an emergency exists, as determined by the SEC, so that disposal of securities held in the Subaccounts is not reasonably practicable or it is not reasonably practicable for the Company fairly to determine the value of the Subaccount's assets; or (c) during such other periods as the SEC may by order permit for the protection of investors. The conditions under which restricted trading or an emergency exists shall be determined by the rules and regulations of the SEC. LEGAL MATTERS AND PROCEEDINGS The Company knows of no material legal proceedings pending to which the Separate Account or the Company is 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. YEAR 2000 As a healthcare and financial services enterprise, Aetna Inc. (referred to collectively with its affiliates and subsidiaries as Aetna), is dependent on computer systems and applications to conduct its business. Aetna has developed and is currently executing a comprehensive risk-based plan designed to make its computer systems, applications and facilities Year 2000 ready. The plan covers four stages including (i) inventory, (ii) assessment, (iii) remediation and (iv) testing and certification. At year end 1997, Aetna, including the Company, had substantially completed the inventory and assessment stages. The remediation process is currently underway and targeted for completion by December 31, 1998. Testing and certification of these systems and applications are targeted for completion by mid-1999. The costs of these efforts will not affect the Separate Account. The Company, its affiliates and the mutual funds that serve as investment options for the Separate Account also have relationships with investment advisers, broker-dealers, transfer agents, custodians or other securities industry participants or other service providers that are not affiliated with Aetna. Aetna, including the Company, is initiating communication with its critical external relationships to determine the extent to which Aetna may be vulnerable to such parties' failure to resolve their own Year 2000 issues. Where practicable, Aetna and the Company will assess and attempt to mitigate their risks with respect to the failure of these parties to be Year 2000 ready. There can be no assurance that failure of third parties to complete adequate preparations in a timely manner, and any resulting systems interruptions or other consequences, would not have an adverse effect, directly or indirectly, on the Separate Account, including, without limitation, its operation or the valuation of its assets and units. - -------------------------------------------------------------------------------- 18 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 Variable Annuity Account B Offering and Purchase of Contracts Performance Data General Average Annual Total Return Quotations Annuity Payments Sales Material and Advertising Independent Auditors Financial Statements of the Separate Account Financial Statements of the Company - -------------------------------------------------------------------------------- 19 APPENDIX I GUARANTEED ACCUMULATION ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This appendix is a summary of the Guaranteed Accumulation Account ("GAA") and is not intended to replace the GAA prospectus. You should read the accompanying GAA prospectus carefully before investing. The GAA is a Credited Interest Option available during the Accumulation Period under the Contracts. Amounts allocated to the GAA are held by the Company as described in the GAA prospectus. GAA is a Credited Interest Option in which we guarantee stipulated rates of interest for stated periods of time on amounts directed to GAA. The interest rate stipulated is an annual effective yield; that is, it reflects a full year's interest. Interest is credited daily at a rate that will provide the guaranteed annual effective yield over the period of one year. This option guarantees the minimum interest rate specified in the Contract. During a specified period of time (the "deposit period"), amounts may be applied to any or all available Guaranteed Terms within the Short-Term and Long-Term Classifications. Short-Term GAA has Guaranteed Terms from one to three years, and Long-Term GAA has Guaranteed Terms from three to ten years. Purchase Payments must remain in GAA for the full Guaranteed Term to receive the quoted interest rates. Withdrawals or transfers from a Guaranteed Term before the end of that Guaranteed Term may be subject to a market value adjustment ("MVA"). An MVA reflects the change in the value of the investment due to changes in interest rates since the date of deposit. When interest rates increase after the date of deposit, the value of the investment decreases, and the MVA is negative. Conversely, when interest rates decrease after the date of deposit, the value of the investment increases, and the MVA is positive. It is possible that a negative MVA could result in you receiving an amount that is less than the amount paid into GAA. As a Guaranteed Term matures, assets accumulating under GAA may be (a) transferred to a new Guaranteed Term, (b) transferred to the other available investment options, or (c) withdrawn. Amounts withdrawn may be subject to a deferred sales charge and/or federal tax liabilities. By notifying us at our Home Office at least 30 days prior to the Annuity Date, you may elect a variable Annuity and have amounts that have been accumulating under GAA transferred to one or more of the Subaccounts available during the Annuity Period. GAA cannot be used as an investment option during the Annuity Period. MORTALITY AND EXPENSE RISK CHARGE We make no deductions from the credited interest rate for mortality and expense risks; these risks are considered in determining the credited rate. TRANSFERS Amounts applied to a Guaranteed Term during a deposit period may not be transferred to any other funding option or to another Guaranteed Term during that deposit period or for 90 days after the close of that deposit period. Transfers are permitted from Guaranteed Terms of one classification to available Guaranteed Terms of another classification. We will apply an MVA to GAA transfers made before the end of a Guaranteed Term. Transfers of GAA values due to a maturity are not subject to an MVA. - -------------------------------------------------------------------------------- 20 APPENDIX II FIXED ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following summarizes material information concerning the Fixed Account. Amounts allocated to the Fixed Account are held in the Company's general account that supports general insurance and annuity obligations. Interests in the Fixed Account have not been registered with the SEC in reliance on exemptions under the Securities Act of 1933, as amended. Disclosure in the Prospectus regarding the Fixed Account, 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 Account has not been reviewed by the SEC. The Fixed Account guarantees the minimum interest rate specified in the Contract. The Company may credit a higher interest rate from time to time. The current rate is subject to change at any time, but will never fall below the guaranteed minimum. The Company's determination of interest rates reflects the investment income earned on invested assets and the amortization of any capital gains and/or losses realized on the sale of invested assets. Under the Fixed Account, the Company assumes the risk of investment gain or loss by guaranteeing Account Values and promising a minimum interest rate and Annuity payment. Under certain emergency conditions, we may defer payment of a Fixed Account withdrawal value (a) for a period of up to six months, or (b) as provided by federal law. In addition, if allowed by state law, the Company may pay any Fixed Account withdrawal value in equal payments, with interest, over a period not to exceed 60 months, when: (a) the Fixed Account withdrawal value for the Contract or for the total of the Accounts under the Contract exceeds $250,000 on the day prior to the withdrawal; and (b) the sum of the current Fixed Account withdrawal and the total of all Fixed Account withdrawals from the Contract or any Account under the Contract within the past 12 calendar months exceeds 20% of the amount in the Fixed Account on the day prior to the current withdrawal. Interest, as used above, will not be more than two percentage points below any rate determined prospectively by the Board of Directors for this class of Contract. In no event will the interest rate be less than the minimum stated in the Contract. Amounts applied to the Fixed Account will earn the interest rate in effect when actually applied to the Fixed Account. The Fixed Account will reflect a compound interest rate credited by us. The interest rate quoted is an annual effective yield. We make no deductions from the credited interest rate for mortality and expense risks; these risks are considered in determining the credited rate. If a withdrawal is made from the Fixed Account, a deferred sales charge may apply. (See "Charges and Deductions-- Deferred Sales Charge.") TRANSFERS AMONG INVESTMENT OPTIONS Transfers from the Fixed Account to any other available investment option(s) are allowed in each calendar year during the Accumulation Period. The amount which may be transferred may vary at our discretion; however, it will never be less than 10% of the amount held under the Fixed Account. Transfers to the Fixed Plus Account (if available under the Contract) will be permitted without regard to this limitation. By notifying us at our Home Office at least 30 days before Annuity payments begin, you may elect to have amounts which have been accumulating under the Fixed Account transferred to one or more of the Subaccounts available during the Annuity Period to provide variable Annuity payments. - -------------------------------------------------------------------------------- 21 APPENDIX III FIXED PLUS ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following summarizes material information concerning the Fixed Plus Account. Amounts allocated to the Fixed Plus Account are held in the Company's general account that supports insurance and Annuity obligations. Interests in the Fixed Plus Account have not been registered with the SEC in reliance on exemptions under the Securities Act of 1933, as amended. Disclosure in this Prospectus regarding the Fixed Plus Account may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of the statements. Disclosure in this appendix regarding the Fixed Plus Account has not been reviewed by the SEC. FIXED PLUS ACCOUNT The Fixed Plus Account guarantees that amounts allocated to this option will earn the minimum Fixed Plus interest rate specified in the Contract. We may credit a higher interest rate from time to time. Our determination of interest rates reflects the investment income earned on invested assets and the amortization of any capital gains and/or losses realized on the sale of invested assets. Under this option, we assume the risk of investment gain or loss by guaranteeing Net Purchase Payment values and promising a minimum interest rate and Annuity payment. The Fixed Plus Account will reflect a compound interest rate credited by us. The interest rate quoted is an annual effective yield. Amounts applied to the Fixed Plus Account will earn the Fixed Plus interest rate in effect when actually applied to the Fixed Plus Account. We make no deductions from the credited interest rate for mortality and expense risks; these risks are considered in determining the credited rate. Beginning on the tenth Account Year, we will credit amounts held in the Fixed Plus Account with an interest rate that is at least 0.25% higher than the then-declared interest rate for the Fixed Plus Accounts for Accounts that have not reached their tenth anniversary. We reserve the right to limit Net Purchase Payment(s) and/or transfers to the Fixed Plus Account. FIXED PLUS ACCOUNT WITHDRAWALS The amount eligible for partial withdrawal is 20% of the amount held in the Fixed Plus Account on the day we receive a written request in our Home Office, reduced by any Fixed Plus Account withdrawals, transfers or annuitizations made in the prior 12 months. In calculating the 20% limit, we reserve the right to include payments made due to the election of any Systematic Distribution Option. The 20% limit is waived if the partial withdrawal is due to annuitization under a fixed lifetime or nonlifetime Annuity option or a variable lifetime Annuity option, or due to death. The waiver upon death will only be exercised once and must occur within six months after the Participant's date of death. For this waiver to apply, any such partial withdrawal must also be made pro rata from all funding options used under the Account. If a full withdrawal is requested, we will pay any amounts held in the Fixed Plus Account, with interest, in five annual payments that will be equal to: 1. One-fifth of the Fixed Plus Account value on the day the request is received, reduced by any Fixed Plus Account withdrawals, transfers or annuitizations made in the prior 12 months; 2. One-fourth of the remaining Fixed Plus Account value twelve months later; 3. One-third of the remaining Fixed Plus Account value twelve months later; 4. One-half of the remaining Fixed Plus Account value twelve months later; and 5. The balance of the Fixed Plus Account value twelve months later. - -------------------------------------------------------------------------------- 22 Once we receive a request for a full withdrawal from an Account, no further withdrawals or transfers will be permitted from the Fixed Plus Account. A full withdrawal from the Fixed Plus Account may be canceled at any time before the end of the five-payment period. We will waive the Fixed Plus Account full withdrawal provision, if the withdrawal is made: (a) due to your death, before Annuity payments begin, within 6 months of the date of death; (b) due to the election of a fixed lifetime or nonlifetime Annuity option or a variable lifetime Annuity option; (c) when the Fixed Plus Account value is $3,500 or less (and no withdrawals, transfers or annuitizations have been made from the Account within the prior 12 months). TRANSFERS AMONG INVESTMENT OPTIONS The amount eligible for transfer from the Fixed Plus Account is 20% of the amount held in the Fixed Plus Account on the day we receive a written request in our Home Office, reduced by any Fixed Plus Account withdrawals, transfers or annuitizations made in the prior 12 months. In calculating the 20% limit, we reserve the right to include payments made due to the election of a Systematic Distribution Option. We will waive the 20% transfer limit when the value in the Fixed Plus Account is $1,000 or less. By notifying us at our Home Office at least 30 days before Annuity payments begin, the Contract Holder may elect to have amounts which have been accumulating under the Fixed Plus Account transferred to one or more of the Subaccounts available during the Annuity Period, to provide lifetime variable Annuity payments. SWO The Systematic Withdrawal Option may not be elected if you have requested a Fixed Plus Account transfer or withdrawal within the prior 12-month period. - -------------------------------------------------------------------------------- 23 APPENDIX IV CONDENSED FINANCIAL INFORMATION (Selected data for accumulation units outstanding throughout each period) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The condensed financial information presented below for each of the periods in the ten-year period ended December 31, 1997 (as applicable), is derived from the financial statements of the Separate Account, which have been audited by KPMG Peat Marwick LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1997 are included in the Statement of Additional Information. TABLE I FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 1.25%
1997 1996 --------------------- ----------------- AETNA ASCENT VP Value at beginning of period $12.999 $10.652 Value at end of period $15.392 $12.999 Increase (decrease) in value of accumulation unit(1) 18.40% 22.04% Number of accumulation units outstanding at end of period 317,579 99,589 AETNA BALANCED VP, INC. Value at beginning of period $15.698 $13.803 Value at end of period $18.989 $15.698 Increase (decrease) in value of accumulation unit(1) 20.96% 13.73% Number of accumulation units outstanding at end of period 3,174,738 3,885,730 AETNA BOND VP Value at beginning of period $12.493 $12.212 Value at end of period $13.361 $12.493 Increase (decrease) in value of accumulation unit(1) 6.96% 2.30% Number of accumulation units outstanding at end of period 1,168,988 1,947,629 AETNA CROSSROADS VP Value at beginning of period $12.430 $10.594 Value at end of period $14.432 $12.430 Increase (decrease) in value of accumulation unit(1) 16.11% 17.32% Number of accumulation units outstanding at end of period 175,559 74,128 AETNA GROWTH PORTFOLIO Value at beginning of period $14.437 Value at end of period $13.173 Increase (decrease) in value of accumulation unit(1) (8.75)%(6) Number of accumulation units outstanding at end of period 2,695 AETNA GROWTH AND INCOME VP Value at beginning of period $17.173 $13.972 Value at end of period $22.028 $17.173 Increase (decrease) in value of accumulation unit(1) 28.27% 22.91% Number of accumulation units outstanding at end of period 10,689,845 15,372,944 AETNA INDEX PLUS LARGE CAP VP Value at beginning of period $10.924 $10.000(8) Value at end of period $14.444 $10.924 Increase (decrease) in value of accumulation unit(1) 32.23% 9.24% Number of accumulation units outstanding at end of period 266,429 89,498 1995 1994 1993 ----------------- --------------------- ------------- AETNA ASCENT VP Value at beginning of period $10.000(2) Value at end of period $10.652 Increase (decrease) in value of accumulation unit(1) 6.52% Number of accumulation units outstanding at end of period 16,791 AETNA BALANCED VP, INC. Value at beginning of period $10.971 $11.164 $10.286 Value at end of period $13.803 $10.971 $11.164 Increase (decrease) in value of accumulation unit(1) 25.81% (1.73)% 8.54% Number of accumulation units outstanding at end of period 6,430,772 3,541,703 318,711 AETNA BOND VP Value at beginning of period $10.457 $11.006 $10.160 Value at end of period $12.212 $10.457 $11.006 Increase (decrease) in value of accumulation unit(1) 16.78% (4.99)% 8.33% Number of accumulation units outstanding at end of period 4,853,662 1,988,960 166,913 AETNA CROSSROADS VP Value at beginning of period $10.000(2) Value at end of period $10.594 Increase (decrease) in value of accumulation unit(1) 5.94% Number of accumulation units outstanding at end of period 16,953 AETNA GROWTH PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA GROWTH AND INCOME VP Value at beginning of period $10.698 $10.940 $10.378 Value at end of period $13.972 $10.698 $10.940 Increase (decrease) in value of accumulation unit(1) 30.61% (2.21)% 5.41% Number of accumulation units outstanding at end of period 30,554,957 11,117,383 879,670 AETNA INDEX PLUS LARGE CAP VP Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period 1992 1991 1990 1989 ---------------- ---------------- ------------- ---------------- AETNA ASCENT VP Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA BALANCED VP, INC. Value at beginning of period $12.717 $10.882 $10.423 $10.000(4) Value at end of period $10.286(3) $12.717 $10.882 $10.423 Increase (decrease) in value of accumulation unit(1) (3) 16.86% 4.40% 4.23% Number of accumulation units outstanding at end of period 6,537 1,324,822 984,798 639,219 AETNA BOND VP Value at beginning of period $37.815 $32.066 $29.752 $26.291 Value at end of period $10.160(5) $37.815 $32.066 $29,752 Increase (decrease) in value of accumulation unit(1) (5) 17.93% 7.78% 13.16% Number of accumulation units outstanding at end of period 4,196 427,893 358,454 366,176 AETNA CROSSROADS VP Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA GROWTH PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA GROWTH AND INCOME VP Value at beginning of period $84.249 $67.496 $66.174 $51.900 Value at end of period $10.378(7) $84.249 $67.496 $66.174 Increase (decrease) in value of accumulation unit(1) (7) 24.82% 2.00% 27.50% Number of accumulation units outstanding at end of period 3,107 908,777 810,126 831,547 AETNA INDEX PLUS LARGE CAP VP Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period 1988 ------------ AETNA ASCENT VP Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA BALANCED VP, INC. Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA BOND VP Value at beginning of period $24.734 Value at end of period $26.291 Increase (decrease) in value of accumulation unit(1) 6.29% Number of accumulation units outstanding at end of period 383,856 AETNA CROSSROADS VP Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA GROWTH PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA GROWTH AND INCOME VP Value at beginning of period $45.839 Value at end of period $51.900 Increase (decrease) in value of accumulation unit(1) 13.22% Number of accumulation units outstanding at end of period 887,039 AETNA INDEX PLUS LARGE CAP VP Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period
- -------------------------------------------------------------------------------- 24 CONDENSED FINANCIAL INFORMATION (continued)
1997 1996 1995 1994 ------------------- ---------------- ----------------- ---------------- AETNA LEGACY VP Value at beginning of period $11.776 $10.443 $10.000(2) Value at end of period $13.317 $11.776 $10.443 Increase (decrease) in value of accumulation unit(1) 13.08 12.76% 4.43% Number of accumulation units outstanding at end of period 133,741 25,977 2,222 AETNA MONEY MARKET VP Value at beginning of period $11.453 $11.007 $10.509 $10.223 Value at end of period $11.930 $11.453 $11.007 $10.509 Increase (decrease) in value of accumulation unit(1) 4.16% 4.05% 4.73% 2.79% Number of accumulation units outstanding at end of period 974,714 1,984,269 4,354,272 1,822,449 AETNA SMALL COMPANY VP Value at beginning of period $13.503 Value at end of period $13.654 Increase (decrease) in value of accumulation unit(1) 1.12%(6) Number of accumulation units outstanding at end of period 17,392 AETNA VALUE OPPORTUNITY VP Value at beginning of period $12.904 Value at end of period $13.261 Increase (decrease) in value of accumulation unit(1) 2.77%(6) Number of accumulation units outstanding at end of period 6,194 CALVERT SOCIAL BALANCED PORTFOLIO Value at beginning of period $14.992 $13.480 $10.518 $11.010 Value at end of period $17.779 $14.992 $13.480 $10.518 Increase (decrease) in value of accumulation unit(1) 18.59% 11.22% 28.17% (4.47)% Number of accumulation units outstanding at end of period 20,122 6,303 25,730 752 FIDELITY VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $12.475 $11.054 $10.000(2) Value at end of period $15.784 $12.475 $11.054 Increase (decrease) in value of accumulation unit(1) 26.53% 12.86% 10.54% Number of accumulation units outstanding at end of period 328,562 208,072 294,244 FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period $11.402 $10.066 $10.000(2) Value at end of period $13.904 $11.402 $10.066 Increase (decrease) in value of accumulation unit(1) 21.95% 13.27% 0.66% Number of accumulation units outstanding at end of period 229,060 199,720 288,576 FIDELITY VIP OVERSEAS PORTFOLIO Value at beginning of period $11.238 $10.052 $10.000(2) Value at end of period $12.381 $11.238 $10.052 Increase (decrease) in value of accumulation unit(1) 10.17% 11.80% 0.52% Number of accumulation units outstanding at end of period 51,781 38,994 33,813 FIDELITY VIP II CONTRAFUND PORTFOLIO Value at beginning of period $12.540 $10.468 $10.000(2) Value at end of period $15.374 $12.540 $10.468 Increase (decrease) in value of accumulation unit(1) 22.60% 19.79% 4.68% Number of accumulation units outstanding at end of period 465,699 273,189 379,862 1993 1992 1991 1990 1989 1988 ------------ ------------------ ------------ ------------ ------------ ------------ AETNA LEGACY VP Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA MONEY MARKET VP Value at beginning of period $10.031 $34.122 $32.431 $30.285 $28.029 $26.401 Value at end of period $10.223 $10.031(9) $34.122 $32.431 $30.285 $28.029 Increase (decrease) in value of accumulation unit(1) 1.91% (9) 5.21% 7.09% 8.05% 6.17% Number of accumulation units outstanding at end of period 90,782 2,808 548,425 722,438 653,619 720,726 AETNA SMALL COMPANY VP Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA VALUE OPPORTUNITY VP Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period CALVERT SOCIAL BALANCED PORTFOLIO Value at beginning of period $10.296 $10.000(10) Value at end of period $11.010 $10.296 Increase (decrease) in value of accumulation unit(1) 6.93% 2.96% Number of accumulation units outstanding at end of period 1,383 82 FIDELITY VIP EQUITY-INCOME PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period FIDELITY VIP OVERSEAS PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period FIDELITY VIP II CONTRAFUND PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period
- -------------------------------------------------------------------------------- 25 CONDENSED FINANCIAL INFORMATION (continued)
1997 1996 1995 ------------------ ------------- ---------------- JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $13.850 $12.992 $10.319 Value at end of period $15.410 $13.850 $12.992 Increase (decrease) in value of accumulation unit(1) 11.26% 6.60% 25.91% Number of accumulation units outstanding at end of period 469,230 590,904 723,839 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $12.431 $10.835 $10.000(2) Value at end of period $14.990 $12.431 $10.835 Increase (decrease) in value of accumulation unit(1) 20.58% 14.73% 8.35% Number of accumulation units outstanding at end of period 193,429 74,184 7,772 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $13.040 $12.094 $9.886 Value at end of period $14.393 $13.040 $12.094 Increase (decrease) in value of accumulation unit(1) 10.37% 7.83% 22.33% Number of accumulation units outstanding at end of period 109,812 96,128 84,048 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $12.716 $10.870 $10.000(2) Value at end of period $15.414 $12.716 $10.870 Increase (decrease) in value of accumulation unit(1) 21.22% 16.98% 8.70% Number of accumulation units outstanding at end of period 179,226 132,465 26,022 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $13.880 $10.893 $10.000(2) Value at end of period $16.745 $13.880 $10.893 Increase (decrease) in value of accumulation unit(1) 20.64% 27.43% 8.93% Number of accumulation units outstanding at end of period 953,522 520,275 227,582 LEXINGTON NATURAL RESOURCES TRUST Value at beginning of period $13.132 $10.479 $9.079 Value at end of period $13.896 $13.132 $10.479 Increase (decrease) in value of accumulation unit(1) 5.82% 25.31% 15.42% Number of accumulation units outstanding at end of period 149,149 115,869 162,462 PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $15.411 Value at end of period $15.219 Increase (decrease) in value of accumulation unit(1) (1.24)%(6) Number of accumulation units outstanding at end of period 742,913 PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period $12.995 Value at end of period $12.744 Increase (decrease) in value of accumulation unit(1) (1.93)%(6) Number of accumulation units outstanding at end of period 664,979 PORTFOLIO PARTNERS MFS VALUE EQUITY PORTFOLIO Value at beginning of period $21.038 Value at end of period $21.343 Increase (decrease) in value of accumulation unit(1) 1.45% (6) Number of accumulation units outstanding at end of period 296,540 1994 1993 1992 1991 1990 1989 1988 ------------------ ------------------ ------ ------ ------ ------ ----- JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $10.000(11) Value at end of period $10.319 Increase (decrease) in value of accumulation unit(1) 3.19% Number of accumulation units outstanding at end of period 131,702 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $10.000(11) Value at end of period $9.886 Increase (decrease) in value of accumulation unit(1) (1.14)% Number of accumulation units outstanding at end of period 15,893 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period LEXINGTON NATURAL RESOURCES TRUST Value at beginning of period $9.716 $10.000(12) Value at end of period $9.079 $9.716 Increase (decrease) in value of accumulation unit(1) (6.56)% (2.84)% Number of accumulation units outstanding at end of period 141,076 27,908 PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period PORTFOLIO PARTNERS MFS VALUE EQUITY PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period
- -------------------------------------------------------------------------------- 26 CONDENSED FINANCIAL INFORMATION (continued)
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 ------------------- ------ ------ ------ ------ ------ ------ ------ ------ ----- PORTFOLIO PARTNERS SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $17.682 Value at end of period $17.903 Increase (decrease) in value of accumulation unit(1) 1.25%(6) Number of accumulation units outstanding at end of period 411,600 PORTFOLIO PARTNERS T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $14.112 Value at end of period $14.400 Increase (decrease) in value of accumulation unit(1) 2.04%(6) Number of accumulation units outstanding at end of period 231,297
- ------------------ (1) The above figures are calculated by subtracting the beginning Accumulation Unit value from the ending Accumulation Unit value, and dividing the result by the beginning Accumulation Unit value. These figures do not reflect the deferred sales charges or the fixed dollar annual maintenance fee, if any. Inclusion of these charges would reduce the investment results shown. (2) The initial Accumulation Unit value was established at $10.000 during August 1995, when the Fund became available under the Contract. (3) The Accumulation Unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the Accumulation Unit value of the Fund was $12.991. On the date of conversion, additional units were issued so that Account Values were not changed as a result of the conversion. The percentage change in the Accumulation Unit value from the beginning of the year to the date of conversion was 2.15%; the percentage change in the Accumulation Unit value from the date of conversion to the end of the year was 2.86%. (4) The initial Accumulation Unit value was established at $10.000 on June 23, 1989, the date on which the Fund commenced operations. (5) The Accumulation Unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the Accumulation Unit value of the Fund was $39.496. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. The percentage change in the Accumulation Unit value from the beginning of the year to the date of conversion was 4.45%; the percentage change in the Accumulation Unit value from the date of conversion to the end of the year was 1.60%. (6) Reflects less than a full year of performance activity. Funds were first received in this option during November 1997. (7) The Accumulation Unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the Accumulation Unit value of the Fund was $85.546. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. The percentage change in the Accumulation Unit value from the beginning of the year to the date of conversion was 1.54%; the percentage change in the Accumulation Unit value from the date of conversion to the end of the year was 3.78%. (8) The initial Accumulation Unit value was established at $10.000 during September 1996, when the Portfolio became available under the Contract. (9) The Accumulation Unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the Accumulation Unit value of the Fund was $34.828. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. The percentage change in the Accumulation Unit value from the beginning of the year to the date of conversion was 2.07%; the percentage change in the Accumulation Unit value from the date of conversion to the end of the year was 0.31%. (10) The initial Accumulation Unit value was established at $10.000 on November 2, 1992, the date on which the Fund/Portfolio became available under the Contract. (11) The initial Accumulation Unit value was established at $10.000 during October 1994, when the Funds were first received in this option. (12) The initial Accumulation Unit value was established at $10.000 on May 26, 1993, the date on which the Fund became available under the Contract. - -------------------------------------------------------------------------------- 27 CONDENSED FINANCIAL INFORMATION (Selected data for accumulation units outstanding throughout each period) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The condensed financial information presented below for the period ended December 31, 1997, is derived from the financial statements of the Separate Account, which have been audited by KPMG Peat Marwick LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1997 are included in the Statement of Additional Information. TABLE II FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 1.50%, INCLUDING A 0.25% ADMINISTRATIVE EXPENSE CHARGE BEGINNING APRIL 7, 1997)
1997 ------------------- AETNA ASCENT VP Value at beginning of period $12.994 Value at end of period $15.364 Increase (decrease) in value of accumulation unit(1) 18.24%(2) Number of accumulation units outstanding at end of period 911 AETNA BALANCED VP, INC. Value at beginning of period $15.823 Value at end of period $18.954 Increase (decrease) in value of accumulation unit(1) 19.79%(2) Number of accumulation units outstanding at end of period 25,112 AETNA BOND VP Value at beginning of period $12.417 Value at end of period $13.337 Increase (decrease) in value of accumulation unit(1) 7.41%(2) Number of accumulation units outstanding at end of period 36,018 AETNA CROSSROADS VP Value at beginning of period $12.428 Value at end of period $14.406 Increase (decrease) in value of accumulation unit(1) 15.91%(2) Number of accumulation units outstanding at end of period 7,855 AETNA GROWTH AND INCOME VP Value at beginning of period $17.728 Value at end of period $21.988 Increase (decrease) in value of accumulation unit(1) 24.03%(2) Number of accumulation units outstanding at end of period 188,162 AETNA INDEX PLUS LARGE CAP VP Value at beginning of period $11.345 Value at end of period $14.418 Increase (decrease) in value of accumulation unit(1) 27.09%(2) Number of accumulation units outstanding at end of period 11,672 AETNA LEGACY VP Value at beginning of period $12.076 Value at end of period $13.292 Increase (decrease) in value of accumulation unit(1) 10.07%(3) Number of accumulation units outstanding at end of period 397 AETNA MONEY MARKET VP Value at beginning of period $11.572 Value at end of period $11.908 Increase (decrease) in value of accumulation unit(1) 2.91%(2) Number of accumulation units outstanding at end of period 23,882 FIDELITY VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $12.668 Value at end of period $15.755 Increase (decrease) in value of accumulation unit(1) 24.37%(2) Number of accumulation units outstanding at end of period 9,385 FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period $11.373 Value at end of period $13.879 Increase (decrease) in value of accumulation unit(1) 22.03%(2) Number of accumulation units outstanding at end of period 8,432
- -------------------------------------------------------------------------------- 28 CONDENSED FINANCIAL INFORMATION (continued)
1997 ------------------- FIDELITY VIP OVERSEAS PORTFOLIO Value at beginning of period $11.356 Value at end of period $12.358 Increase (decrease) in value of accumulation unit(1) 8.83%(2) Number of accumulation units outstanding at end of period 2,264 FIDELITY VIP II CONTRAFUND PORTFOLIO Value at beginning of period $12.473 Value at end of period $15.346 Increase (decrease) in value of accumulation unit(1) 23.04%(2) Number of accumulation units outstanding at end of period 19,168 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $12.282 Value at end of period $15.382 Increase (decrease) in value of accumulation unit(1) 25.24%(2) Number of accumulation units outstanding at end of period 10,357 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $12.742 Value at end of period $14.963 Increase (decrease) in value of accumulation unit(1) 17.43%(2) Number of accumulation units outstanding at end of period 7,255 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $13.043 Value at end of period $14.367 Increase (decrease) in value of accumulation unit(1) 10.15%(2) Number of accumulation units outstanding at end of period 2,833 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $12.975 Value at end of period $15.386 Increase (decrease) in value of accumulation unit(1) 18.58%(2) Number of accumulation units outstanding at end of period 3,305 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $14.460 Value at end of period $16.714 Increase (decrease) in value of accumulation unit(1) 15.59%(2) Number of accumulation units outstanding at end of period 23,481 LEXINGTON NATURAL RESOURCES TRUST Value at beginning of period $12.300 Value at end of period $13.870 Increase (decrease) in value of accumulation unit(1) 12.77%(2) Number of accumulation units outstanding at end of period 4,339 PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $15.386 Value at end of period $15.192 Increase (decrease) in value of accumulation unit(1) (1.26)%(4) Number of accumulation units outstanding at end of period 11,491 PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period $12.975 Value at end of period $12.721 Increase (decrease) in value of accumulation unit(1) (1.95)%(4) Number of accumulation units outstanding at end of period 17,743 PORTFOLIO PARTNERS MFS VALUE EQUITY PORTFOLIO Value at beginning of period $21.005 Value at end of period $21.304 Increase (decrease) in value of accumulation unit(1) (1.42)%(4) Number of accumulation units outstanding at end of period 2,468 PORTFOLIO PARTNERS SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $17.653 Value at end of period $17.870 Increase (decrease) in value of accumulation unit(1) 1.23%(4) Number of accumulation units outstanding at end of period 4,502
- -------------------------------------------------------------------------------- 29 CONDENSED FINANCIAL INFORMATION (continued)
1997 ------------------- PORTFOLIO PARTNERS T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $14.090 Value at end of period $14.374 Increase (decrease) in value of accumulation unit(1) 2.02%(4) Number of accumulation units outstanding at end of period 14,429
- ------------------ (1) The above figures are calculated by subtracting the beginning Accumulation Unit value from the ending Accumulation Unit value, and dividing the result by the beginning Accumulation Unit value. These figures do not reflect the deferred sales charges or the fixed dollar annual maintenance fee, if any. Inclusion of these charges would reduce the investment results shown. (2) Reflects less than a full year of performance activity. Funds were first received in this option during April 1997. (3) Reflects less than a full year of performance activity. Funds were first received in this option during May 1997. (4) Reflects less than a full year of performance activity. Funds were first received in this option during November 1997. - -------------------------------------------------------------------------------- 30 CONDENSED FINANCIAL INFORMATION (Selected data for accumulation units outstanding throughout each period) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The condensed financial information presented below for the period ended December 31, 1997, is derived from the financial statements of the Separate Account, which have been audited by KPMG Peat Marwick LLP, independent auditors. The financial statements and the independent auditors' report thereon for the year ended December 31, 1997 are included in the Statement of Additional Information. TABLE III (FOR CONTRACTS CONTAINING LIMITS ON FEES)
1997 -------------------- AETNA ASCENT VP Value at beginning of period $13.943 Value at end of period $15.422 Increase (decrease) in value of accumulation unit(1) 10.61%(2) Number of accumulation units outstanding at end of period 23,868 AETNA BALANCED VP, INC. Value at beginning of period $16.898 Value at end of period $19.016 Increase (decrease) in value of accumulation unit(1) 12.53%(2) Number of accumulation units outstanding at end of period 477,504 AETNA BOND VP Value at beginning of period $12.747 Value at end of period $13.373 Increase (decrease) in value of accumulation unit(1) 4.91%(2) Number of accumulation units outstanding at end of period 489,431 AETNA CROSSROADS VP Value at beginning of period $13.178 Value at end of period $14.461 Increase (decrease) in value of accumulation unit(1) 9.74%(2) Number of accumulation units outstanding at end of period 10,798 AETNA GROWTH AND INCOME VP Value at beginning of period $19.527 Value at end of period $22.060 Increase (decrease) in value of accumulation unit(1) 12.97%(2) Number of accumulation units outstanding at end of period 4,106,796 AETNA LEGACY VP Value at beginning of period $12.335 Value at end of period $13.343 Increase (decrease) in value of accumulation unit(1) 8.18%(2) Number of accumulation units outstanding at end of period 2,254 AETNA MONEY MARKET VP Value at beginning of period $11.654 Value at end of period $11.930 Increase (decrease) in value of accumulation unit(1) 2.37%(2) Number of accumulation units outstanding at end of period 580,412 FIDELITY VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $14.017 Value at end of period $15.784 Increase (decrease) in value of accumulation unit(1) 12.60%(2) Number of accumulation units outstanding at end of period 35,342 FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period $12.498 Value at end of period $13.904 Increase (decrease) in value of accumulation unit(1) 11.26%(2) Number of accumulation units outstanding at end of period 3,029 FIDELITY VIP II CONTRAFUND PORTFOLIO Value at beginning of period $13.535 Value at end of period $15.374 Increase (decrease) in value of accumulation unit(1) 13.59%(2) Number of accumulation units outstanding at end of period 13,675
- -------------------------------------------------------------------------------- 31 CONDENSED FINANCIAL INFORMATION (continued)
1997 ------------------- JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $13.806 Value at end of period $15.410 Increase (decrease) in value of accumulation unit(1) 11.62%(2) Number of accumulation units outstanding at end of period 19,818 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $13.554 Value at end of period $14.990 Increase (decrease) in value of accumulation unit(1) 10.60%(2) Number of accumulation units outstanding at end of period 2,819 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $13.985 Value at end of period $15.414 Increase (decrease) in value of accumulation unit(1) 10.22%(2) Number of accumulation units outstanding at end of period 750 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $15.851 Value at end of period $16.745 Increase (decrease) in value of accumulation unit(1) 5.64%(2) Number of accumulation units outstanding at end of period 44,433 LEXINGTON NATURAL RESOURCES TRUST Value at beginning of period $13.610 Value at end of period $13.896 Increase (decrease) in value of accumulation unit(1) 2.10%(2) Number of accumulation units outstanding at end of period 1,753 PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO Value at beginning of period $15.411 Value at end of period $15.219 Increase (decrease) in value of accumulation unit(1) (1.24)%(3) Number of accumulation units outstanding at end of period 11,848 PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO Value at beginning of period $12.995 Value at end of period $12.744 Increase (decrease) in value of accumulation unit(1) (1.93)%(3) Number of accumulation units outstanding at end of period 141,582 PORTFOLIO PARTNERS MFS VALUE EQUITY PORTFOLIO Value at beginning of period $21.038 Value at end of period $21.343 Increase (decrease) in value of accumulation unit(1) (1.45)%(3) Number of accumulation units outstanding at end of period 8,563 PORTFOLIO PARTNERS SCUDDER INTERNATIONAL GROWTH PORTFOLIO Value at beginning of period $17.682 Value at end of period $17.903 Increase (decrease) in value of accumulation unit(1) 1.25%(3) Number of accumulation units outstanding at end of period 3,986 PORTFOLIO PARTNERS T. ROWE PRICE GROWTH EQUITY PORTFOLIO Value at beginning of period $14.112 Value at end of period $14.400 Increase (decrease) in value of accumulation unit(1) 2.04%(3) Number of accumulation units outstanding at end of period 3,310
- ------------------ (1) The above figures are calculated by subtracting the beginning Accumulation Unit value from the ending Accumulation Unit value, and dividing the result by the beginning Accumulation Unit value. These figures do not reflect the deferred sales charges or the fixed dollar annual maintenance fee, if any. Inclusion of these charges would reduce the investment results shown. (2) Reflects less than a full year of performance activity. Funds were first received in this option during June 1997. (3) Reflects less than a full year of performance activity. Funds were first received in this option during November 1997. - -------------------------------------------------------------------------------- 32 For Master Applications Only I hereby acknowledge receipt of an Account B Group Deferred Variable Annuity Prospectus dated May 1, 1998 for Employer-Sponsored Deferred Compensation Plans, as well as all current prospectuses pertaining to the variable investment options available under the Contracts. - --- Please send an Account B Statement of Additional Information (Form No. SAI.75996-98) dated May 1, 1998. - -------------------------------------------------------------------------------- CONTRACT HOLDER'S SIGNATURE - -------------------------------------------------------------------------------- DATE PROS.75996-98 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- VARIABLE ANNUITY ACCOUNT B OF AETNA LIFE INSURANCE AND ANNUITY COMPANY - -------------------------------------------------------------------------------- Statement of Additional Information dated May 1, 1998 Group and Individual Variable Annuity Contracts Available under Section 457 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, 1998. A free prospectus is available upon request from the local Aetna Life Insurance and Annuity Company office or by writing to or calling: Aetna Life Insurance and Annuity Company Customer Service 151 Farmington Avenue Hartford, Connecticut 06156 1-800-525-4225 Read the prospectus before you invest. Terms used in this Statement of Additional Information shall have the same meaning as in the prospectus. TABLE OF CONTENTS Page General Information and History.......................................... 2 Variable Annuity Account B............................................... 2 Offering and Purchase of Contracts....................................... 3 Performance Data......................................................... 3 General.............................................................. 3 Average Annual Total Return Quotations............................... 4 Annuity Payments......................................................... 10 Sales Material and Advertising........................................... 11 Independent Auditors..................................................... 11 Financial Statements of the Separate Account............................. S-1 Financial Statements of Aetna Life Insurance and Annuity Company......... F-1 GENERAL INFORMATION AND HISTORY Aetna Life Insurance and Annuity Company (the "Company") is a stock life insurance company which was organized under the insurance laws of the State of Connecticut in 1976. Through a merger, it succeeded to the business of Aetna Variable Annuity Life Insurance Company (formerly Participating Annuity Life Insurance Company organized in 1954). As of December 31, 1997, the Company had $40.7 billion invested through its products, including $22.3 billion in its separate accounts (of which the Company, or an affilate oversees the management of $17.6 billion) and $1.3 billion in its mutual funds offered outside of its separate accounts. The Company is ranked among the top 2% of all U.S. life insurance companies based on assets as of December 31, 1996.The Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc., which is in turn a wholly owned subsidiary of Aetna Retirement Services, Inc., and an indirect wholly owned subsidiary of Aetna Inc. The Company is engaged in the business of issuing life insurance policies and annuity contracts in all states of the United States and in the District of Columbia. The Company's Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. In addition to serving as the principal underwriter and the depositor for the Separate Account, the Company is also a registered investment adviser under the Investment Advisers Act of 1940, and a registered broker-dealer under the Securities Exchange Act of 1934. The Company provides investment advice to several of the registered management investment companies offered as variable investment options under the Contracts funded by the Separate Account (see "Variable Annuity Account B" below). Other than the mortality and expense risk charges and administrative expense charge described in the prospectus, all expenses incurred in the operations of the Separate Account are borne by the Company. See "Charges and Deductions" in the prospectus. The Company receives reimbursement for certain administrative costs from some advisers of the Funds used as funding options under the Contract. These fees generally range up to 0.25%. The assets of the Separate Account are held by the Company. The Separate Account has no custodian. However, the Funds in whose shares the assets of the Separate Account are invested each have custodians, as discussed in their respective prospectuses. VARIABLE ANNUITY ACCOUNT B Variable Annuity Account B (the "Separate Account") is a separate account established by the Company for the purpose of funding variable annuity contracts issued by the Company. The Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940, as amended. Purchase Payments made 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. The Company may make additions to, deletions from or substitutions of available investment options as permitted by law and subject to the conditions in the Contract. The availability of the Funds is subject to applicable regulatory authorization. Not all Funds are available in all jurisdictions, under all Contracts, or under all Plans. 2 The Funds currently available under the Contract are as follows: [bullet] Aetna Ascent VP (formerly known as Aetna Ascent Variable Portfolio) [bullet] Aetna Balanced VP, Inc. (formerly known as Aetna Investment Advisers Fund, Inc.) [bullet] Aetna Income Shares d/b/a Aetna Bond VP [bullet] Aetna Crossroads VP (formerly known as Aetna Crossroads Variable Portfolio) [bullet] Aetna Growth VP (formerly known as Aetna Variable Growth Portfolio) [bullet] Aetna Variable Fund d/b/a Aetna Growth and Income VP (formerly known as Aetna Variable Index Plus Portfolio) [bullet] Aetna High Yield VP [bullet] Aetna Index Plus Large Cap VP [bullet] Aetna Index Plus Mid Cap VP [bullet] Aetna Index Plus Small Cap VP [bullet] Aetna International VP [bullet] Aetna Legacy VP (formerly known as Aetna Legacy Variable Portfolio) [bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP [bullet] Aetna Real Estate Securities VP [bullet] Aetna Small Company VP (formerly known as Aetna Variable Small Company Portfolio) [bullet] Aetna Value Opportunity VP (formerly known as Aetna Variable Capital Appreciation Portfolio) [bullet] Calvert Social Balanced Portfolio (formerly known as Calvert Responsibly Invested Portfolio) [bullet] Fidelity VIP Equity-Income Portfolio [bullet] Fidelity VIP Growth Portfolio [bullet] Fidelity VIP Overseas Portfolio [bullet] Fidelity VIP II Contrafund Portfolio [bullet] Janus Aspen Aggressive Growth Portfolio [bullet] Janus Aspen Balanced Portfolio [bullet] Janus Aspen Flexible Income Portfolio [bullet] Janus Aspen Growth Portfolio [bullet] Janus Aspen Worldwide Growth Portfolio [bullet] Lexington Natural Resources Trust* [bullet] Oppenheimer Global Securities Fund [bullet] Oppenheimer Strategic Bond Fund [bullet] Portfolio Partners MFS Emerging Equities Portfolio [bullet] Portfolio Partners MFS Research Growth Portfolio [bullet] Portfolio Partners MFS Value Equity Portfolio [bullet] Portfolio Partners Scudder International Growth Portfolio [bullet] Portfolio Partners T. Rowe Price Growth Equity Portfolio *This Fund is only available for investment by Participants who established an account under the Contract before May 1, 1998. As soon as all such Participants have redirected their allocations to other investment options, the Fund will be closed to all new investment (except reinvested dividends and capital gains earned on amounts already invested in the Fund through the Separate Account). Complete descriptions of each of the Funds, including their investment objectives, policies, risks and fees and expenses, are contained in the prospectuses and statements of additional information for each of the Funds. OFFERING AND PURCHASE OF CONTRACTS The Company is both the depositor and the principal underwriter for the securities sold by the prospectus. The Company offers the Contracts through life insurance agents licensed to sell variable annuities who are registered representatives of the Company or of other registered broker-dealers who have sales agreements with the Company. The offering of the Contracts is continuous. A description of the manner in which Contracts are purchased may be found in the prospectus under the sections titled "Purchase" and "Contract Valuation." PERFORMANCE DATA GENERAL From time to time, the Company may advertise different types of historical performance for the Subaccounts of the Separate Account available under the Contracts issued by the Company in connection with Plans described in the prospectus. The Company may advertise the "standardized average annual total returns," calculated in a manner prescribed by the Securities and Exchange Commission (the "standardized return"), as well as "non-standardized returns," both of which are described below. The standardized and non-standardized total return figures are computed according to a formula in which a hypothetical initial Purchase Payment of $1,000 is applied to the various Subaccounts under the Contract, and then related to the ending redeemable values over one, five and ten year periods (or fractional periods thereof). The redeemable value is then divided by the initial investment and this quotient is taken to the Nth root (N represents the number of years in the period) and 1 is subtracted from the result which is then expressed as a percentage, carried to at least the nearest hundredth of a percent. The standardized figures use the actual returns of the Fund since the date contributions were first received in the Fund under the Separate Account and then adjust them to reflect the deduction of all recurring charges under the Contracts during each period (e.g., mortality and expense risk charges, maintenance fees, administrative expense charges if applicable during the 3 period shown, and deferred sales charges). These charges will be deducted on a pro rata basis in the case of fractional periods. The maintenance fee is converted to a percentage of assets based on the average account size under the Contracts described in the prospectus. The total return figures shown below may be different from the actual historical total return under your Contract because for periods prior to 1994, the Subaccount's investment performance was based on the performance of the underlying Fund plus any cash held by the Subaccount. The non-standardized figures will be calculated in a similar manner, except that they will not reflect the deduction of any applicable deferred sales charge (which 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 Funds inception date and/or the date contributions were first received in the Fund under the Separate Account. Investment results of the Subaccounts will fluctuate over time, and any presentation of the Subaccounts' total return quotations for any prior period should not be considered as a representation of how the Subaccounts will perform in any future period. Additionally, the Account Value upon redemption may be more or less than your original cost. AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized Each set of tables shown below represents the variations in contract payment type and in the maintenance fees assessed under different plans. Table A reflects the average annual standardized and non-standardized total return quotation figures for the periods ended December 31, 1997 for the Subaccounts under Single Payment Accounts issued by the Company. Table B reflects the average annual standardized and non-standardized total return quotation figures for the periods ended December 31, 1997 for the Subaccounts under Installment Payment Accounts with a $20 annual maintenance fee. The Company may also advertise returns based on a $15 annual maintenance fee. Both sets of returns below reflect the 0.25% administrative expense charge applicable under some Contracts. The Company may also advertise total return quotations where the administrative expense charge is not reflected. For the Subaccounts funded by the Portfolio Partners portfolios, two sets of performance returns are shown for each Subaccount: one showing performance based solely on the performance of the Portfolio Partners portfolio from November 28, 1997, the date the Portfolio commenced operations; and one quotation based on (a) performance through November 26, 1997 of the fund it replaced under many Company contracts and; (b) after November 26, 1997, based on the performance of the Portfolio Partners portfolio. For those Subaccounts where results are not available for the full calendar period indicated, performance for such partial periods is shown in the column labeled "Since Inception". For standardized performance, the "Since Inception" column shows the average annual return since the date contributions were first received in the Fund under the Separate Account. For nonstandardized performance, the "Since Inception" column shows average annual total return since the Fund's inception date. 4 TABLE A - ------------------------------------------------------------------------------------------------------------------------
Date Contributions Single Payment Account First ($0 Maintenance Fee) STANDARDIZED Received Under the Separate Account - ------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT 1 Year 5 Years 10 Years Inception* - ------------------------------------------------------------------------------------------------------------------------ Aetna Ascent VP 12.20% 16.82% 08/31/95 - ------------------------------------------------------------------------------------------------------------------------ Aetna Balanced VP, Inc. 14.63% 11.82% 10.84% 06/30/89 - ------------------------------------------------------------------------------------------------------------------------ Aetna Bond VP(1) 1.35% 4.49% 7.60% - ------------------------------------------------------------------------------------------------------------------------ Aetna Crossroads VP 10.03% 13.68% 08/31/95 - ------------------------------------------------------------------------------------------------------------------------ Aetna Growth VP 12.88% 05/30/97 - ------------------------------------------------------------------------------------------------------------------------ Aetna Growth and Income VP(1) 21.56% 15.01% 14.90% - ------------------------------------------------------------------------------------------------------------------------ Aetna Index Plus Large Cap VP 25.30% 26.06% 10/31/96 - ------------------------------------------------------------------------------------------------------------------------ Aetna Legacy VP 7.16% 10.43% 08/31/95 - ------------------------------------------------------------------------------------------------------------------------ Aetna Money Market VP(1)(2) (1.29%) 2.42% 4.38% - ------------------------------------------------------------------------------------------------------------------------ Aetna Small Company VP 14.46% 05/30/97 - ------------------------------------------------------------------------------------------------------------------------ Aetna Value Opportunity VP 14.60% 05/30/97 - ------------------------------------------------------------------------------------------------------------------------ Calvert Social Balanced Portfolio 12.38% 10.31% 10.51% 11/30/92 - ------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Equity-Income Portfolio 19.89% 21.54% 12/30/94 - ------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Growth Portfolio 15.56% 20.29% 12/30/94 - ------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Overseas Portfolio 4.40% 9.83% 01/31/95 - ------------------------------------------------------------------------------------------------------------------------ Fidelity VIP II Contrafund Portfolio 16.18% 18.83% 06/30/95 - ------------------------------------------------------------------------------------------------------------------------ Janus Aspen Aggressive Growth Portfolio 5.44% 10.87% 10/31/94 - ------------------------------------------------------------------------------------------------------------------------ Janus Aspen Balanced Portfolio 14.27% 17.03% 01/31/95 - ------------------------------------------------------------------------------------------------------------------------ Janus Aspen Flexible Income Portfolio 4.59% 10.12% 10/31/94 - ------------------------------------------------------------------------------------------------------------------------ Janus Aspen Growth Portfolio 14.87% 17.38% 07/29/94 - ------------------------------------------------------------------------------------------------------------------------ Janus Aspen Worldwide Growth Portfolio 14.32% 24.36% 04/28/95 - ------------------------------------------------------------------------------------------------------------------------ Lexington Natural Resources Trust 0.28% 6.10% 05/26/93 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Portfolio Partners MFS Emerging Equities Portfolio (6.20%) 11/28/97 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Alger American Small Cap/Portfolio Partners 2.22% 8.82% 09/30/93 MFS Emerging Equities(3) - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Portfolio Partners MFS Research Growth Portfolio (6.86%) 11/28/97 - ------------------------------------------------------------------------------------------------------------------------ American Century VP Capital Appreciation/ (9.18%) 3.40% 5.00% 08/31/92 Portfolio Partners MFS Research Growth(3) - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Portfolio Partners MFS Value Equity Portfolio (3.65%) 11/28/97 - ------------------------------------------------------------------------------------------------------------------------ Neuberger & Berman AMT Growth/ Portfolio Partners 18.24% 10.42% 10.61% 11/30/92 MFS Value Equity(3) - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Portfolio Partners Scudder International (3.83%) 11/28/97 Growth Portfolio - ------------------------------------------------------------------------------------------------------------------------ Scudder International Portfolio Class A/ 2.00% 11.10% 9.25% 08/31/92 Portfolio Partners Scudder International Growth(3) - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Portfolio Partners T. Rowe Price Growth Equity (3.08%) 11/28/97 Portfolio - ------------------------------------------------------------------------------------------------------------------------ Alger American Growth/ Portfolio Partners 20.02% 21.29% 02/28/95 T. Rowe Price Growth Equity(3) - ------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in 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 7-day period ended December 31, 1997 (on an annualized basis) was 3.98%. The current yield reflects the deduction of all charges under the Contract that are deducted from the total return quotations shown above except the maximum 5% deferred sales charge. (3) The Fund first listed was replaced with the applicable Portfolio Partners Portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced Fund until November 26, 1997, and the performance of the applicable Portfolio Partners Portfolio after that date. The 5 replaced Fund may not have been available under all Contracts. The "Date Contributions First Received Under Separate Account" refers to the applicable date for the replaced Fund. 6 - -------------------------------------------------------------------------------------------------------------------------
Single Payment Account Fund ($0 Maintenance Fee) NON-STANDARDIZED Inception Date - ------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception** - ------------------------------------------------------------------------------------------------------------------------- Aetna Ascent VP 18.11% 20.03% 07/05/95 - ------------------------------------------------------------------------------------------------------------------------- Aetna Balanced VP, Inc. 20.66% 19.72% 12.74% 10.85% 04/03/89 - ------------------------------------------------------------------------------------------------------------------------- Aetna Bond VP(1) 6.69% 8.24% 5.34% 7.60% - ------------------------------------------------------------------------------------------------------------------------- Aetna Crossroads VP 15.82% 16.73% 07/05/95 - ------------------------------------------------------------------------------------------------------------------------- Aetna Growth VP 31.03% 30.99% 12/13/96 - ------------------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP(1) 27.96% 26.91% 15.95% 14.90% - ------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP 31.90% 32.59% 09/16/96 - ------------------------------------------------------------------------------------------------------------------------- Aetna Legacy VP 12.80% 13.25% 07/05/95 - ------------------------------------------------------------------------------------------------------------------------- Aetna Money Market VP(1)(2) 3.91% 4.06% 3.26% 4.38% - ------------------------------------------------------------------------------------------------------------------------- Aetna Small Company VP 32.49% 33.43% 12/27/96 - ------------------------------------------------------------------------------------------------------------------------- Aetna Value Opportunity VP 37.29% 37.81% 12/13/96 - ------------------------------------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio(1) 18.29% 18.83% 11.22% 10.75% - ------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio(1) 26.20% 23.66% 18.38% 15.00% - ------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio(1) 21.64% 22.38% 16.25% 15.45% - ------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Overseas Portfolio(1) 9.89% 9.81% 12.43% 8.00% - ------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Contrafund Portfolio 22.29% 26.30% 01/03/95 - ------------------------------------------------------------------------------------------------------------------------- Janus Aspen Aggressive Growth Portfolio 10.99% 14.02% 17.45% 09/13/93 - ------------------------------------------------------------------------------------------------------------------------- Janus Aspen Balanced Portfolio 20.28% 19.17% 14.57% 09/13/93 - ------------------------------------------------------------------------------------------------------------------------- Janus Aspen Flexible Income Portfolio 10.10% 13.06% 8.40% 09/13/93 - ------------------------------------------------------------------------------------------------------------------------- Janus Aspen Growth Portfolio 20.92% 21.86% 15.93% 09/13/93 - ------------------------------------------------------------------------------------------------------------------------- Janus Aspen Worldwide Growth Portfolio 20.34% 24.28% 21.09% 09/13/93 - ------------------------------------------------------------------------------------------------------------------------- Lexington Natural Resources Trust 5.55% 14.95% 9.12% 7.92% 10/14/91 - ------------------------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund 20.60% 12.12% 17.04% 10.59% 11/12/90 - ------------------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund 7.09% 10.33% 6.03% 05/03/93 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Emerging Equities Portfolio (1.27%) 11/28/97 - ------------------------------------------------------------------------------------------------------------------------- Alger American Small Cap/Portfolio Partners 7.60% 16.23% 10.54% 17.22% 09/21/88 MFS Emerging Equities(3) - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Research Growth Portfolio (1.96%) 11/28/97 - ------------------------------------------------------------------------------------------------------------------------- AC VP Capital Appreciation/Portfolio Partners (4.40%) 5.18% 4.25% 7.11% MFS Research Growth(3) - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Value Equity Portfolio 1.28% 11/28/97 - ------------------------------------------------------------------------------------------------------------------------- Neuberger & Berman AMT Growth/Portfolio 24.46% 20.20% 11.33% 12.95% Partners MFS Value Equity(3) - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Portfolio Partners Scudder International 1.44% 11/28/97 Growth Portfolio - ------------------------------------------------------------------------------------------------------------------------- Scudder International Portfolio Class A/ 7.37% 9.94% 12.01% 10.13% Portfolio Partners Scudder International Growth(3) - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Portfolio Partners T. Rowe Price Growth 1.89% 11/28/97 Equity Portfolio - ------------------------------------------------------------------------------------------------------------------------- Alger American Growth/Portfolio Partners 26.34% 23.76% 17.98% 17.93% 01/09/89 T. Rowe Price Growth Equity(3) - -------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of future performance. ** Reflects performance from the Fund's inception date. (1) These Funds have been in operation for more than ten years. (2) The current yield for the Subaccount for the 7-day period ended December 31, 1997 (on an annualized basis) was 3.98%. The current yield reflects the deduction of all charges under the Contract that are deducted from the total return quotations shown above. As in the table above, the maximum 5% deferred sales charge is not reflected. (3) The Fund first listed was replaced with the applicable Portfolio Partners Portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced Fund until November 26, 1997, and the performance of the applicable Portfolio Partners Portfolio after that date. The replaced Fund may not have been available under all Contracts. The "Fund Inception Date" refers to the applicable date for the replaced Fund. If no date is shown, the replaced Fund has been in operation for more than ten years. 7 TABLE B - --------------------------------------------------------------------------------------------------------------------------
Date Contributions Installment Payment Account First ($20 Maintenance Fee) STANDARDIZED Received Under the Separate Account - -------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT 1 Year 5 Year 10 Year Inception* - -------------------------------------------------------------------------------------------------------------------------- Aetna Ascent VP 12.20% 16.81% 08/31/95 - -------------------------------------------------------------------------------------------------------------------------- Aetna Balanced VP, Inc. 14.62% 11.58% 10.30% 06/30/89 - -------------------------------------------------------------------------------------------------------------------------- Aetna Bond VP(1) 1.35% 4.26% 7.59% - -------------------------------------------------------------------------------------------------------------------------- Aetna Crossroads VP 10.02% 13.68% 08/31/95 - -------------------------------------------------------------------------------------------------------------------------- Aetna Growth VP 12.87% 05/30/97 - -------------------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP(1) 21.55% 14.76% 14.90% - -------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP 25.29% 26.05% 10/31/96 - -------------------------------------------------------------------------------------------------------------------------- Aetna Legacy VP 7.15% 10.43% 08/31/95 - -------------------------------------------------------------------------------------------------------------------------- Aetna Money Market VP(1)(2) (1.30%) 2.20% 4.37% - -------------------------------------------------------------------------------------------------------------------------- Aetna Small Company VP 14.46% 05/30/97 - -------------------------------------------------------------------------------------------------------------------------- Aetna Value Opportunity VP 14.59% 05/30/97 - -------------------------------------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio 12.37% 10.08% 10.28% 11/30/92 - -------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio 19.89% 21.53% 12/30/94 - -------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio 15.55% 20.28% 12/30/94 - -------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Overseas Portfolio 4.39% 9.82% 01/31/95 - -------------------------------------------------------------------------------------------------------------------------- Fidelity VIP II Contrafund Portfolio 16.17% 18.82% 06/30/95 - -------------------------------------------------------------------------------------------------------------------------- Janus Aspen Aggressive Growth Portfolio 5.43% 10.86% 10/31/94 - -------------------------------------------------------------------------------------------------------------------------- Janus Aspen Balanced Portfolio 14.26% 17.02% 01/31/95 - -------------------------------------------------------------------------------------------------------------------------- Janus Aspen Flexible Income Portfolio 4.59% 10.11% 10/31/94 - -------------------------------------------------------------------------------------------------------------------------- Janus Aspen Growth Portfolio 14.87% 17.37% 07/29/94 - -------------------------------------------------------------------------------------------------------------------------- Janus Aspen Worldwide Growth Portfolio 14.31% 24.35% 04/28/95 - -------------------------------------------------------------------------------------------------------------------------- Lexington Natural Resources Trust 0.27% 6.10% 05/26/93 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Emerging Equities Portfolio (6.21%) 11/28/97 - -------------------------------------------------------------------------------------------------------------------------- Alger American Small Cap/Portfolio Partners 2.21% 8.82% 09/30/93 MFS Emerging Equities(3) - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Research Growth Portfolio (6.86%) 11/28/97 - -------------------------------------------------------------------------------------------------------------------------- American Century VP Capital Appreciation/Portfolio (9.19%) 3.18% 4.79% 08/31/92 Partners MFS Research Growth(3) - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Portfolio Partners MFS Value Equity Portfolio (3.65%) 11/28/97 - -------------------------------------------------------------------------------------------------------------------------- Neuberger & Berman AMT Growth/ Portfolio Partners 18.23% 10.18% 10.37% 11/30/92 MFS Value Equity(3) - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Portfolio Partners Scudder International Growth (3.84%) 11/28/97 Portfolio - -------------------------------------------------------------------------------------------------------------------------- Scudder International Portfolio Class A/ 1.99% 10.86% 9.03% 08/31/92 Portfolio Partners Scudder International Growth(3) - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Portfolio Partners T. Rowe Price Growth Equity (3.09%) 11/28/97 Portfolio - -------------------------------------------------------------------------------------------------------------------------- Alger American Growth/Portfolio Partners 20.02% 21.28% 02/28/95 T. Rowe Price Growth Equity(3) - --------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in 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 7-day period ended December 31, 1997 (on an annualized basis) was 3.910%. The current yield reflects the deduction of all charges under the Contract that are deducted from the total return quotations shown above except the maximum 5% deferred sales charge. (3) The Fund first listed was replaced with the applicable Portfolio Partners Portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced Fund until November 26, 1997, and the performance of the applicable Portfolio Partners Portfolio after that date. The 8 replaced Fund may not have been available under all Contracts. The "Date Contributions First Received Under Separate Account" refers to the applicable date for the replaced Fund. 9 - ------------------------------------------------------------------------------------------------------------------------------
Installment Payment Account NON-STANDARDIZED Fund ($20 Maintenance Fee) Inception Date - ------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception** - ------------------------------------------------------------------------------------------------------------------------------ Aetna Ascent VP 18.10% 20.02% 07/05/95 - ------------------------------------------------------------------------------------------------------------------------------ Aetna Balanced VP, Inc. 20.65% 19.71% 12.73% 10.84% 04/03/89 - ------------------------------------------------------------------------------------------------------------------------------ Aetna Bond VP(1) 6.68% 8.24% 5.34% 7.59% - ------------------------------------------------------------------------------------------------------------------------------ Aetna Crossroads VP 15.82% 16.73% 07/05/95 - ------------------------------------------------------------------------------------------------------------------------------ Aetna Growth VP(1) 31.02% 30.98% 12/13/96 - ------------------------------------------------------------------------------------------------------------------------------ Aetna Growth and Income VP 27.95% 26.90% 15.95% 14.90% - ------------------------------------------------------------------------------------------------------------------------------ Aetna Index Plus Large Cap VP 31.89% 32.58% 09/16/96 - ------------------------------------------------------------------------------------------------------------------------------ Aetna Legacy VP 12.79% 13.24% 07/05/95 - ------------------------------------------------------------------------------------------------------------------------------ Aetna Money Market VP(1)(2) 3.90% 4.05% 3.25% 4.37% - ------------------------------------------------------------------------------------------------------------------------------ Aetna Small Company VP 32.48% 33.42% 12/27/96 - ------------------------------------------------------------------------------------------------------------------------------ Aetna Value Opportunity VP 37.28% 37.81% 12/13/96 - ------------------------------------------------------------------------------------------------------------------------------ Calvert Social Balanced Portfolio 18.28% 18.82% 11.21% 10.74% - ------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Equity-Income Portfolio 26.20% 23.65% 18.37% 14.99% - ------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Growth Portfolio 21.64% 22.38% 16.25% 15.44% - ------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Overseas Portfolio 9.89% 9.81% 12.42% 7.99% - ------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP II Contrafund Portfolio 22.29% 26.29% 01/03/95 - ------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Aggressive Growth Portfolio 10.98% 14.01% 17.45% 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Balanced Portfolio 20.28% 19.16% 14.56% 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Flexible Income Portfolio 10.09% 13.05% 8.39% 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Growth Portfolio 20.91% 21.85% 15.92% 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Worldwide Growth Portfolio 20.33% 24.27% 21.09% 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------ Lexington Natural Resources Trust 5.55% 14.95% 9.11% 7.91% 10/14/91 - ------------------------------------------------------------------------------------------------------------------------------ Oppenheimer Global Securities Fund 20.60% 12.11% 17.04% 10.59% 11/12/90 - ------------------------------------------------------------------------------------------------------------------------------ Oppenheimer Strategic Bond Fund 7.08% 10.33% 6.03% 05/03/93 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Portfolio Partners MFS Emerging Equities Portfolio (1.28%) 11/28/97 - ------------------------------------------------------------------------------------------------------------------------------ Alger American Small Cap/Portfolio Partners 7.59% 16.22% 10.54% 17.21% 09/21/88 MFS EmergingEquities(3) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Portfolio Partners MFS Research Growth Portfolio (1.97%) 11/28/97 - ------------------------------------------------------------------------------------------------------------------------------ American Century VP Capital Appreciation/Portfolio (4.41%) 5.18% 4.24% 7.10% Partners MFS Research Growth(3) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Portfolio Partners MFS Value Equity Portfolio 1.27% 11/28/97 - ------------------------------------------------------------------------------------------------------------------------------ Neuberger & Berman AMT Growth/Portfolio Partners 24.46% 20.19% 11.32% 12.94% MFS Value Equity(3) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Portfolio Partners Scudder International Growth 1.43% 11/28/97 Portfolio - ------------------------------------------------------------------------------------------------------------------------------ Scudder International Portfolio Class A/Portfolio 7.36% 9.93% 12.00% 10.12% Partners Scudder International Growth(3) - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Portfolio Partners T. Rowe Price Growth Equity Portfolio 1.88% 11/28/97 - ------------------------------------------------------------------------------------------------------------------------------ Alger American Growth/Portfolio Partners 26.33% 23.75% 17.97% 17.92% 01/09/89 T. Rowe Price Growth Equity(3) - ------------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of future performance. ** Reflects performance from the Fund's inception date. (1) These Funds have been in operation for more than ten years. (2) The current yield for the Subaccount for the 7-day period ended December 31, 1997 (on an annualized basis) was 3.910%. The current yield reflects the deduction of all charges under the Contract that are deducted from the total return quotations shown above. As in the table above, the maximum 5% deferred sales charge is not reflected. (3) The Fund first listed was replaced with the applicable Portfolio Partners Portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced Fund until November 26, 1997, and the performance of the applicable Portfolio Partners Portfolio after that date. The replaced Fund may not have been available under all Contracts. The "Fund Inception Date" refers to the applicable date for the replaced Fund. If no date is shown, the replaced Fund has been in operation for more than ten years. 10 ANNUITY PAYMENTS When Annuity payments are to begin, the value of the Account is determined using Accumulation Unit values as of the tenth Valuation Date before the first Annuity payment is due. Such value (less any applicable premium tax) is applied to provide an Annuity in accordance with the Annuity and investment options elected. The Annuity option tables found in the Contract show, for each form of Annuity, the amount of the first Annuity payment for each $1,000 of value applied. Thereafter, variable Annuity payments fluctuate as the Annuity Unit value(s) fluctuates with the investment experience of the selected investment option(s). The first payment and subsequent payments also vary depending on the assumed net investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a higher first payment, but Annuity payments will increase thereafter only to the extent that the net investment rate increases by more than 5% on an annual basis. Annuity payments would decline if the rate failed to increase by 5%. Use of the 3.5% assumed rate causes a lower first payment, but subsequent payments would increase more rapidly or decline more slowly as changes occur in the net investment rate. When the Annuity Period begins, the Annuitant is credited with a fixed number of Annuity Units (which does not change thereafter) in each of the designated investment options. This number is calculated by dividing (a) by (b), where (a) is the amount of the first Annuity payment based on a particular investment option, and (b) is the then current Annuity Unit value for that investment option. As noted, Annuity Unit values fluctuate from one Valuation Date to the next; such fluctuations reflect changes in the net investment factor for the appropriate Subaccount(s) (with a ten Valuation Date lag which gives the Company time to process Annuity payments) and a mathematical adjustment which offsets the assumed net investment rate of 3.5% or 5% per annum. The operation of all these factors can be illustrated by the following hypothetical example. These procedures will be performed separately for the investment options selected during the Annuity Period. EXAMPLE: - -------- Assume that, at the date Annuity payments are to begin, there are 3,000 Accumulation Units credited under a particular Account and that the value of an Accumulation Unit for the tenth Valuation Date prior to retirement was $13.650000. This produces a total value of $40,950. Assume also that no premium tax is payable and that the Annuity table in the Contract provides, for the option elected, a first monthly variable Annuity payment of $6.68 per $1000 of value applied; the Annuitant's first monthly payment would thus be 40.950 multiplied by $6.68, or $273.55. Assume then that the value of an Annuity Unit for the Valuation Date on which the first payment was due was $13.400000. When this value is divided into the first monthly payment, the number of Annuity Units is determined to be 20.414. The value of this number of Annuity Units will be paid in each subsequent month. If the net investment factor with respect to the appropriate Subaccount is 1.0015000 as of the tenth Valuation Date preceding the due date of the second monthly payment, multiplying this factor by .9999058* (to neutralize the assumed net investment rate of 3.5% per annum built into the number of Annuity Units determined above) produces a result of 1.0014057. This is then multiplied by the Annuity Unit value for the prior Valuation Date (assume such value to be $13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation Date in which the second payment is due. 11 The second monthly payment is then determined by multiplying the number of Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359, which produces a payment of $276.07. *If an assumed net investment rate of 5% is elected, the appropriate factor to neutralize such assumed rate would be .9998663. SALES MATERIAL AND ADVERTISING The Company may include hypothetical illustrations in its sales literature that explain the mathematical principles of dollar cost averaging, compounded interest, tax deferred accumulation, and the mechanics of variable annuity contracts. The Company may also discuss the difference between variable annuity contracts and other types of savings or investment products, including, but not limited to, personal savings accounts and certificates of deposit. We may distribute sales literature that compares the percentage change in Accumulation Unit values for any of the Subaccounts to established market indices such as the Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average or to the percentage change in values of other management investment companies that have investment objectives similar to the Subaccount being compared. We may publish in advertisements and reports, the ratings and other information assigned to us by one or more independent rating organizations such as A.M. Best Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors Services, Inc. The purpose of the ratings is to reflect our financial strength and/or claims-paying ability. We may also quote ranking services such as Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable Insurance Products Performance Analysis Service (VIPPAS), which rank variable annuity or life Subaccounts or their underlying funds by performance and/or investment objective. We may categorize the underlying Funds in terms of the asset classes they represent and use such categories in marketing materials for the Contracts. We may illustrate in advertisements the performance of the underlying funds, if accompanied by performance which also shows the performance of such funds reduced by applicable charges under the Separate Account. We may also show in advertisements the portfolio holdings of the underlying funds, updated at various intervals. From time to time, we will quote articles from newspapers and magazines or other publications or reports, including, but not limited to The Wall Street Journal, Money magazine, USA Today and The VARDS Report. The Company may provide in advertising, sales literature, periodic publications or other materials information on various topics of interest to current and prospective Contract Holders or Participants. These topics may include the relationship between sectors of the economy and the economy as a whole and its effect on various securities markets, investment strategies and techniques (such as value investing, market timing, dollar cost averaging, asset allocation, constant ratio transfer and account rebalancing), the advantages and disadvantages of investing in tax-deferred and taxable investments, customer profiles and hypothetical purchase and investment scenarios, financial management and tax and retirement planning, and investment alternatives to certificates of deposit and other financial instruments, including comparison between the Contracts and the characteristics of and market for such financial instruments. INDEPENDENT AUDITORS KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the independent auditors for the Separate Account and for the Company. The services provided to the Separate Account include primarily the examination of the Separate Account's financial statements and the review of filings made with the SEC. 12 FINANCIAL STATEMENTS VARIABLE ANNUITY ACCOUNT B Index Statement of Assets and Liabilities.................................... S-2 Statements of Operations and Changes in Net Assets..................... S-6 Notes to Financial Statements.......................................... S-7 Independent Auditors' Report .......................................... S-25 S-1 Variable Annuity Account B Statement of Assets and Liabilities - December 31, 1997 ASSETS: Investments, at net asset value: (Note 1) Aetna Variable Fund; 30,411,094 shares (cost $955,207,313) ...................... $1,022,883,150 Aetna Income Shares; 5,674,428 shares (cost $72,136,754) ........................ 72,918,472 Aetna Variable Encore Fund; 9,348,762 shares (cost $123,509,269) ................ 124,939,137 Aetna Investment Advisers Fund, Inc.; 10,156,919 shares (cost $141,710,363) ..... 162,842,121 Aetna GET Fund, Series B; 1,326,295 shares (cost $14,665,182) ................... 20,859,924 Aetna GET Fund, Series C; 866,713 shares (cost $8,784,556) ...................... 10,929,107 Aetna Ascent Variable Portfolio; 1,448,001 shares (cost $19,409,307) ............ 20,443,736 Aetna Crossroads Variable Portfolio; 1,552,948 shares (cost $19,616,465) ........ 20,320,625 Aetna Legacy Variable Portfolio; 1,652,443 shares (cost $19,438,586) ............ 19,994,608 Aetna Variable Portfolio, Inc.: Capital Appreciation Portfolio; 328,354 shares (cost $4,457,675) ............... 3,912,594 Growth Portfolio; 326,907 shares (cost $4,163,981) ............................. 3,218,910 Index Plus Portfolio; 2,014,660 shares (cost $26,897,404) ...................... 28,239,788 Small Company Portfolio; 478,249 shares (cost $6,406,805) ...................... 6,107,129 Alger American Funds: Balanced Portfolio; 525,665 shares (cost $4,964,549) ........................... 5,656,151 Income and Growth Portfolio; 1,287,394 shares (cost $11,439,405) ............... 14,148,460 Leveraged AllCap Portfolio; 616,315 shares (cost $12,739,767) .................. 14,280,009 American Century Investments: Balanced Fund; 563,499 shares (cost $4,180,851) ................................ 4,643,230 International Fund; 855,695 shares (cost $5,491,134) ........................... 5,852,955 Calvert Social Balanced Portfolio; 490,079 shares (cost $912,050) ............... 971,337 Fidelity Investments Variable Insurance Products Fund: Equity-Income Portfolio; 5,712,922 shares (cost $118,902,067) .................. 138,709,740 Growth Portfolio; 2,167,158 shares (cost $65,817,036) .......................... 80,401,549 High Income Portfolio; 2,598,408 shares (cost $32,563,692) ..................... 35,286,379 Overseas Portfolio; 677,325 shares (cost $12,543,713) .......................... 13,004,643 Fidelity Investments Variable Insurance Products Fund II: Asset Manager Portfolio; 652,031 shares (cost $10,605,372) ..................... 11,743,075 Contrafund Portfolio; 5,407,595 shares (cost $89,625,610) ...................... 107,827,442 Index 500 Portfolio; 673,020 shares (cost $66,103,932) ......................... 76,986,772 Investment Grade Bond Portfolio; 523,741 shares (cost $6,191,022) .............. 6,578,182 Insurance Management Series: American Leaders Fund II; 5,952,606 shares (cost $86,738,072) .................. 116,849,662 Equity Income Fund II; 1,619,705 shares (cost $19,027,165) ..................... 19,938,571 Growth Strategies Fund II; 1,406,137 shares (cost $19,150,654) ................. 22,709,106 High Income Bond Fund II; 4,859,621 shares (cost $49,449,772) .................. 53,212,853 International Equity Fund II; 1,136,596 shares (cost $13,007,527) .............. 13,946,028 Prime Money Fund II; 7,530,487 shares (cost $7,530,487) ........................ 7,530,487 U.S. Government Securities Fund II; 1,252,067 shares (cost 12,683,585) ......... 13,196,784 Utility Fund II; 1,840,648 shares (cost $20,501,843) ........................... 26,302,858 Janus Aspen Series: Aggressive Growth Portfolio; 1,867,831 shares (cost $33,789,408) ............... 38,383,925 Balanced Portfolio; 1,782,815 shares (cost $27,682,920) ........................ 31,145,778 Flexible Income Portfolio; 894,277 shares (cost $10,167,023) ................... 10,534,588 Growth Portfolio; 2,203,400 shares (cost $34,954,619) .......................... 40,718,827 Worldwide Growth Portfolio; 6,953,978 shares (cost $144,443,276) ............... 162,653,541 Lexington Emerging Markets Fund; 318,004 shares (cost $3,542,964) ............... 2,833,416 Lexington Natural Resources Trust Fund; 464,813 shares (cost $6,752,492) ........ 6,930,364
S-2 Variable Annuity Account B Statement of Assets and Liabilities - December 31, 1997 (continued): MFS Funds: Total Return Series; 1,140,943 shares (cost $16,998,729) ............................ $ 18,973,878 Worldwide Government Series; 129,706 shares (cost $1,330,232) ....................... 1,324,295 Oppenheimer Funds: Capital Appreciation Fund; 90,044 shares (cost $3,554,414) .......................... 3,688,200 Global Securities Fund; 125,453 shares (cost $2,681,784) ............................ 2,680,937 Growth & Income Fund; 616,565 shares (cost $12,222,979) ............................. 12,688,907 Strategic Bond Fund; 604,043 shares (cost $3,113,874) ............................... 3,092,701 Portfolio Partners, Inc. (PPI): PPI MFS Emerging Equities Portfolio; 2,221,275 shares (cost $96,046,526) ............ 95,292,694 PPI MFS Research Growth Portfolio; 6,783,433 shares (cost $67,030,057) .............. 65,867,130 PPI MFS Value Equity Portfolio; 515,803 shares (cost $15,207,018) ................... 15,427,681 PPI Scudder International Growth Portfolio; 897,175 shares (cost $12,454,736) ....... 12,650,163 PPI T. Rowe Price Growth Equity Portfolio; 2,067,651 shares (cost $88,372,335) ...... 90,170,258 -------------- NET ASSETS (cost $2,666,918,351) ..................................................... $2,922,442,857 ============== Net assets represented by: Reserves for annuity contracts in accumulation and payment period: (Notes 1 and 5)
Aetna Variable Fund: Annuity contracts in accumulation ........... $892,006,381 Annuity contracts in payment period ......... 130,876,769 Aetna Income Shares: Annuity contracts in accumulation ........... 69,236,488 Annuity contracts in payment period ......... 3,681,984 Aetna Variable Encore Fund: Annuity contracts in accumulation ........... 124,939,137 Aetna Investment Advisers Fund, Inc.: Annuity contracts in accumulation ........... 150,761,384 Annuity contracts in payment period ......... 12,080,737 Aetna GET Fund, Series B: Annuity contracts in accumulation ........... 20,859,924 Aetna GET Fund, Series C: Annuity contracts in accumulation ........... 10,929,107 Aetna Ascent Variable Portfolio: Annuity contracts in accumulation ........... 20,443,736 Aetna Crossroads Variable Portfolio: Annuity contracts in accumulation ........... 20,250,904 Annuity contracts in payment period ......... 69,721 Aetna Legacy Variable Portfolio: Annuity contracts in accumulation ........... 18,710,015 Annuity contracts in payment period ......... 1,284,593 Aetna Variable Portfolio, Inc.: Capital Appreciation Portfolio: Annuity contracts in accumulation ........... 3,912,594 Growth Portfolio: Annuity contracts in accumulation ........... 3,210,344 Annuity contracts in payment period ......... 8,566 Index Plus Portfolio: Annuity contracts in accumulation ........... 28,074,705 Annuity contracts in payment period ......... 165,083
S-3 Variable Annuity Account B Statement of Assets and Liabilities - December 31, 1997 (continued): Small Company Portfolio: Annuity contracts in accumulation .................... $ 6,059,783 Annuity contracts in payment period .................. 47,346 Alger American Funds: Balanced Portfolio: Annuity contracts in accumulation .................... 5,656,151 Income and Growth Portfolio: Annuity contracts in accumulation .................... 14,148,460 Leveraged AllCap Portfolio: Annuity contracts in accumulation .................... 14,280,009 American Century Investments: Balanced Fund: Annuity contracts in accumulation .................... 4,643,230 International Fund: Annuity contracts in accumulation .................... 5,852,955 Calvert Social Balanced Portfolio: Annuity contracts in accumulation .................... 971,337 Fidelity Investments Variable Insurance Products Fund: Equity-Income Portfolio: Annuity contracts in accumulation .................... 138,709,740 Growth Portfolio: Annuity contracts in accumulation .................... 80,401,549 High Income Portfolio: Annuity contracts in accumulation .................... 35,217,837 Annuity contracts in payment period .................. 68,542 Overseas Portfolio: Annuity contracts in accumulation .................... 13,004,643 Fidelity Investments Variable Insurance Products Fund II: Asset Manager Portfolio: Annuity contracts in accumulation .................... 11,743,075 Contrafund Portfolio: Annuity contracts in accumulation .................... 107,827,442 Index 500 Portfolio: Annuity contracts in accumulation .................... 76,986,772 Investment Grade Bond Portfolio: Annuity contracts in accumulation .................... 6,578,182 Insurance Management Series: American Leaders Fund II: Annuity contracts in accumulation .................... 116,800,911 Annuity contracts in payment period .................. 48,751 Equity Income Fund II: Annuity contracts in accumulation .................... 19,938,571 Growth Strategies Fund II: Annuity contracts in accumulation .................... 22,709,106 High Income Bond Fund II: Annuity contracts in accumulation .................... 53,212,853 International Equity Fund II: Annuity contracts in accumulation .................... 13,946,028 Prime Money Fund II: Annuity contracts in accumulation .................... 7,530,487
S-4 Variable Annuity Account B Statement of Assets and Liabilities - December 31, 1997 (continued): U.S. Government Securities Fund II: Annuity contracts in accumulation ........... $ 13,196,784 Utility Fund II: Annuity contracts in accumulation ........... 26,302,858 Janus Aspen Series: Aggressive Growth Portfolio: Annuity contracts in accumulation ........... 38,383,925 Balanced Portfolio: Annuity contracts in accumulation ........... 31,145,778 Flexible Income Portfolio: Annuity contracts in accumulation ........... 10,534,588 Growth Portfolio: Annuity contracts in accumulation ........... 40,072,928 Annuity contracts in payment period ......... 645,899 Worldwide Growth Portfolio: Annuity contracts in accumulation ........... 160,658,096 Annuity contracts in payment period ......... 1,995,445 Lexington Emerging Markets Fund: Annuity contracts in accumulation ........... 2,833,416 Lexington Natural Resources Trust Fund: Annuity contracts in accumulation ........... 6,930,364 MFS Funds: Total Return Series: Annuity contracts in accumulation ........... 18,973,878 Worldwide Government Series: Annuity contracts in accumulation ........... 1,324,295 Oppenheimer Funds: Capital Appreciation Fund: Annuity contracts in accumulation ........... 3,688,200 Global Securities Fund: Annuity contracts in accumulation ........... 2,680,937 Growth & Income Fund: Annuity contracts in accumulation ........... 12,688,907 Strategic Bond Fund: Annuity contracts in accumulation ........... 3,092,701 Portfolio Partners, Inc: PPI MFS Emerging Equities Portfolio: Annuity contracts in accumulation ........... 94,796,247 Annuity contracts in payment period ......... 496,447 PPI MFS Research Growth Portfolio: Annuity contracts in accumulation ........... 65,867,130 PPI MFS Value Equity Portfolio: Annuity contracts in accumulation ........... 15,049,606 Annuity contracts in payment period ......... 378,075 PPI Scudder International Growth Portfolio: Annuity contracts in accumulation ........... 12,650,163 PPI T. Rowe Price Growth Equity Portfolio: Annuity contracts in accumulation ........... 90,170,258 -------------- $2,922,442,857 ==============
See Notes to Financial Statements S-5 Variable Annuity Account B Statements of Operations and Changes in Net Assets
Year Ended December 31, 1997 1996 ----- ---- INVESTMENT INCOME: Income: (Notes 1, 3 and 5) Dividends ............................................................. $ 278,833,116 $ 120,367,178 Expenses: (Notes 2 and 5) Valuation period deductions ........................................... (29,243,851) (17,483,870) -------------- -------------- Net investment income .................................................. 249,589,265 102,883,308 -------------- -------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on sales of investments: (Notes 1, 4 and 5) Proceeds from sales ................................................... 1,004,789,371 365,025,974 Cost of investments sold .............................................. 933,728,508 347,598,566 -------------- -------------- Net realized gain .................................................... 71,060,863 17,427,408 -------------- -------------- Net unrealized gain on investments: (Note 5) Beginning of Year ..................................................... 122,191,053 28,746,944 End of Year ........................................................... 255,524,506 122,191,053 -------------- -------------- Net change in unrealized gain ........................................ 133,333,453 93,444,109 -------------- -------------- Net realized and unrealized gain on investments ........................ 204,394,316 110,871,517 -------------- -------------- Net increase in net assets resulting from operations ................... 453,983,581 213,754,825 -------------- -------------- FROM UNIT TRANSACTIONS: Variable annuity contract purchase payments ............................ 571,517,770 538,586,667 Sales and administrative charges deducted by the Company ............... (16,265) (17,370) -------------- -------------- Net variable annuity contract purchase payments ...................... 571,501,505 538,569,297 Transfers from the Company for mortality guarantee adjustments ......... 371,835 690,779 Transfers from the Company's fixed account options ..................... 144,526,667 50,549,121 Redemptions by contract holders ........................................ (82,942,177) (73,738,526) Annuity Payments ....................................................... (16,137,431) (12,108,943) Other .................................................................. 2,327,153 159,467 -------------- -------------- Net increase in net assets from unit transactions (Note 5) ........... 619,647,552 504,121,195 -------------- -------------- Change in net assets ................................................... 1,073,631,133 717,876,020 NET ASSETS: Beginning of Year ...................................................... 1,848,811,724 1,130,935,704 -------------- -------------- End of Year ............................................................ $2,922,442,857 $1,848,811,724 ============== ==============
See Notes to Financial Statements S-6 Variable Annuity Account B Notes to Financial Statements - December 31, 1997 1. Summary of Significant Accounting Policies Variable Annuity Account B (the "Account") is a separate account established by Aetna Life Insurance and Annuity Company (the "Company") registered under the Investment Company Act of 1940 as a unit investment trust. The Account is sold exclusively for use with variable annuity contracts that may be entitled to tax-deferred treatment under specific sections of the Internal Revenue Code of 1986, as amended. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Although actual results could differ from these estimates, any such differences are expected to be immaterial to the net assets of the Account. a. Valuation of Investments Investments in the following Funds are stated at the closing net asset value per share as determined by each Fund on December 31, 1997: Aetna Variable Fund Insurance Management Series: Aetna Income Shares [bullet] American Leaders Fund II [bullet] Aetna Variable Encore Fund [bullet] Equity Income Fund II Aetna Investment Advisers Fund, Inc. [bullet] Growth Strategies Fund II Aetna GET Fund, Series B [bullet] High Income Bond Fund II Aetna GET Fund, Series C [bullet] International Equity Fund II Aetna Ascent Variable Portfolio [bullet] Prime Money Fund II Aetna Crossroads Variable Portfolio [bullet] U.S. Government Securities Fund II Aetna Legacy Variable Portfolio [bullet] Utility Fund II Aetna Variable Portfolio, Inc.: Janus Aspen Series: [bullet] Capital Appreciation Portfolio [bullet] Aggressive Growth Portfolio [bullet] Growth Portfolio [bullet] Balanced Portfolio [bullet] Index Plus Portfolio [bullet] Flexible Income Portfolio [bullet] Small Company Portfolio [bullet] Growth Portfolio Alger American Funds: [bullet] Worldwide Growth Portfolio [bullet] Balanced Portfolio Lexington Emerging Markets Fund [bullet] Income and Growth Portfolio Lexington Natural Resources Trust Fund [bullet] Leveraged AllCap Portfolio MFS Funds: American Century Investments: [bullet] Total Return Series [bullet] Balanced Fund [bullet] Worldwide Government Series [bullet] International Fund Oppenheimer Funds: Calvert Social Balanced Portfolio [bullet] Capital Appreciation Fund Fidelity Investments Variable Insurance Products Fund: [bullet] Global Securities Fund [bullet] Equity-Income Portfolio [bullet] Growth & Income Fund [bullet] Growth Portfolio [bullet] Strategic Bond Fund [bullet] High Income Portfolio Portfolio Partners, Inc.: [bullet] Overseas Portfolio [bullet] PPI MFS Emerging Equities Portfolio Fidelity Investments Variable Insurance Products Fund II: [bullet] PPI MFS Research Growth Portfolio [bullet] Asset Manager Portfolio [bullet] PPI MFS Value Equity Portfolio [bullet] Contrafund Portfolio [bullet] PPI Scudder International Growth Portfolio [bullet] Index 500 Portfolio [bullet] PPI T. Rowe Price Growth Equity Portfolio [bullet] Investment Grade Bond 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. S-7 Variable Annuity Account B Notes to Financial Statements - December 31, 1997 (continued): 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. 3. Dividend Income On an annual basis, the Funds distribute substantially all of their taxable income and realized capital gains to their shareholders. Distributions to the Account are automatically reinvested in shares of the Funds. The Account's proportionate share of each Fund's undistributed net investment income (distributions in excess of net investment income) and accumulated net realized gain (loss) on investments is included in net unrealized gain (loss) in the Statements of Operations and Changes in Net Assets. 4. Purchases and Sales of Investments The cost of purchases and proceeds from sales of investments other than short-term investments for the years ended December 31, 1997 and 1996 aggregated $1,874,026,188 and $1,004,789,371; $972,030,476 and $365,025,974, respectively. S-8 Variable Annuity Account B Notes to Financial Statements - December 31, 1997 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1997 Valuation Proceeds Cost of Net Period from Investments Realized Dividends Deductions Sales Sold Gain (Loss) - ---------------------------------------------------------------------------------------------------------------------- Aetna Variable Fund: $206,171,606 ($9,508,053) $64,103,032 $51,274,099 $12,828,933 Annuity contracts in accumulation Annuity contracts in payment period - ---------------------------------------------------------------------------------------------------------------------- Aetna Income Shares: 4,333,850 (737,718) 12,717,950 11,951,670 766,280 Annuity contracts in accumulation Annuity contracts in payment period - ---------------------------------------------------------------------------------------------------------------------- Aetna Variable Encore Fund: 4,149,350 (1,373,114) 187,177,845 187,281,193 (103,348) Annuity contracts in accumulation - ---------------------------------------------------------------------------------------------------------------------- Aetna Investment Advisers Fund, Inc.: 20,983,218 (1,660,805) 12,262,658 9,696,803 2,565,855 Annuity contracts in accumulation Annuity contracts in payment period - ---------------------------------------------------------------------------------------------------------------------- Aetna GET Fund, Series B: 3,422,687 (286,592) 1,109,194 713,521 395,673 Annuity contracts in accumulation - ---------------------------------------------------------------------------------------------------------------------- Aetna GET Fund, Series C: 169,021 (119,214) 963,591 833,090 130,501 Annuity contracts in accumulation - ---------------------------------------------------------------------------------------------------------------------- Aetna Ascent Variable Portfolio: 1,293,085 (171,542) 2,422,808 2,093,544 329,264 Annuity contracts in accumulation - ---------------------------------------------------------------------------------------------------------------------- Aetna Crossroads Variable Portfolio: 1,366,067 (170,121) 1,119,794 921,119 198,675 Annuity contracts in accumulation Annuity contracts in payment period - ---------------------------------------------------------------------------------------------------------------------- Aetna Legacy Variable Portfolio: 1,122,530 (176,596) 1,280,095 1,125,823 154,272 Annuity contracts in accumulation Annuity contracts in payment period - ---------------------------------------------------------------------------------------------------------------------- Aetna Variable Portfolio, Inc.: Capital Appreciation Portfolio: 621,617 (11,486) 125,792 110,176 15,616 Annuity contracts in accumulation - ---------------------------------------------------------------------------------------------------------------------- Growth Portfolio: 848,691 (9,678) 592,546 560,620 31,926 Annuity contracts in accumulation Annuity contracts in payment period - ---------------------------------------------------------------------------------------------------------------------- Index Plus Portfolio: 1,110,445 (154,416) 2,229,246 1,790,247 438,999 Annuity contracts in accumulation Annuity contracts in payment period - ---------------------------------------------------------------------------------------------------------------------- Small Company Portfolio: 366,132 (19,387) 261,692 230,152 31,540 Annuity contracts in accumulation Annuity contracts in payment period - ---------------------------------------------------------------------------------------------------------------------- Alger American Funds: Balanced Portfolio: 142,299 (73,798) 1,098,365 1,473,706 (375,341) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------
S-9
- --------------------------------------------------------------------------------------------------------------- Net Net Unrealized Gain (Loss) Net Increase (Decrease) Net Assets - -------------------------------------- Change in In Net Assets ------------------------------- Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - --------------------------------------------------------------------------------------------------------------- $59,979,314 $67,675,837 $7,696,523 $71,233,894 $644,728,031 $892,006,381 89,732,216 130,876,769 - --------------------------------------------------------------------------------------------------------------- 379,633 781,718 402,085 (1,964,060) 66,534,546 69,236,488 3,583,489 3,681,984 - --------------------------------------------------------------------------------------------------------------- (540,607) 1,429,868 1,970,475 13,513,776 106,781,998 124,939,137 - --------------------------------------------------------------------------------------------------------------- 15,114,435 21,131,758 6,017,323 7,591,834 119,402,212 150,761,384 7,942,484 12,080,737 - --------------------------------------------------------------------------------------------------------------- 4,487,610 6,194,743 1,707,133 (712,316) 16,333,339 20,859,924 - --------------------------------------------------------------------------------------------------------------- 144,834 2,144,550 1,999,716 (532,193) 9,281,276 10,929,107 - --------------------------------------------------------------------------------------------------------------- 276,453 1,034,430 757,977 12,596,284 5,638,668 20,443,736 - --------------------------------------------------------------------------------------------------------------- 151,493 704,161 552,668 13,077,636 5,295,700 20,250,904 0 69,721 - --------------------------------------------------------------------------------------------------------------- 46,576 556,022 509,446 12,197,969 6,186,987 18,710,015 0 1,284,593 - --------------------------------------------------------------------------------------------------------------- 0 (545,082) (545,082) 3,831,929 0 3,912,594 - --------------------------------------------------------------------------------------------------------------- 0 (945,071) (945,071) 3,293,042 0 3,210,344 0 8,566 - --------------------------------------------------------------------------------------------------------------- (4,046) 1,342,384 1,346,430 23,512,958 1,985,372 28,074,705 0 165,083 - --------------------------------------------------------------------------------------------------------------- 0 (299,676) (299,676) 6,028,520 0 6,059,783 0 47,346 - --------------------------------------------------------------------------------------------------------------- (461,380) 691,602 1,152,982 1,032,718 3,777,291 5,656,151 - ---------------------------------------------------------------------------------------------------------------
S-10 Variable Annuity Account B Notes to Financial Statements - December 31, 1997 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- -------------------------------------------------------------------------------------------- Year Ended December 31, 1997 Valuation Period Dividends Deductions - ------------------------------------------------------------------------------------------- Alger American Funds (continued): Growth Portfolio: (1) $506,477 ($685,927) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- Income and Growth Portfolio: 401,543 (156,768) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- Leveraged AllCap Portfolio: 0 (196,601) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- MidCap Growth Portfolio: (1) 350,028 (308,858) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- Small Capitalization Portfolio: (2) 2,260,717 (722,118) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- American Century Investments: Balanced Fund: 199,265 (58,943) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- Capital Appreciation Fund: (3) 725,963 (365,809) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- International Fund: 176,899 (85,324) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio: 67,562 (7,128) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- Fidelity Investments Variable Insurance Products Fund: Equity-Income Portfolio: 7,870,976 (1,400,361) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- Growth Portfolio: 2,159,319 (938,752) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- High Income Portfolio: 1,270,071 (337,944) Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------- Overseas Portfolio: 863,493 (164,196) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- Fidelity Investments Variable Insurance Products Fund II: Asset Manager Portfolio: 761,827 (120,783) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- Contrafund Portfolio: 1,931,363 (1,125,088) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- Index 500 Portfolio: 1,159,193 (771,581) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- Investment Grade Bond Portfolio: 277,920 (79,205) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- Year Ended December 31, 1997 Proceeds Cost of Net from Investments Realized Sales Sold Gain (Loss) - ----------------------------------------------------------------------------------------------------------- Alger American Funds (continued): Growth Portfolio: (1) $78,591,434 $64,519,617 $14,071,817 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- Income and Growth Portfolio: 2,602,037 3,401,714 (799,677) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- Leveraged AllCap Portfolio: 7,570,244 6,461,486 1,108,758 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- MidCap Growth Portfolio: (1) 49,795,194 45,404,313 4,390,881 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- Small Capitalization Portfolio: (2) 118,175,863 114,437,088 3,738,775 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- American Century Investments: Balanced Fund: 704,536 619,119 85,417 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- Capital Appreciation Fund: (3) 47,909,593 51,060,683 (3,151,090) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- International Fund: 4,226,767 3,417,937 808,830 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio: 212,241 199,799 12,442 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- Fidelity Investments Variable Insurance Products Fund: Equity-Income Portfolio: 17,887,517 15,251,625 2,635,892 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- Growth Portfolio: 10,659,015 9,711,716 947,299 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- High Income Portfolio: 4,857,948 4,277,783 580,165 Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------- Overseas Portfolio: 5,725,552 5,116,905 608,647 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- Fidelity Investments Variable Insurance Products Fund II: Asset Manager Portfolio: 1,009,159 904,890 104,269 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- Contrafund Portfolio: 13,933,668 10,543,199 3,390,469 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- Index 500 Portfolio: 17,678,295 13,392,232 4,286,063 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------- Investment Grade Bond Portfolio: 1,100,211 1,085,995 14,216 Annuity contracts in accumulation - -----------------------------------------------------------------------------------------------------------
S-11
- ---------------------------------------------------------------------------------------------------------- Net Unrealized Net Gain (Loss) Net Increase (Decrease) Net Assets ----------- Change in In Net Assets ---------- Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - ---------------------------------------------------------------------------------------------------------- $2,349,936 $0 ($2,349,936) ($55,087,434) $43,545,003 $0 - ---------------------------------------------------------------------------------------------------------- (828,912) 2,709,055 3,537,967 4,693,808 6,471,587 14,148,460 - ---------------------------------------------------------------------------------------------------------- 220,810 1,540,243 1,319,433 628,691 11,419,728 14,280,009 - ---------------------------------------------------------------------------------------------------------- 682,424 0 (682,424) (23,592,354) 19,842,727 0 - ---------------------------------------------------------------------------------------------------------- (495,260) 0 495,260 (64,524,063) 58,751,429 0 - ---------------------------------------------------------------------------------------------------------- 145,325 462,379 317,054 1,109,081 2,991,356 4,643,230 - ---------------------------------------------------------------------------------------------------------- (1,588,390) 0 1,588,390 (43,166,616) 44,369,162 0 - ---------------------------------------------------------------------------------------------------------- 375,835 361,821 (14,014) 259,970 4,706,594 5,852,955 - ---------------------------------------------------------------------------------------------------------- (881) 59,286 60,167 241,657 596,637 971,337 - ---------------------------------------------------------------------------------------------------------- 5,773,475 19,807,673 14,034,198 43,088,538 72,480,497 138,709,740 - ---------------------------------------------------------------------------------------------------------- 3,258,300 14,584,513 11,326,213 8,978,986 57,928,484 80,401,549 - ---------------------------------------------------------------------------------------------------------- 814,429 2,722,687 1,908,258 17,156,365 14,709,464 35,217,837 0 68,542 - ---------------------------------------------------------------------------------------------------------- 743,689 460,930 (282,759) 2,276,187 9,703,271 13,004,643 - ---------------------------------------------------------------------------------------------------------- 484,182 1,137,702 653,520 4,412,778 5,931,464 11,743,075 - ---------------------------------------------------------------------------------------------------------- 6,210,754 18,201,832 11,991,078 35,101,002 56,538,618 107,827,442 - ---------------------------------------------------------------------------------------------------------- 2,241,040 10,882,841 8,641,801 36,290,926 27,380,370 76,986,772 - ---------------------------------------------------------------------------------------------------------- 175,829 387,160 211,331 1,392,243 4,761,677 6,578,182 - ----------------------------------------------------------------------------------------------------------
S-12 Variable Annuity Account B Notes to Financial Statements - December 31, 1997 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, 1997 Valuation Proceeds Cost of Net Period from Investments Realized Dividends Deductions Sales Sold Gain (Loss) - ------------------------------------------------------------------------------------------------------------------------------ Insurance Management Series: American Leaders Fund II: $2,033,587 ($1,272,645) $2,239,581 $1,354,167 $885,414 Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------------------------------------------ Equity Income Fund II: 52,763 (108,244) 188,614 167,057 21,557 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------------ Growth Strategies Fund II: 63,162 (214,573) 650,403 461,919 188,484 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------------ High Income Bond Fund II: 2,232,254 (576,880) 5,856,816 5,388,542 468,274 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------------ International Equity Fund II: 8,680 (138,835) 787,960 678,156 109,804 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------------ Prime Money Fund II: 365,689 (107,783) 7,931,948 7,931,971 (23) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------------ U.S. Government Securities Fund II: 366,225 (147,271) 3,825,499 3,747,648 77,851 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------------ Utility Fund II: 838,523 (291,277) 1,512,321 1,157,193 355,128 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Series: Aggressive Growth Portfolio: 0 (419,040) 19,586,639 19,136,007 450,632 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------------ Balanced Portfolio: 786,909 (294,871) 2,053,281 1,687,149 366,132 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------------ Flexible Income Portfolio: 528,359 (93,943) 1,111,581 1,079,357 32,224 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------------ Growth Portfolio: 967,832 (429,682) 2,254,366 1,752,378 501,988 Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Portfolio: (4) 62,602 (36,643) 13,023,397 12,927,175 96,222 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------------ Worldwide Growth Portfolio: 2,077,847 (1,645,928) 21,615,276 15,329,845 6,285,431 Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------------------------------------------------ Lexington Emerging Markets Fund: 2,717 (53,043) 4,235,697 4,177,632 58,065 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------------ Lexington Natural Resources Trust Fund: 209,099 (85,086) 3,246,699 2,653,024 593,675 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------------------------------
S-13
- -------------------------------------------------------------------------------------------------------- Net Unrealized Net Gain (Loss) Net Increase (Decrease) Net Assets ----------- Change in In Net Assets ---------- Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - -------------------------------------------------------------------------------------------------------- $8,810,467 $30,111,589 $21,301,122 $32,775,129 $61,127,055 $116,800,911 0 48,751 - -------------------------------------------------------------------------------------------------------- 0 911,406 911,406 19,061,089 0 19,938,571 - -------------------------------------------------------------------------------------------------------- 733,393 3,558,451 2,825,058 12,664,797 7,182,178 22,709,106 - -------------------------------------------------------------------------------------------------------- 1,022,582 3,763,082 2,740,500 21,197,568 27,151,137 53,212,853 - -------------------------------------------------------------------------------------------------------- 307,602 938,501 630,899 7,399,890 5,935,590 13,946,028 - -------------------------------------------------------------------------------------------------------- 0 0 0 (471,714) 7,744,318 7,530,487 - -------------------------------------------------------------------------------------------------------- 73,398 513,199 439,801 4,803,969 7,656,209 13,196,784 - -------------------------------------------------------------------------------------------------------- 1,730,892 5,801,015 4,070,123 4,555,867 16,774,494 26,302,858 - -------------------------------------------------------------------------------------------------------- 534,823 4,594,517 4,059,694 2,750,579 31,542,060 38,383,925 - -------------------------------------------------------------------------------------------------------- 373,883 3,462,858 3,088,975 15,424,389 11,774,244 31,145,778 - -------------------------------------------------------------------------------------------------------- 73,395 367,565 294,170 4,626,561 5,147,217 10,534,588 - -------------------------------------------------------------------------------------------------------- 1,093,423 5,764,208 4,670,785 14,123,750 20,884,154 40,072,928 0 645,899 - -------------------------------------------------------------------------------------------------------- (27,376) 0 27,376 (2,070,168) 1,920,611 0 - -------------------------------------------------------------------------------------------------------- 5,151,123 18,210,266 13,059,143 76,404,357 66,472,691 160,658,096 0 1,995,445 - -------------------------------------------------------------------------------------------------------- (66,591) (709,548) (642,957) 952,674 2,515,960 2,833,416 - -------------------------------------------------------------------------------------------------------- 538,139 177,872 (360,267) 1,821,159 4,751,784 6,930,364 - --------------------------------------------------------------------------------------------------------
S-14 Variable Annuity Account B Notes to Financial Statements - December 31, 1997 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ----------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1997 Valuation Proceeds Cost of Net Period from Investments Realized Dividends Deductions Sales Sold Gain (Loss) - ----------------------------------------------------------------------------------------------------------------------- MFS Funds: Emerging Growth Series: (2) $0 ($232,144) $37,594,997 $34,076,137 $3,518,860 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------- Research Series: (3) 0 (273,185) 37,686,630 34,109,865 3,576,765 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------- Total Return Series: 0 (154,993) 689,861 564,440 125,421 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------- Value Series: (5) 0 (19,996) 4,332,717 3,942,044 390,673 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------- Worldwide Government Series: 15,502 (12,983) 124,845 123,607 1,238 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------- Neuberger & Berman Advisers Management Trust: Growth Portfolio: (5) 741,183 (92,357) 17,383,777 16,347,694 1,036,083 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------- Oppenheimer Funds: Capital Appreciation Fund: 0 (13,374) 8,964,190 9,092,515 (128,325) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------- Global Securities Fund: 0 (12,451) 850,938 802,777 48,161 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------- Growth & Income Fund: 37,178 (35,759) 188,084 164,087 23,997 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------- Strategic Bond Fund: 84,234 (10,842) 122,739 121,006 1,733 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------- Portfolio Partners, Inc.: PPI MFS Emerging Equities Portfolio: 0 (120,211) 43,880,815 44,111,392 (230,577) Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------- PPI MFS Research Growth Portfolio: 0 (82,490) 37,923,531 37,983,794 (60,263) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------- PPI MFS Value Equity Portfolio: 0 (16,913) 4,632,658 4,633,034 (376) Annuity contracts in accumulation Annuity contracts in payment period - ----------------------------------------------------------------------------------------------------------------------- PPI Scudder International Growth Portfolio: 0 (12,760) 259,410 255,379 4,031 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------- PPI T. Rowe Price Growth Portfolio: 0 (115,952) 33,484,569 33,491,822 (7,253) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------------------------------- Scudder Variable Life Investment Fund: International Portfolio: (6) 275,557 (123,791) 16,445,650 14,417,831 2,027,819 Annuity contracts in accumulation - -----------------------------------------------------------------------------------------------------------------------
S-15
- ------------------------------------------------------------------------------------------------------- Net Unrealized Net Gain (Loss) Net Increase (Decrease) Net Assets ----------- Change in In Net Assets ---------- Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - ------------------------------------------------------------------------------------------------------- ($85,796) $0 $85,796 ($12,370,520) $8,998,008 $0 - ------------------------------------------------------------------------------------------------------- 204,764 0 (204,764) (9,875,328) 6,776,512 0 - ------------------------------------------------------------------------------------------------------- 72,010 1,975,149 1,903,139 12,883,941 4,216,370 18,973,878 - ------------------------------------------------------------------------------------------------------- 935 0 (935) (578,583) 208,841 0 - ------------------------------------------------------------------------------------------------------- 9,304 (5,937) (15,241) 927,866 407,913 1,324,295 - ------------------------------------------------------------------------------------------------------- (6,666) 0 6,666 (9,934,149) 8,242,574 0 - ------------------------------------------------------------------------------------------------------- 0 133,786 133,786 3,696,113 0 3,688,200 - ------------------------------------------------------------------------------------------------------- 0 (846) (846) 2,646,073 0 2,680,937 - ------------------------------------------------------------------------------------------------------- 0 465,927 465,927 12,197,564 0 12,688,907 - ------------------------------------------------------------------------------------------------------- 0 (21,173) (21,173) 3,038,749 0 3,092,701 - ------------------------------------------------------------------------------------------------------- 0 (753,832) (753,832) 96,397,314 0 94,796,247 0 496,447 - ------------------------------------------------------------------------------------------------------- 0 (1,162,926) (1,162,926) 67,172,809 0 65,867,130 - ------------------------------------------------------------------------------------------------------- 0 220,662 220,662 15,224,308 0 15,049,606 0 378,075 - ------------------------------------------------------------------------------------------------------- 0 195,427 195,427 12,463,465 0 12,650,163 - ------------------------------------------------------------------------------------------------------- 0 1,797,922 1,797,922 88,495,541 0 90,170,258 - ------------------------------------------------------------------------------------------------------- 1,510,449 0 (1,510,449) (12,719,263) 12,050,127 0 -------------------------------------------------------------------------------------------------------
S-16 Variable Annuity Account B Notes to Financial Statements - December 31, 1997 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ----------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1997 Valuation Proceeds Cost of Net Period from Investments Realized Dividends Deductions Sales Sold Gain (Loss) - ----------------------------------------------------------------------------------------------------------------------- Total Variable Annuity Account B $278,833,116 ($29,243,851) $1,004,789,371 $933,728,508 $71,060,863 =======================================================================================================================
(1) - Effective November 28, 1997, this funds assets were transferred to the PPI T. Rowe Price Growth Equity Portfolio. (2) - Effective November 28, 1997, this funds assets were transferred to the PPI MFS Emerging Equities Portfolio. (3) - Effective November 28, 1997, this funds assets were transferred to PPI MFS Research Growth Fund. (4) - Effective November 28, 1997, this funds assets were transferred to the Aetna Variable Encore Fund. (5) - Effective November 28, 1997, this funds assets were transferred to the PPI MFS Value Equity Portfolio. (6) - Effective November 28, 1997, this funds assets were transferred to the PPI Scudder International Growth Portfolio. S-17
- ----------------------------------------------------------------------------------------------------------------------- Net Unrealized Net Gain (Loss) Net Increase (Decrease) Net Assets ----------- Change in In Net Assets ---------- Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - ----------------------------------------------------------------------------------------------------------------------- $122,191,053 $255,524,506 $133,333,453 $619,647,552 $1,848,811,724 $2,922,442,857 =======================================================================================================================
S-18 Variable Annuity Account B Notes to Financial Statements - December 31, 1997 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ------------------------------------------------------------------------------------ Year Ended December 31, 1996 Valuation Period Dividends Deductions - ------------------------------------------------------------------------------------ Aetna Variable Fund: $77,000,986 ($7,148,689) Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------ Aetna Income Shares: 4,527,825 (813,024) Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------ Aetna Variable Encore Fund: 5,358,925 (1,043,955) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ Aetna Investment Advisers Fund, Inc.: 11,247,847 (1,372,478) Annuity contracts in accumulation Annuity contracts in payment period - ------------------------------------------------------------------------------------ Aetna GET Fund, Series B: 1,055,590 (226,340) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ Aetna GET Fund, Series C: 46,499 (14,753) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ Aetna Ascent Variable Portfolio: 235,037 (27,609) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ Aetna Crossroads Variable Portfolio: 257,055 (29,943) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ Aetna Legacy Variable Portfolio: 363,749 (38,623) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ Aetna Variable Index Plus Portfolio: 10,290 (2,403) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ Alger American Funds: Balanced Portfolio: 775,351 (33,904) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ Growth Portfolio: 758,872 (394,360) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ Income and Growth Portfolio: 2,009,995 (55,929) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ Leveraged AllCap Portfolio: 61,186 (116,503) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ MidCap Portfolio: 190,158 (166,087) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ Small Capitalization Portfolio: 184,900 (588,663) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ Calvert Responsibly Invested Balanced Portfolio: 44,676 (3,984) Annuity contracts in accumulation - ------------------------------------------------------------------------------------ - -------------------------------------------------------------------------------------------------- Year Ended December 31, 1996 Proceeds Cost of Net from Investments Realized Sales Sold Gain (Loss) - -------------------------------------------------------------------------------------------------- Aetna Variable Fund: $96,146,932 $97,318,697 ($1,171,765) Annuity contracts in accumulation Annuity contracts in payment period - -------------------------------------------------------------------------------------------------- Aetna Income Shares: 19,585,006 18,826,116 758,890 Annuity contracts in accumulation Annuity contracts in payment period - -------------------------------------------------------------------------------------------------- Aetna Variable Encore Fund: 78,888,315 76,637,102 2,251,213 Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------- Aetna Investment Advisers Fund, Inc.: 16,403,009 13,386,571 3,016,438 Annuity contracts in accumulation Annuity contracts in payment period - -------------------------------------------------------------------------------------------------- Aetna GET Fund, Series B: 915,330 681,610 233,720 Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------- Aetna GET Fund, Series C: 361,353 354,510 6,843 Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------- Aetna Ascent Variable Portfolio: 317,740 277,917 39,823 Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------- Aetna Crossroads Variable Portfolio: 362,140 312,870 49,270 Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------- Aetna Legacy Variable Portfolio: 406,948 384,407 22,541 Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------- Aetna Variable Index Plus Portfolio: 139,030 133,438 5,592 Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------- Alger American Funds: Balanced Portfolio: 244,368 332,405 (88,037) Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------- Growth Portfolio: 6,990,444 6,528,212 462,232 Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------- Income and Growth Portfolio: 390,051 732,537 (342,486) Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------- Leveraged AllCap Portfolio: 4,991,495 4,605,949 385,546 Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------- MidCap Portfolio: 3,198,308 3,039,709 158,599 Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------- Small Capitalization Portfolio: 31,506,275 29,929,826 1,576,449 Annuity contracts in accumulation - -------------------------------------------------------------------------------------------------- Calvert Responsibly Invested Balanced Portfolio: 141,022 137,780 3,242 Annuity contracts in accumulation - --------------------------------------------------------------------------------------------------
S-19
- --------------------------------------------------------------------------------------------------------------- Net Unrealized Net Gain (Loss) Net Increase (Decrease) Net Assets ----------- Change in In Net Assets ---------- Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - --------------------------------------------------------------------------------------------------------------- ($8,051,873) $59,979,314 $68,031,187 $4,966,306 $530,231,821 $644,728,031 62,550,401 89,732,216 - --------------------------------------------------------------------------------------------------------------- 3,224,044 379,633 (2,844,411) (9,600,618) 74,693,652 66,534,546 3,395,721 3,583,489 - --------------------------------------------------------------------------------------------------------------- 2,487,618 (540,607) (3,028,225) 22,111,260 81,132,780 106,781,998 - --------------------------------------------------------------------------------------------------------------- 12,419,220 15,114,435 2,695,215 602,270 104,415,595 119,402,212 6,739,809 7,942,484 - --------------------------------------------------------------------------------------------------------------- 2,566,580 4,487,610 1,921,030 (650,835) 14,000,174 16,333,339 - --------------------------------------------------------------------------------------------------------------- 0 144,834 144,834 9,097,853 0 9,281,276 - --------------------------------------------------------------------------------------------------------------- 5,570 276,453 270,883 4,773,151 347,383 5,638,668 - --------------------------------------------------------------------------------------------------------------- 8,209 151,493 143,284 4,409,627 466,407 5,295,700 - --------------------------------------------------------------------------------------------------------------- 1,609 46,576 44,967 5,470,774 323,579 6,186,987 - --------------------------------------------------------------------------------------------------------------- 0 (4,046) (4,046) 1,975,940 (1) 1,985,372 - --------------------------------------------------------------------------------------------------------------- 1,644 (461,380) (463,024) 2,897,855 689,050 3,777,291 - --------------------------------------------------------------------------------------------------------------- (63,817) 2,349,936 2,413,753 29,514,421 10,790,085 43,545,003 - --------------------------------------------------------------------------------------------------------------- (6,769) (828,912) (822,143) 4,660,630 1,021,520 6,471,587 - --------------------------------------------------------------------------------------------------------------- 32,561 220,810 188,249 8,946,454 1,954,796 11,419,728 - --------------------------------------------------------------------------------------------------------------- 7,193 682,424 675,231 15,727,261 3,257,565 19,842,727 - --------------------------------------------------------------------------------------------------------------- 46,283 (495,260) (541,543) 32,655,969 25,464,317 58,751,429 - --------------------------------------------------------------------------------------------------------------- (13,512) (881) 12,631 193,226 346,846 596,637 - ---------------------------------------------------------------------------------------------------------------
S-20 Variable Annuity Account B Notes to Financial Statements - December 31, 1997 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ----------------------------------------------------------------------------------------- Year Ended December 31, 1996 Valuation Period Dividends Deductions - ----------------------------------------------------------------------------------------- Fidelity Investments Variable Insurance Products Fund: Equity-Income Portfolio: $940,850 ($608,164) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- Growth Portfolio: 1,412,110 (540,670) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- High Income Portfolio: 178,909 (112,363) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- Overseas Portfolio: 75,181 (91,010) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- Fidelity Investments Variable Insurance Products Fund II: Asset Manager Portfolio: 119,231 (54,259) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- Contrafund Portfolio: 146,164 (428,708) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- Index 500 Portfolio: 143,406 (203,362) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- Investment Grade Bond Portfolio: 45,797 (42,799) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- Insurance Management Series: American Leaders Fund II: 857,970 (631,122) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- Growth Strategies Fund II: 405 (44,481) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- High Income Bond Fund II: 1,647,290 (260,987) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- International Equity Fund II: 10,567 (51,003) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- Prime Money Fund II: 289,134 (87,958) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- U.S. Government Securities Fund II: 367,608 (86,361) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- Utility Fund II: 547,259 (186,219) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- Janus Aspen Series: Aggressive Growth Portfolio: 243,931 (266,292) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- Balanced Portfolio: 181,099 (68,277) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------ Year Ended December 31, 1996 Proceeds Cost of Net from Investments Realized Sales Sold Gain (Loss) - ------------------------------------------------------------------------------------------------------ Fidelity Investments Variable Insurance Products Fund: Equity-Income Portfolio: $4,030,269 $3,343,817 $686,452 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ Growth Portfolio: 2,600,136 2,280,711 319,425 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ High Income Portfolio: 1,318,057 1,318,142 (85) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ Overseas Portfolio: 880,668 813,434 67,234 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ Fidelity Investments Variable Insurance Products Fund II: Asset Manager Portfolio: 540,553 465,407 75,146 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ Contrafund Portfolio: 5,044,449 4,308,117 736,332 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ Index 500 Portfolio: 6,086,685 5,356,843 729,842 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ Investment Grade Bond Portfolio: 882,619 925,636 (43,017) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ Insurance Management Series: American Leaders Fund II: 6,368,961 4,596,688 1,772,273 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ Growth Strategies Fund II: 119,084 103,727 15,357 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ High Income Bond Fund II: 5,863,283 5,644,702 218,581 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ International Equity Fund II: 250,169 236,027 14,142 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ Prime Money Fund II: 12,400,851 12,398,826 2,025 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ U.S. Government Securities Fund II: 5,011,311 5,085,345 (74,034) Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ Utility Fund II: 1,034,753 867,262 167,491 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ Janus Aspen Series: Aggressive Growth Portfolio: 6,134,481 4,875,603 1,258,878 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------ Balanced Portfolio: 2,812,822 2,536,688 276,134 Annuity contracts in accumulation - ------------------------------------------------------------------------------------------------------
S-21
- ---------------------------------------------------------------------------------------------------- Net Unrealized Net Gain (Loss) Net Increase (Decrease) Net Assets ----------- Change in In Net Assets ---------- Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - ---------------------------------------------------------------------------------------------------- $966,600 $5,773,475 $4,806,875 $51,230,275 $15,424,209 $72,480,497 - ---------------------------------------------------------------------------------------------------- (34,190) 3,258,300 3,292,490 38,219,867 15,225,262 57,928,484 - ---------------------------------------------------------------------------------------------------- 15,029 814,429 799,400 12,636,277 1,207,326 14,709,464 - ---------------------------------------------------------------------------------------------------- 51,434 743,689 692,255 6,948,020 2,011,591 9,703,271 - ---------------------------------------------------------------------------------------------------- 98,360 484,182 385,822 4,043,035 1,362,489 5,931,464 - ---------------------------------------------------------------------------------------------------- 122,841 6,210,754 6,087,913 38,043,675 11,953,242 56,538,618 - ---------------------------------------------------------------------------------------------------- 70,864 2,241,040 2,170,176 22,367,490 2,172,818 27,380,370 - ---------------------------------------------------------------------------------------------------- 11,466 175,829 164,363 3,931,632 705,701 4,761,677 - ---------------------------------------------------------------------------------------------------- 2,916,888 8,810,467 5,893,579 26,548,788 26,685,567 61,127,055 - ---------------------------------------------------------------------------------------------------- 3,614 733,393 729,779 6,301,239 179,879 7,182,178 - ---------------------------------------------------------------------------------------------------- 229,008 1,022,582 793,574 12,876,189 11,876,490 27,151,137 - ---------------------------------------------------------------------------------------------------- 43,172 307,602 264,430 4,073,916 1,623,538 5,935,590 - ---------------------------------------------------------------------------------------------------- (1,182) 0 1,182 1,765,443 5,774,492 7,744,318 - ---------------------------------------------------------------------------------------------------- 75,600 73,398 (2,202) 2,942,870 4,508,328 7,656,209 - ---------------------------------------------------------------------------------------------------- 799,746 1,730,892 931,146 6,514,735 8,800,082 16,774,494 - ---------------------------------------------------------------------------------------------------- 1,164,909 534,823 (630,086) 19,085,222 11,850,407 31,542,060 - ---------------------------------------------------------------------------------------------------- 26,040 373,883 347,843 10,311,561 725,884 11,774,244 - ----------------------------------------------------------------------------------------------------
S-22 Variable Annuity Account B Notes to Financial Statements - December 31, 1997 (continued): 5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ---------------------------------------------------------------------------------- Year Ended December 31, 1996 Valuation Period Dividends Deductions Flexible Income Portfolio: $ 304,512 ($43,754) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- Growth Portfolio: 324,844 (141,840) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- Short-Term Bond Portfolio: 79,326 (23,159) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- Worldwide Growth Portfolio: 642,050 (384,732) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- Lexington Emerging Markets Fund: 0 (27,131) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- Lexington Natural Resources Trust Fund: 15,653 (38,378) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- MFS Funds: Emerging Growth Series: 73,635 (33,243) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- Research Series: 94,710 (22,219) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- Total Return Series: 87,973 (13,218) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- Value Series: 4,089 (372) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- World Government Series: 0 (1,705) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- Neuberger & Berman Advisers Management Trust: Growth Portfolio: 770,877 (98,063) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- Scudder Variable Life Investment Fund: International Portfolio: 276,128 (136,107) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- TCI Portfolios, Inc.: Balanced Fund: 67,198 (24,832) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- Growth Fund: 6,228,055 (611,968) Annuity contracts in accumulation - ---------------------------------------------------------------------------------- International Fund: 62,276 (41,867) Annuity contracts in accumulation Total Variable Annuity Account B $120,367,178 ($17,483,870) ================================================================================== - ----------------------------------------------------------------------------------------------- Year Ended December 31, 1996 Proceeds Cost of Net from Investments Realized Sales Sold Gain (Loss) - ----------------------------------------------------------------------------------------------- Flexible Income Portfolio: $1,127,628 $1,090,808 $36,820 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- Growth Portfolio: 1,249,735 1,041,911 207,824 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- Short-Term Bond Portfolio: 2,910,009 2,872,811 37,198 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- Worldwide Growth Portfolio: 4,899,145 3,899,490 999,655 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- Lexington Emerging Markets Fund: 1,463,410 1,431,864 31,546 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- Lexington Natural Resources Trust Fund: 2,192,808 1,809,743 383,065 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- MFS Funds: Emerging Growth Series: 190,630 186,959 3,671 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- Research Series: 253,406 258,774 (5,368) Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- Total Return Series: 140,628 132,113 8,515 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- Value Series: 496 486 10 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- World Government Series: 19,663 19,513 150 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- Neuberger & Berman Advisers Management Trust: Growth Portfolio: 3,864,131 3,857,033 7,098 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- Scudder Variable Life Investment Fund: International Portfolio: 4,557,311 4,016,790 540,521 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- TCI Portfolios, Inc.: Balanced Fund: 247,893 231,495 16,398 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- Growth Fund: 19,145,021 17,607,144 1,537,877 Annuity contracts in accumulation - ----------------------------------------------------------------------------------------------- International Fund: 397,143 365,001 32,142 Annuity contracts in accumulation Total Variable Annuity Account B $365,025,974 $347,598,566 $17,427,408 ===============================================================================================
S-23
- ---------------------------------------------------------------------------------------------------------------- Net Unrealized Net Gain (Loss) Net Increase (Decrease) Net Assets ----------- Change in In Net Assets ---------- Beginning End Unrealized from Unit Beginning End of Year of Year Gain (Loss) Transactions of Year of Year - ---------------------------------------------------------------------------------------------------------------- $29,809 $73,395 $43,586 $3,237,811 $1,568,242 $5,147,217 ---------------------------------------------------------------------------------------------------------------- 84,852 1,093,423 1,008,571 16,916,813 2,567,942 20,884,154 ---------------------------------------------------------------------------------------------------------------- 1,330 (27,376) (28,706) 1,106,654 749,298 1,920,611 ---------------------------------------------------------------------------------------------------------------- 253,639 5,151,123 4,897,484 54,723,321 5,594,913 66,472,691 ---------------------------------------------------------------------------------------------------------------- (4,024) (66,591) (62,567) 2,232,953 341,159 2,515,960 ---------------------------------------------------------------------------------------------------------------- 188,717 538,139 349,422 2,162,813 1,879,209 4,751,784 ---------------------------------------------------------------------------------------------------------------- 0 (85,796) (85,796) 9,039,741 0 8,998,008 ---------------------------------------------------------------------------------------------------------------- 0 204,764 204,764 6,504,625 0 6,776,512 ---------------------------------------------------------------------------------------------------------------- 0 72,010 72,010 4,061,090 0 4,216,370 ---------------------------------------------------------------------------------------------------------------- 0 935 935 204,179 0 208,841 ---------------------------------------------------------------------------------------------------------------- 0 9,304 9,304 400,164 0 407,913 ---------------------------------------------------------------------------------------------------------------- 77,158 (6,666) (83,824) (710,088) 8,356,574 8,242,574 ---------------------------------------------------------------------------------------------------------------- 652,411 1,510,449 858,038 (54,117) 10,565,664 12,050,127 ---------------------------------------------------------------------------------------------------------------- 16,540 145,325 128,785 2,313,929 489,878 2,991,356 ---------------------------------------------------------------------------------------------------------------- 8,206,103 (1,588,390) (9,794,493) (7,301,710) 54,311,401 44,369,162 ---------------------------------------------------------------------------------------------------------------- 15,650 375,835 360,185 3,691,239 602,619 4,706,594 ---------------------------------------------------------------------------------------------------------------- $28,746,944 $122,191,053 $93,444,109 $504,121,195 $1,130,935,704 $1,848,811,724 =========== ============ =========== ============ ============== ==============
S-24 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, 1997, and the related statements of operations and changes in net assets for each of the years in the two-year period then ended and condensed financial information for the year ended December 31, 1997. These financial statements and condensed financial information are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements and condensed financial information based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and condensed financial information are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and condensed financial information. Our procedures included confirmation of securities owned as of December 31, 1997, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and condensed financial information referred to above present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company Variable Annuity Account B as of December 31, 1997, the results of its operations and changes in its net assets for each of the years in the two-year period then ended and condensed financial information for the year ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Hartford, Connecticut February 27, 1998 S-25 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY Index to Consolidated Financial Statements ------------------------------------------ Page Independent Auditors' Report F-2 Consolidated Financial Statements: Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 F-3 Consolidated Balance Sheets as of December 31, 1997 and 1996 F-4 Consolidated Statements of Changes in Shareholder's Equity for the Years Ended December 31, 1997, 1996 and 1995 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 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 Subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in shareholder's equity and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company and Subsidiary at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Hartford, Connecticut February 3, 1998 F-2 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Consolidated Statements of Income (millions) Years Ended December 31, -------------------------------- 1997 1996 1995 ------- ------- ------- Revenue: Premiums $267.1 $133.6 $212.7 Charges assessed against policyholders 475.0 396.5 318.9 Net investment income 1,080.5 1,045.6 1,004.3 Net realized capital gains 36.0 19.7 41.3 Other income 39.7 45.4 42.0 ------- ------- ------- Total revenue 1,898.3 1,640.8 1,619.2 ------- ------- ------- Benefits and expenses: Current and future benefits 1,127.8 968.6 997.2 Operating expenses 347.4 342.2 310.8 Amortization of deferred policy acquisition costs 128.4 69.8 48.0 Severance and facilities charges -- 61.3 -- ------- ------- ------- Total benefits and expenses 1,603.6 1,441.9 1,356.0 ------- ------- ------- Income before income taxes 294.7 198.9 263.2 Income taxes 89.4 57.8 87.3 ------- ------- ------- Net income $205.3 $141.1 $175.9 ======= ======= ======= See Notes to Consolidated Financial Statements. F-3 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Consolidated Balance Sheets (millions, except share data)
December 31, December 31, Assets 1997 1996 - ------ ---- ---- Investments: Debt securities available for sale, at fair value (amortized cost: $12,912.2 and $12,539.1) $13,463.8 $12,905.5 Equity securities, available for sale: Nonredeemable preferred stock (cost: $131.7 and $107.6) 147.6 119.0 Investment in affiliated mutual funds (cost: $78.1 and $77.3) 83.0 81.1 Common stock (cost: $0.2 and $0.0) .6 .3 Short-term investments 95.6 34.8 Mortgage loans 12.8 13.0 Policy loans 469.6 399.3 --------- -------- Total investments 14,273.0 13,553.0 Cash and cash equivalents 565.4 459.1 Accrued investment income 163.0 159.0 Premiums due and other receivables 63.7 26.6 Deferred policy acquisition costs 1,654.6 1,515.3 Reinsurance loan to affiliate 397.2 628.3 Other assets 46.8 33.7 Separate accounts assets 22,982.7 15,318.3 --------- -------- Total assets $40,146.4 $31,693.3 ========= ======== Liabilities and Shareholder's Equity Liabilities: Future policy benefits $3,763.7 $3,617.0 Unpaid claims and claim expenses 38.0 28.9 Policyholders' funds left with the Company 11,143.5 10,663.7 --------- -------- Total insurance reserve liabilities 14,945.2 14,309.6 Other liabilities 312.8 354.7 Income taxes: Current 12.4 20.7 Deferred 72.0 80.5 Separate accounts liabilities 22,970.0 15,318.3 --------- -------- Total liabilities 38,312.4 30,083.8 --------- -------- 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 418.0 418.0 Accumulated other comprehensive income 92.9 60.5 Retained earnings 1,320.3 1,128.2 --------- -------- Total shareholder's equity 1,834.0 1,609.5 --------- -------- Total liabilities and shareholder's equity $40,146.4 $31,693.3 ========= ========
See Notes to Consolidated Financial Statements. F-4 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Consolidated Statements of Changes in Shareholder's Equity (millions)
Years Ended December 31, --------------------------------- 1997 1996 1995 -------- -------- -------- Shareholder's equity, beginning of year $1,609.5 $1,583.0 $1,088.5 Comprehensive income Net income 205.3 141.1 175.9 Other comprehensive income, net of tax Unrealized gains (losses) on securities ($50.1 million, $(110.8) million and $494.6 million, 32.4 (72.0) 321.5 pretax, respectively) -------- -------- -------- Total comprehensive income 237.7 69.1 497.4 -------- -------- -------- Capital contributions -- 10.4 0.0 Other changes 4.1 (49.5) 0.0 Common stock dividends (17.3) (3.5) (2.9) -------- -------- -------- Shareholder's equity, end of year $1,834.0 $1,609.5 $1,583.0 ======== ======== ========
See Notes to Consolidated Financial Statements. F-5 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Consolidated Statements of Cash Flows (millions)
Years Ended December 31, ------------------------------ 1997 1996 1995 ------ ------ ------ Cash Flows from Operating Activities: Net income $205.3 $141.1 $175.9 Adjustments to reconcile net income to net cash provided by (used for) operating activities: (Increase) decrease in accrued investment income (4.0) 16.5 (33.3) (Increase) decrease in premiums due and other receivables (33.3) 1.6 25.4 Increase in policy loans (70.3) (60.7) (89.9) Increase in deferred policy acquisition costs (139.3) (174.0) (177.0) Decrease in reinsurance loan to affiliate 231.1 27.2 34.8 Net increase in universal life account balances 286.4 243.2 393.4 (Decrease) increase in other insurance reserve liabilities (249.6) (211.5) 79.0 Net (decrease) increase in other liabilities and other assets (41.7) 3.1 13.0 Decrease in income taxes (31.4) (26.7) (4.5) Net accretion of discount on investments (66.4) (68.0) (66.4) Net realized capital gains (36.0) (19.7) (41.3) Other, net -- 1.1 -- -------- -------- -------- Net cash provided by (used for) operating activities 50.8 (126.8) 309.1 -------- -------- -------- Cash Flows from Investing Activities: Proceeds from sales of: Debt securities available for sale 5,311.3 5,182.2 4,207.2 Equity securities 103.1 190.5 180.8 Mortgage loans 0.2 8.7 10.7 Limited partnership -- -- 26.6 Investment maturities and collections of: Debt securities available for sale 1,212.7 885.2 583.9 Short-term investments 89.3 35.0 106.1 Cost of investment purchases in: Debt securities available for sale (6,732.8) (6,534.3) (6,034.0) Equity securities (113.3) (118.1) (170.9) Short-term investments (149.9) (54.7) (24.7) Mortgage loans -- -- (21.3) Other, net -- (17.6) -- -------- -------- -------- Net cash used for investing activities (279.4) (423.1) (1,135.6) -------- -------- -------- Cash Flows from Financing Activities: Deposits and interest credited for investment contracts 1,621.2 1,579.5 1,884.5 Withdrawals of investment contracts (1,256.3) (1,146.2) (1,109.6) Capital contribution to Separate Account (25.0) -- -- Return of capital from Separate Account 12.3 -- -- Capital contribution from HOLDCO -- 10.4 -- Dividends paid to shareholder (17.3) (3.5) (2.9) -------- -------- -------- Net cash provided by financing activities 334.9 440.2 772.0 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 106.3 (109.7) (54.5) Cash and cash equivalents, beginning of year 459.1 568.8 623.3 -------- -------- -------- Cash and cash equivalents, end of year $565.4 $459.1 $568.8 ======== ======== ======== Supplemental cash flow information: Income taxes paid, net $119.6 $85.5 $92.8 ======== ======== ========
See Notes to Consolidated Financial Statements. F-6 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Aetna Life Insurance and Annuity Company and its wholly owned subsidiary (collectively, the "Company") are providers of financial services and life insurance products in the United States. The Company has two business segments: financial services and individual life insurance. Financial services 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, and non-qualified annuity contracts. These contracts may be deferred or immediate ("payout annuities"). Financial services also include investment advisory services and pension plan administrative services. Individual life insurance products include universal life, variable universal life, traditional whole life and term insurance. Basis of Presentation --------------------- The consolidated financial statements include Aetna Life Insurance and Annuity Company and its wholly owned subsidiary, Aetna Insurance Company of America. Aetna Life Insurance and Annuity Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly owned subsidiary of Aetna Retirement Services, Inc., whose ultimate parent is Aetna Inc. ("Aetna"). The consolidated financial statements have been prepared in accordance with generally accepted accounting principles. Certain reclassifications have been made to 1996 and 1995 financial information to conform to the 1997 presentation. New Accounting Standard ----------------------- As of December 31, 1997 the Company adopted Financial Accounting Standard ("FAS") No. 130, Reporting Comprehensive Income. This statement establishes standards for the reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income encompasses all changes in shareholder's equity (except those arising from transactions with shareholders) and includes net income and net unrealized capital gains or losses on available-for-sale securities. As this new standard only requires additional information in a financial statement, it does not affect the Company's financial position or results of operations. Future Application of Accounting Standards ------------------------------------------ Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities FAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, was issued in June 1996 and provides accounting and reporting standards for transfers of financial assets and extinguishments of liabilities. F-7 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Future Application of Accounting Standards (Continued) FAS No. 125 is effective for 1997 financial statements; however, certain provisions relating to accounting for repurchase agreements and securities lending are not effective until January 1, 1998. Provisions effective in 1997 did not have a material effect on the Company's financial position or results of operations. The Company does not expect adoption of this statement for provisions effective in 1998 to have a material effect on its financial position or results of operations. Accounting by Insurance and Other Enterprises for Insurance-Related Assessments In December 1997, the American Institute of Certified Public Accountants issued Statement of Position 97-3, Accounting by Insurance and Other Enterprises for Insurance-Related Assessments, which provides guidance for determining when an insurance or other enterprise should recognize a liability for guaranty-fund and other insurance related assessments and guidance for measuring the liability. This statement is effective for 1999 financial statements with early adoption permitted. The Company does not expect adoption of this statement to have a material effect on its financial position or results of operations. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the 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. These securities are written down (as realized capital losses) for other than temporary declines in value. Unrealized capital gains and losses related to available for sale investments, other than amounts allocable to experience rated contractholders, are reflected in shareholder's equity, net of related taxes. 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. F-8 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Investments (Continued) The company engages in securities lending whereby certain securities from its portfolio are loaned to other institutions for short periods of time. Initial collateral, primarily cash, is required at a rate of 102% of the market value of a loaned domestic security and 105% of the market value of a loaned foreign security. The collateral is deposited by the borrower with a lending agent, and retained and invested by the lending agent according to the Company's guidelines to generate additional income. The market value of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the market value of the loaned securities fluctuates. At December 31, 1997 and 1996, the Company loaned securities (which are reflected as invested assets) with a market value of approximately $385.1 million and $444.7 million, respectively. Purchases and sales of debt and equity securities are recorded on the trade date. The investment in affiliated mutual funds represents an investment in Aetna managed mutual funds which have been seeded by the Company, and is carried at fair value. Mortgage loans and policy loans are carried at unpaid principal balances, net of impairment reserves. Sales of mortgage loans are recorded on the closing date. Short-term investments, consisting primarily of money market instruments and other debt issues purchased with a 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, swap agreements and warrants for other than trading purposes in order to manage investment returns and price risk and to align maturities, interest rates, and funds availability with its obligations. (Refer to Note 3.) Futures contracts are carried at fair value and require daily cash settlement. Changes in the fair value of futures 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 and losses on the hedging instrument are reflected in net realized capital gains or losses. Interest rate swap agreements which are designated as interest rate risk management instruments at inception are accounted for using the accrual method. Accordingly, the difference between amounts F-9 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Investments (Continued) paid and received on such agreements is reported in net investment income. There is no recognition in the Consolidated Balance Sheets for changes in the fair value of the agreement. Warrants represent the right to purchase specific securities and are accounted for as hedges. Upon exercise, the cost of the warrants are added to the basis of the securities purchased. Deferred Policy Acquisition Costs Certain costs of acquiring insurance business are deferred. These costs, all of which vary with and are primarily related to the production of new and renewal business, consist principally of commissions, certain expenses of underwriting and issuing contracts, and certain agency expenses. For fixed ordinary life contracts, such costs are amortized over expected premium-paying periods (up to 20 years). For universal life and certain annuity 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). 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 losses and expenses. Insurance Reserve Liabilities Future policy benefits include reserves for universal life, immediate annuities with life contingent payouts and traditional life insurance contracts. Reserves for universal life contracts are equal to cumulative deposits less charges and withdrawals plus credited interest thereon. Reserves for immediate annuities with life contingent payouts and traditional life insurance 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 2.25% to 12.00% for all years presented. Investment yield is based on the Company's experience. Mortality and withdrawal rate assumptions are based on relevant Aetna experience and are periodically reviewed against both industry standards and experience. 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 3.50% to 9.50% for all years presented) net of adjustments for investment experience that the Company is entitled to reflect in future credited interest. 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. F-10 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Premiums, Charges Assessed Against Policyholders, Benefits and Expenses For universal life and 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. Life insurance premiums, other than premiums for universal life and certain annuity contracts, are recorded as premium revenue when due. 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 Assets held under variable universal life and variable annuity contracts are segregated in Separate Accounts and are invested, as designated by the contractholder or participant under a contract, in shares of mutual funds which are managed by the Company, or other selected mutual funds not managed by the Company. Separate Accounts assets and liabilities are carried at fair value except for those relating to a guaranteed interest option. Since the Company bears the investment risk where the contract is held to maturity, the assets of the Separate Account supporting the guaranteed interest option are carried at an amortized cost of $658.6 million for 1997 (fair value $668.7 million) and $515.6 million for 1996 (fair value $523.0 million). Reserves relating to the guaranteed interest option are maintained at fund value and reflect interest credited at rates ranging from 4.10% to 8.00% in both 1997 and in 1996. 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 Statements of Income (with the exception of realized capital gains and losses on the sale of assets supporting the guaranteed interest option). The Consolidated Statements of Cash Flows do not reflect investment activity of the Separate Accounts. Income Taxes The Company is included in the consolidated federal income tax return of Aetna. The Company is taxed at regular corporate rates after adjusting income reported for financial statement purposes for certain items. Deferred income tax expenses/benefits result from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities. F-11 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 2. Investments Debt securities available for sale as of December 31, 1997 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ------ (millions) U.S. government and government agencies and authorities $1,219.7 $74.0 $0.1 $1,293.6 States, municipalities and political subdivisions 0.3 -- -- 0.3 U.S. corporate securities: Financial 2,370.7 84.6 1.3 2,454.0 Food & fiber 195.4 9.3 -- 204.7 Healthcare & consumer products 728.5 27.0 2.6 752.9 Media & broadcast 252.9 14.7 0.1 267.5 Natural resources 143.5 5.5 - 149.0 Transportation & capital goods 528.2 33.2 0.1 561.3 Utilities 521.3 23.5 0.9 543.9 Other corporate securities 96.9 3.2 - 100.1 ---------- -------- -------- ----------- Total U.S. corporate securities 4,837.4 201.0 5.0 5,033.4 Foreign Securities: Government 612.5 36.7 23.6 625.6 Utilities 177.5 28.7 -- 206.2 Other 857.9 27.7 42.8 842.8 ---------- -------- -------- ----------- Total foreign securities 1,647.9 93.1 66.4 1,674.6 Residential mortgage-backed securities: Pass-throughs 784.4 71.3 2.0 853.7 Collateralized mortgage obligations 2,280.5 137.4 2.0 2,415.9 ---------- -------- -------- ----------- Total residential mortgage- backed securities 3,064.9 208.7 4.0 3,269.6 Commercial/Multifamily mortgage- backed securities 1,127.8 34.0 0.4 1,161.4 Other asset-backed securities 1,014.2 17.1 0.4 1,030.9 ---------- -------- -------- ----------- Total Debt Securities $12,912.2 $627.9 $76.3 $13,463.8 ========== ======== ======== ===========
F-12 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 2. Investments (Continued) Debt securities available for sale as of December 31, 1996 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ------ (millions) U.S. government and government agencies and authorities $1,072.4 $20.5 $4.5 $1,088.4 States, municipalities and political subdivisions 6.0 1.2 -- 7.2 U.S. corporate securities: Financial 2,143.4 43.1 9.7 2,176.8 Food & fiber 198.2 4.6 1.3 201.5 Healthcare & consumer products 735.9 20.2 6.3 749.8 Media & broadcast 274.9 7.0 2.8 279.1 Natural resources 187.7 4.5 0.4 191.8 Transportation & capital goods 521.9 22.0 1.8 542.1 Utilities 448.8 14.8 2.8 460.8 Other corporate securities 141.5 3.0 -- 144.5 --------- --------- -------- --------- Total U.S. corporate securities 4,652.3 119.2 25.1 4,746.4 Foreign Securities: Government 758.6 36.0 5.7 788.9 Utilities 187.8 16.1 -- 203.9 Other 945.5 30.9 6.3 970.1 --------- -------- --------- --------- Total foreign securities 1,891.9 83.0 12.0 1,962.9 Residential mortgage-backed securities: Pass-throughs 792.2 78.3 3.1 867.4 Collateralized mortgage obligations 2,227.8 94.9 13.7 2,309.0 --------- --------- -------- --------- Total residential mortgage- backed securities 3,020.0 173.2 16.8 3,176.4 Commercial/Multifamily mortgage- backed securities 1,008.7 24.8 5.6 1,027.9 Other asset-backed securities 887.8 10.7 2.2 896.3 --------- -------- --------- -------- Total Debt Securities $12,539.1 $432.6 $66.2 $12,905.5 ========= ======== ========= ========
F-13 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 2. Investments (Continued) At December 31, 1997 and 1996, net unrealized appreciation of $551.6 million and $366.4 million, respectively, on available-for-sale debt securities included $429.3 million and $288.5 million, respectively, related to experience rated contracts, which were not reflected in shareholder's equity but in future policy benefits and policyholders' funds left with the Company. The carrying and fair value of debt securities for the year ended December 31, 1997 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called, or prepaid. Amortized Fair Cost Value --------- ------ (millions) Due to mature: One year or less $367.3 $367.6 After one year through five years 2,165.1 2,195.4 After five years through ten years 2,367.3 2,407.0 After ten years 2,805.6 3,031.9 Mortgage-backed securities 4,192.7 4,431.0 Other asset-backed securities 1,014.2 1,030.9 --------- --------- Total $12,912.2 $13,463.8 ========= ========= At December 31, 1997 and 1996, debt securities carried at $8.2 million and $7.6 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, 1997. F-14 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 2. Investments (Continued) Included in the Company's debt securities were residential collateralized mortgage obligations ("CMOs") supporting the following:
1997 1996 --------------------- ------------------------ Fair Amortized Fair Amortized Value Cost Value Cost -------- -------- -------- -------- (millions) Total residential CMOs(1) $2,415.9 $2,280.5 $2,309.0 $2,227.8 ======== ======== ======== ======== Percentage of total: Supporting experience rated products 81.6% 84.2% Supporting remaining products 18.4% 15.8% ----- ----- 100.0% 100.0% ===== =====
(1) At December 31, 1997 and 1996, approximately 73% and 71%, respectively, of the Company's residential CMO holdings were backed by government agencies such as GNMA, FNMA, FHLMC. There are various categories of CMOs which are subject to different degrees of risk from changes in interest rates and, for nonagency-backed CMOs, 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, 1997 and 1996, approximately 4% and 3%, 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). F-15 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 2. Investments (Continued) Investments in equity securities available for sale were as follows: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ----- (millions) 1997 Equity Securities $210.0 $21.3 $0.1 $231.2 ====== ===== ==== ====== 1996 Equity Securities $184.9 $16.3 $0.8 $200.4 ====== ===== ==== ====== 3. Financial Instruments Estimated Fair Value -------------------- The carrying values and estimated fair values of certain of the Company's financial instruments at December 31, 1997 and 1996 were as follows: 1997 1996 -------------------- ----------------- Carrying Fair Carrying Fair Value Value Value Value --------- ------ -------- ----- (millions) Assets: Mortgage loans $ 12.8 $ 12.4 $ 13.0 $ 13.2 Liabilities: Investment contract liabilities: With a fixed maturity $ 1,030.3 $1,005.4 $1,014.1 $1,028.8 Without a fixed maturity 10,113.2 9,587.5 9,649.6 9,427.6 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-16 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 3. Financial Instruments (Continued) Estimated Fair Value (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 (including Derivative Instruments) The Company uses off-balance-sheet and other financial instruments primarily to manage portfolio risks, including interest rate, prepayment/call, credit, price, and liquidity risks. In 1997 and 1996, Treasury futures contracts were used to manage interest rate risk in the Company's bond portfolio; and, in 1996, stock index futures contracts were used to manage price risk in the Company's equity portfolio. In 1996 and 1995, interest rate swaps and forward commitments to enter into interest rate swaps, respectively, were also used to manage interest rate risk in the Company's bond portfolio. Futures Contracts: 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. There were no futures contracts open as of December 31, 1997 and 1996. Interest Rate Swaps: Under interest rate swaps, the Company agrees with other parties to exchange interest amounts calculated by reference to an agreed notional principal amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made. A single net payment is usually made by one counterparty at each due date or upon termination of the contract. The Company would be F-17 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 3. Financial Instruments (Continued) Off-Balance-Sheet and Other Financial Instruments (Including Derivative Instruments) (Continued) exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments, however, the Company controls its exposure to credit risk through credit approvals, credit limits and regular monitoring procedures. The credit exposure of interest rate swaps is represented by the fair value (market value) of contracts with a positive fair value (market value) at the reporting date. There were no interest rate swap agreements open as of December 31, 1997 and 1996. During 1995, the Company received $0.4 million for writing call options on underlying securities. The Company did not write any call options in 1997 and 1996. Warrants: Warrants are instruments giving the Company the right, but not the obligation to buy a security at a given price during a specified period. As of December 31, 1997 and 1996, the Company had open warrants to purchase equity securities with a fair value of $0.6 million and $0.3 million, respectively. 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, 1997 was as follows: Amortized Fair Cost Value --------- ---- (millions) Residential collateralized mortgage obligations $2,280.5 $2,415.9 Principal-only strips (included above) 59.0 67.0 Interest-only strips (included above) 12.8 24.3 Other structured securities with derivative characteristics (1) 107.4 105.2 (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. F-18 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 4. Net Investment Income Sources of net investment income were as follows: 1997 1996 1995 ---- ---- ---- (millions) Debt securities $962.8 $945.3 $891.5 Nonredeemable preferred stock 13.7 5.9 4.2 Investment in affiliated mutual funds 4.9 14.3 14.9 Mortgage loans 1.3 2.2 1.4 Policy loans 19.9 18.4 13.7 Reinsurance loan to affiliate 37.5 44.1 46.5 Cash equivalents 44.2 29.4 38.9 Other 10.0 2.1 8.4 -------- -------- -------- Gross investment income 1,094.3 1,061.7 1,019.5 Less investment expenses (13.8) (16.1) (15.2) -------- -------- -------- Net investment income $1,080.5 $1,045.6 $1,004.3 ======== ======== ======== Net investment income includes amounts allocable to experience rated contractholders of $823.1 million, $787.6 million and $744.2 million for the years ended December 31, 1997, 1996 and 1995, respectively. Interest credited to contractholders is included in current and future benefits. 5. Dividend Restrictions and Shareholder's Equity The Company paid $17.3 million and $3.5 million in cash dividends to HOLDCO in 1997 and 1996, respectively. The amount of dividends that may be paid to the shareholder in 1998 without prior approval by the Insurance Commissioner of the State of Connecticut is $77.6 million. The Insurance Department of the State of Connecticut (the "Department") recognizes as net income and shareholder's capital and surplus those amounts determined in conformity with statutory accounting practices prescribed or permitted by the Department, which differ in certain respects from generally accepted accounting principles. Statutory net income was $80.5 million, $57.8 million and $70.0 million for the years ended December 31, 1997, 1996 and 1995, respectively. Statutory capital and surplus was $778.7 million and $713.6 million as of December 31, 1997 and 1996, respectively. As of December 31, 1997 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. F-19 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 6. 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 on investments were as follows: 1997 1996 1995 ---- ---- ---- (millions) Debt securities $22.5 $11.1 $32.8 Equity securities 9.9 8.6 8.3 Other 3.6 -- 0.2 ------ -------- ------ Pretax realized capital gains $36.0 $19.7 $41.3 ====== ======== ====== After tax realized capital gains $23.2 $13.0 $25.8 ====== ======== ====== Net realized capital gains of $96.1 million, $53.1 million and $61.1 million for 1997, 1996 and 1995, 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 were $138.1 million and $53.3 million at December 31, 1997 and 1996, respectively. Proceeds from the sale of available-for-sale debt securities and the related gross gains and losses were as follows: 1997 1996 1995 ----- ----- ---- (millions) Proceeds on Sales $5,311.3 $5,182.2 $4,207.2 Gross Gains 25.8 24.3 44.6 Gross Losses 3.3 13.2 11.8 F-20 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 6. Capital Gains and Losses on Investment Operations (Continued) Changes in shareholder's equity related to changes in accumulated other comprehensive income (unrealized capital gains and losses on securities) (excluding those related to experience rated contractholders) were as follows: 1997 1996 1995 ---- ---- ---- (millions) Debt securities $44.3 $(100.1) $255.9 Equity securities 5.6 (10.5) 27.3 Limited partnership -- -- 1.8 ----- ------- ------ 49.9 (110.6) 285.0 Increase (decrease) in deferred income taxes (See Note 8) 17.5 (38.6) (36.5) ----- ------- ------ Net changes in accumulated other comprehensive income $32.4 $(72.0) $321.5 ===== ======= ====== Net unrealized capital gains allocable to experience rated contracts of $356.7 million and $72.6 million at December 31, 1997 and $245.2 million and $43.3 million at December 31, 1996 are reflected on the Consolidated Balance Sheets in policyholders' funds left with the Company and future policy benefits, respectively, and are not included in shareholder's equity. Shareholder's equity included the following accumulated other comprehensive income, which are net of amounts allocable to experience rated contractholders, at December 31: 1997 1996 1995 ---- ---- ---- (millions) Debt securities Gross unrealized capital gains $140.6 $101.7 $179.3 Gross unrealized capital losses (18.4) (23.8) (1.3) ----- ----- ----- 122.2 77.9 178.0 Equity securities Gross unrealized capital gains 21.2 16.3 27.2 Gross unrealized capital losses (0.1) (0.8) (1.2) ---- ---- ----- 21.1 15.5 26.0 Deferred income taxes (See Note 8) 50.4 32.9 71.5 ---- ---- ----- Net accumulated other comprehensive income $92.9 $60.5 $132.5 ==== ==== ===== F-21 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 6. Capital Gains and Losses on Investment Operations (Continued) Changes in accumulated other comprehensive income related to changes in unrealized gains (losses) on securities (excluding those related to experience rated contractholders) were as follows: 1997 1996 1995 ---- ---- ---- (millions) Unrealized holding gains (losses) arising during the period (1) $98.8 $(14.8) $390.5 Less: reclassification adjustment for gains and other items included in net income (2) 66.4 57.2 69.0 ----- ------ ------ Net unrealized gains (losses) on securities $32.4 $(72.0) $321.5 ===== ====== ====== (1) Pretax unrealized holding gains (losses) arising during the period were $152.0 million, ($22.8) million and $600.8 million for 1997, 1996 and 1995, respectively. (2) Pretax reclassification adjustments for gains and other items included in net income were $102.4 million, $87.7 million and $107.5 million for 1997, 1996 and 1995, respectively. 7. Severance and Facilities Charges Severance and facilities charges during 1996, as described below, included the following (pretax):
Vacated Asset Leased Corporate (Millions) Severance Write-off Property Other Allocation Total -------------------------- --------- --------- --------- ----- ---------- --------- Financial Services $29.1 $1.0 $1.3 $1.7 $ -- $33.1 Individual Life Insurance 12.5 0.4 0.5 0.8 -- 14.2 Corporate Allocation -- -- -- -- 14.0 14.0 --------- --------- --------- ----- ---------- --------- Total Company $41.6 $1.4 $1.8 $2.5 $14.0 $61.3 -------------------------- --------- --------- --------- ----- ---------- ---------
In the third quarter of 1996, the Company recorded a $30.7 million after tax ($47.3 million pretax) charge principally related to actions taken or expected to be taken to improve its cost structure relative to its competitors. The severance portion of the charge is based on a plan to eliminate 702 positions (primarily customer service, sales and information technology support staff). The facilities portion of the charge is based on a plan to consolidate sales/service field offices. F-22 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 7. Severance and Facilities Charges (Continued) In addition to the above charge, Aetna recorded a facilities and severance charge in the second quarter of 1996, primarily as a result of actions taken or expected to be taken to reduce the level of corporate expenses and other costs previously absorbed by Aetna's property-casualty operations, which were sold in April 1996. The cost allocated to the Company associated with this charge was $9.1 million after tax ($14.0 million pretax). Activity for 1997 and 1996 within the severance and facilities reserve (pretax, in millions) and the number of positions eliminated related to such actions were as follows: (Millions) Reserve Positions ----------------------------------- ---------- --------- Balance at December 31, 1995 $ -- -- Severance and facilities charges 47.3 702 Corporate Allocation 14.0 -- Actions taken (1) (13.4) (178) ---------- --------- Balance at December 31, 1996 47.9 524 Actions taken (1) (27.1) (163) ---------- --------- Balance at December 31, 1997 $20.8 361 ========== ========= (1) Includes $15.9 million and $8.0 million in 1997 and 1996, respectively, of severance-related actions and $7.9 million and $4.1 million in 1997 and 1996, respectively, of corporate allocation-related actions. The Company's severance actions are expected to be substantially completed by September 30, 1998. The corporate allocation actions were substantially completed in 1997. F-23 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 8. Income Taxes The Company is included in the consolidated federal income tax return, the Illinois Unitary return and the Connecticut and the New York combined state income tax returns of Aetna. Aetna allocates to each member an amount approximating the tax it would have incurred were it not a member of the consolidated group, and credits the member for the use of its tax saving attributes used in the consolidated federal income tax return. Income taxes for the years ended December 31, consist of: 1997 1996 1995 ---- ---- ---- (millions) Current taxes: Income Taxes: Federal income tax $64.5 $50.9 $82.9 State income tax 3.7 3.7 3.2 Net realized capital gains 45.6 25.3 28.5 ----- ---- ---- 113.8 79.9 114.6 ----- ---- ----- Deferred taxes (benefits): Income taxes: Federal 8.4 (3.5) (14.4) Net realized capital gains (losses) (32.8) (18.6) (12.9) ----- ----- ----- (24.4) (22.1) (27.3) ----- ----- ----- Total $89.4 $57.8 $87.3 ===== ===== ===== Income taxes were different from the amount computed by applying the federal income tax rate to income before income taxes for the following reasons: 1997 1996 1995 ---- ---- ---- (millions) Income before income taxes $294.7 $198.9 $263.2 Tax rate 35% 35% 35% ------- ------- ------- Application of the tax rate 103.1 69.6 92.1 ------- ------- ------- Tax effect of: State income tax, net of federal benefit 2.4 2.4 2.1 Excludable dividends (15.9) (8.7) (9.3) Other, net (0.2) (5.5) 2.4 ------- ------- -------- Income taxes $89.4 $57.8 $87.3 ======= ======= ======== F-24 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 8. 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: 1997 1996 ---- ---- (millions) Deferred tax assets: Insurance reserves $415.8 $344.6 Unrealized gains allocable to experience rated contracts 150.1 100.8 Investment losses 6.6 7.5 Postretirement benefits other than pensions 26.3 27.0 Deferred compensation 31.2 25.0 Pension (3.6) 7.6 Restructuring charge 9.5 17.6 Depreciation 3.9 2.6 Other 8.8 9.1 --------- -------- Total gross assets 648.6 541.8 Deferred tax liabilities: Deferred policy acquisition costs 515.6 482.1 Market discount 5.1 6.8 Net unrealized capital gains 200.5 133.7 Other (0.6) (0.3) --------- --------- Total gross liabilities 720.6 622.3 --------- --------- Net deferred tax liability $72.0 $80.5 ========= ========= Net unrealized capital gains and losses are presented in shareholder's equity net of deferred taxes. As of December 31, 1997 and 1996, no valuation allowances were 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, 1997. This amount would be taxed only under certain conditions. No income taxes have been provided on this amount since management believes the conditions under which such taxes would become payable are remote. F-25 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 8. Income Taxes (Continued) The Internal Revenue Service ("Service") has completed examinations of the consolidated federal income tax returns of Aetna through 1990. 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 1991 through 1994. 9. Benefit Plans Employee Pension Plans - The Company, in conjunction with Aetna, 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 amounts that are tax-deductible. As of December 31, 1997, Aetna's accrued pension cost has been allocated to its subsidiaries, including the Company, under an allocation based on eligible salaries. Data on a separate company basis regarding the proportionate share of the projected benefit obligation and plan assets is not available. The accumulated benefit obligation and plan assets are recorded by Aetna. As of the measurement date (i.e., September 30), the accumulated plan assets exceeded accumulated plan benefits. Allocated pretax charges to operations for the pension plan (based on the Company's total salary cost as a percentage of Aetna's total salary cost) were $2.7 million, $4.3 million and $6.1 million for the years ended December 31, 1997, 1996 and 1995, respectively. Employee Postretirement Benefits - In addition to providing pension benefits, Aetna currently provides certain health care and life insurance benefits for retired employees. A comprehensive medical and dental plan is offered to all full-time employees retiring at age 50 with 15 years of service or at age 65 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 Aetna. The costs to the Company associated with the Aetna postretirement plans for 1997, 1996 and 1995 were $2.7 million, $1.8 million and $1.4 million, respectively. As of December 31, 1996, Aetna transferred to the Company approximately $77.7 million of accrued liabilities, primarily related to the pension and postretirement benefit plans described above, that had been previously recorded by Aetna. The after tax amount of this transfer (approximately $50.5 million) is reported as a reduction in retained earnings. In 1997, other changes in shareholder's equity includes an additional $0.8 million reduction reflecting revisions to the allocation of these accrued liabilities. Agent Pension Plans - The Company, in conjunction with Aetna, has a non-qualified pension plan covering certain agents. The plan provides pension benefits based on annual commission earnings. As of the measurement date (i.e., September 30), the accumulated plan assets exceeded accumulated plan benefits. F-26 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 9. Benefit Plans (Continued) Agent Postretirement Benefits - The Company, in conjunction with Aetna, also provides certain postretirement health care and life insurance benefits for certain agents. The costs to the Company associated with the agents' postretirement plans for 1997, 1996 and 1995 were $0.6 million, $0.7 million and $0.8 million, respectively. Incentive Savings Plan - Substantially all employees are eligible to participate in a savings plan under which designated contributions, which may be invested in common stock of Aetna or certain other investments, are matched, up to 5% of compensation, by Aetna. Pretax charges to operations for the incentive savings plan were $4.4 million, $5.4 million and $4.9 million in 1997, 1996 and 1995, respectively. Stock Plans - Aetna has a stock incentive plan that provides for stock options, deferred contingent common stock or equivalent cash awards or restricted stock to certain key employees. Executive and middle management employees may be granted options to purchase common stock of Aetna at or above the market price on the date of grant. Options generally become 100% vested three years after the grant is made, with one-third of the options vesting each year. Aetna does not recognize compensation expense for stock options granted at or above the market price on the date of grant under its stock incentive plans. In addition, executives may be granted incentive units which are rights to receive common stock or an equivalent value in cash. The incentive units may vest within a range from 0% to 175% at the end of a four year period based on the attainment of performance goals. The costs to the Company associated with the Aetna stock plans for 1997, 1996 and 1995, were $2.9 million, $8.1 million and $6.3 million, respectively. As of December 31, 1996, Aetna transferred to the Company approximately $1.1 million of deferred tax benefits related to stock options. This amount is reported as an increase in retained earnings. In 1997, other changes in shareholder's equity include an additional increase of $2.3 million reflecting revisions to the allocation of the deferred tax benefit. 10. Related Party Transactions The Company is compensated by the Separate Accounts for bearing mortality and expense risks pertaining to variable life and annuity contracts. Under the insurance contracts, the Separate Accounts pay the Company a daily fee which, on an annual basis, ranges, depending on the product, from 0.10% to 1.90% of their average daily net assets. The Company also receives fees from Aetna managed mutual funds for serving as investment adviser. Under the advisory agreements, these funds pay the Company a daily fee which, on an annual basis, ranges, depending on the fund, from 0.25% to 0.85% of their average daily net assets. The Company also receives fees (expressed as a percentage of the average daily net assets) from some of its funds for providing administration services, and from The Aetna Series Fund for providing shareholder services and promoting sales. The amount of compensation and fees received from the Separate Accounts and mutual funds, included in charges assessed against policyholders, amounted to $271.2 million, $186.8 million and $128.1 million in 1997, 1996 and 1995, respectively. The Company may waive advisory fees at its discretion. F-27 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 10. Related Party Transactions (Continued) The Company acts as an investment adviser for its affiliated mutual funds. Since August 1996, Aeltus Investment Management, Inc. ("Aeltus"), a wholly owned subsidiary of HOLDCO and an affiliate of the Company, has been acting as Subadvisor for affiliated mutual funds and adviser for most of the General Account assets. Fees paid by the Company to Aeltus, included in both charges assessed against policyholders and net investment income, on an annual basis, range from 0.06% to 0.55% of the average daily net assets under management. For the years ended December 31, 1997 and 1996, the Company paid $45.5 million and $16.0 million in such fees. The Company may, from time to time, make reimbursements to an Aetna managed mutual fund for some or all of its operating expenses. Reimbursement arrangements may be terminated at any time without notice. Since 1981, all domestic individual non-participating life insurance of Aetna and its subsidiaries has been issued by the Company. Effective December 31, 1988, the Company entered into a reinsurance agreement with Aetna Life Insurance Company ("Aetna Life") 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. A $6.1 million and a $108.0 million commission, paid by the Company to Aetna Life in 1996 and 1988, respectively, was capitalized as deferred policy acquisition costs. In consideration for the assumption of this business, a loan was established relating to the assets held by Aetna Life which support the insurance reserves. Effective January 1, 1997, this agreement has been amended to transition (based on underlying investment rollover in Aetna Life) from a modified coinsurance to a coinsurance arrangement. As a result of this change, reserves will be ceded to the Company from Aetna Life as investment rollover occurs and the loan previously established will be reduced. The Company maintained insurance reserves of $574.5 million ($397.2 million relating to the modified coinsurance agreement and $177.3 million relating to the coinsurance agreement) and $628.3 million as of December 31, 1997 and 1996, respectively, relating to the business assumed. The fair value of the loan relating to assets held by Aetna Life was $412.3 million and $625.3 million as of December 31, 1997 and 1996, respectively, and is based upon the fair value of the underlying assets. Premiums of $176.7 million, $25.3 million and $28.0 million and current and future benefits of $183.9 million, $39.5 million and $43.0 million were assumed in 1997, 1996 and 1995, respectively. Investment income of $37.5 million, $44.1 million and $46.5 million was generated from the reinsurance loan to affiliate in 1997, 1996 and 1995, respectively. On December 16, 1988, the Company assumed $25.0 million of premium revenue from Aetna Life for the purchase and administration of a life contingent single premium variable payout annuity contract. In addition, the Company also is responsible for administering fixed annuity payments that are made to annuitants receiving variable payments. Reserves of $32.5 million and $28.9 million were maintained for this contract as of December 31, 1997 and 1996, respectively. Effective February 1, 1992, the Company increased its retention limit per individual life to $2.0 million and entered into a reinsurance agreement with Aetna Life to reinsure amounts in excess of this F-28 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 10. Related Party Transactions (Continued) limit, up to a maximum of $8.0 million on any new individual life business, on a yearly renewable term basis. Premium amounts related to this agreement were $5.9 million, $5.2 million and $3.2 million for 1997, 1996 and 1995, respectively. Effective October 1, 1997, the Company entered into a reinsurance agreement with Aetna Life to assume amounts in excess of $0.2 million for certain of its participating life insurance, on a yearly renewable term basis. Premium amounts related to this agreement were $0.7 million in 1997. The Company received a capital contribution of $10.4 million in cash from HOLDCO in 1996. The Company received no capital contributions in 1997 or 1995. The Company paid $17.3 million and $3.5 million in cash dividends to HOLDCO in 1997 and 1996, respectively. In 1995, the Company dividended $2.9 million in the form of two of its subsidiaries, Systematized Benefits Administrators, Inc. and Aetna Investment Services, Inc., to Aetna Retirement Services, Inc. (the Company's former parent). Premiums due and other receivables include $37.0 million and $2.8 million due from affiliates in 1997 and 1996, respectively. Other liabilities include $1.2 million and $10.7 million due to affiliates for 1997 and 1996, respectively. As of December 31, 1997, Aetna transferred to the Company $2.5 million based on its decision not to settle state tax liabilities for the years 1996 and 1997. This amount has been reported as an other increase in retained earnings. Substantially all of the administrative and support functions of the Company are provided by Aetna and its affiliates. The financial statements reflect allocated charges for these services based upon measures appropriate for the type and nature of service provided. 11. 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 recoverables deemed probable of recovery are reflected as assets on the Company's Consolidated Balance Sheets. F-29 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 11. Reinsurance (Continued) The following table includes premium amounts ceded/assumed to/from affiliated companies as discussed in Note 10 above.
Ceded to Assumed Direct Other from Other Net Amount Companies Companies Amount (millions) ------- ------------- ----------- --------- 1997 ---- Premiums: Life Insurance $ 35.7 $15.1 $177.4 $198.0 Accident and Health Insurance 5.6 5.6 -- -- Annuities 67.9 -- 1.2 69.1 ------- ------------- ----------- --------- Total earned premiums $109.2 $20.7 $178.6 $267.1 ======= ============= =========== ========= 1996 ---- Premiums: Life Insurance $ 34.6 $11.2 $25.3 $ 48.7 Accident and Health Insurance 6.3 6.3 -- -- Annuities 84.3 -- 0.6 84.9 ------- ------------- ----------- --------- Total earned premiums $125.2 $17.5 $25.9 $133.6 ======= ============= =========== ========= 1995 ---- Premiums: Life Insurance $ 28.8 $ 8.6 $28.0 $ 48.2 Accident and Health Insurance 7.5 7.5 -- -- Annuities 164.0 -- 0.5 164.5 ------- ------------- ----------- --------- Total earned premiums $200.3 $16.1 $28.5 $212.7 ======= ============= =========== =========
12. Commitments and Contingent Liabilities Commitments Through the normal course of investment operations, the Company commits to either purchase or sell securities or money market instruments at a specified future date and at a specified price or yield. The inability of counterparties to honor these commitments may result in either higher or lower replacement cost. Also, there is likely to be a change in the value of the securities underlying the commitments. At December 31, 1997, the Company had commitments to purchase investments of $38.7 million. The fair value of the investments at December 31, 1997 approximated $39.0 million. F-30 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Notes to Consolidated Financial Statements (Continued) 12. Commitments and Contingent Liabilities (Continued) Litigation The Company is involved in numerous lawsuits arising, for the most part, in the ordinary course of its business operations. While the ultimate outcome of litigation against the Company cannot be determined at this time, after consideration of the defenses available to the Company and any related reserves established, it is not expected to result in liability for amounts material to the financial condition of the Company, although it may adversely affect results of operations in future periods. 13. Segment Information (1) The Company's operations are reported through two major business segments: Financial Services and Individual Life Insurance. Summarized financial information for the Company's principal operations was as follows: 1997 1996 1995 --------- --------- --------- (millions) Revenue: Financial Services $1,277.9 $1,195.1 $1,211.3 Individual Life Insurance 620.4 445.7 407.9 --------- --------- --------- Total revenue $1,898.3 $1,640.8 $1,619.2 ========= ========= ========= Income before income taxes: (2) Financial Services $188.2 $129.9 $160.1 Individual Life Insurance 106.5 83.0 103.1 --------- --------- --------- Total income before income taxes $294.7 $212.9 $263.2 ========= ========= ========= Net income: (2) Financial Services $137.5 $94.3 $113.8 Individual Life Insurance 67.8 55.9 62.1 --------- --------- --------- Net income $205.3 $150.2 $175.9 ========= ========= ========= Assets under management: (3) Financial Services (4) $37,609.3 $27,268.1 $22,534.4 Individual Life Insurance 3,096.1 2,830.5 2,590.9 --------- --------- --------- Total assets under management 40,705.4 $30,098.6 $25,125.3 ========= ========= ========= (1) The 1996 results include severance and facilities charges of $30.7 million, after tax. Of this charge $21.5 million related to the Financial Services segment and $9.2 million related to the Individual Life Insurance segment. (2) Excludes any effect of the corporate facilities and severance charge recorded in 1996 which is not directly allocable to the Financial Services and Individual Life Insurance segments. (Refer to Note 7). (3) Excludes net unrealized capital gains (losses) of $551.5 million, $366.4 million and $797.1 million at December 31, 1997, 1996 and 1995, respectively. (4) The December 31, 1997 balance includes the transfer of $4,078.5 million of assets under management that were previously reported by an affiliate. F-31 SAI.75996-98 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, 1997 - Statements of Operations and Changes in Net Assets for the years ended December 31, 1997 and 1996 - Notes to Financial Statements - Independent Auditors' Report Financial Statements of the Depositor: - Independent Auditors' Report - Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995 - Consolidated Balance Sheets as of December 31, 1997 and 1996 - Consolidated Statements of Changes in Shareholder's Equity for the years ended December 31, 1997, 1996 and 1995 - Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 - 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(2) (4.1) Variable Annuity Contract (G-CDA-HF)(3) (4.2) Variable Annuity Certificate (GTCC-HF)(4) (4.3) Variable Annuity Contract (IA-CDA-IA)(3) (4.4) Variable Annuity Contract (G-CDA-HD)(5) (4.5) Variable Annuity Contracts (GID-CDA-HO), (GLID-CDA-HO) and (GSD-CDA-HO)(6) (4.6) Variable Annuity Contract (I-CDA-HD)(7) (4.7) Endorsement (EGET-IC(R)) to Contract G-CDA-HF(2) (4.8) Endorsements (EIGET-IC(R), EIGF-IC, and EGF-IC (SPD)) to Contract IA-CDA-IA(8) (4.9) Endorsement (EFUND97) to Contracts GID-CDA-HO, GLID-CDA-HO and GSD-CDA-HO(3) (4.10) Endorsement (E98-G-CDA-HF/HD) to Contracts G-CDA-HF and G-CDA-HD(9) (4.11) Endorsement (E98-CDA-HO) to Contracts GLID-CDA-HO, GID-CDA-HO and GSD-CDA-HO(9) (5.1) Variable Annuity Contract Application (300-GTD-IA)(10) (5.2) Variable Annuity Contract Application (710.00.141)(10) (6.1) Certification of Incorporation of Aetna Life Insurance and Annuity Company(11) (6.2) Amendment of Certificate of Incorporation of Aetna Life Insurance and Annuity Company(7) (6.3) By-Laws as amended September 17, 1997 of Aetna Life Insurance and Annuity Company(12) (7) Not applicable (8.1) Fund Participation Agreement among Calvert Responsibly Invested Balanced Portfolio, Calvert Asset Management Company, Inc. and Aetna Life Insurance and Annuity Company dated December 1, 1997(13) (8.2) Service Agreement between Calvert Asset Management Company, Inc. and Aetna Life Insurance and Annuity Company dated December 1, 1997(13) (8.3) Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation dated February 1, 1994 and amended December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996(7) (8.4) Fifth Amendment dated as of May 1, 1997 to the Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996(14) (8.5) Sixth Amendment dated November 6, 1997 to the Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996 and May 1, 1997(15) (8.6) Form of 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(16) (8.7) Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distribution Corporation dated February 1, 1994 and amended December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996(7) (8.8) Fifth Amendment dated as of May 1, 1997 to the Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996(14) (8.9) Sixth Amendment dated as of January 20, 1998 to the Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996 and May 1, 1997(17) (8.10) Form of Seventh Amendment dated as of May 1, 1998 to the Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997 and January 20, 1998(16) (8.11) Service Agreement between Aetna Life Insurance and Annuity Company and Fidelity Investments Institutional Operations Company dated as of November 1, 1995(18) (8.12) Amendment dated January 1, 1997 to Service Agreement between Aetna Life Insurance and Annuity Company and Fidelity Investments Institutional Operations Company dated as of November 1, 1995(14) (8.13) Fund Participation Agreement among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation dated December 8, 1997(19) (8.14) Service Agreement between Janus Capital Corporation and Aetna Life Insurance and Annuity Company dated December 8, 1997(19) (8.15) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Lexington Management Corporation regarding Natural Resources Trust dated December 1, 1988 and amended on February 11, 1991(2) (8.16) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Oppenheimer Variable Annuity Account Funds and OppenheimerFunds, Inc.(20) (8.17) Service Agreement between OppenheimerFunds, 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 (14) Not applicable (15.1) Powers of Attorney(16) (15.2) Authorization for Signatures(2) 1. Incorporated by reference to Post-Effective Amendment No. 6 to Registration Statement on Form N-4 (File No. 33-75986), as filed electronically on April 22, 1996 (Accession No. 0000950146-96-000563). 2. Incorporated by reference to Post-Effective Amendment No. 5 to Registration Statement on Form N-4 (File No. 33-75986), as filed electronically on April 12, 1996 (Accession No. 0000912057-96-0006383). 3. Incorporated by reference to Post-Effective Amendment No. 14 to Registration Statement on Form N-4 (File No. 33-75964), as filed electronically on July 29, 1997 (Accession No. 0000950146-97-001101). 4. Incorporated by reference to Post-Effective Amendment No. 6 to Registration Statement on Form N-4 (File No. 33-75980), as filed electronically on February 12, 1997 (Accession No. 0000950146-97-000171). 5. Incorporated by reference to Post-Effective Amendment No. 6 to Registration Statement on Form N-4 (File No. 33-75982), as filed electronically on April 22, 1996 (Accession No. 0000912057-96-006790). 6. Incorporated by reference to Post-Effective Amendment No. 12 to Registration Statement on Form N-4 (File No. 33-75982), as filed electronically on February 20, 1997 (Accession No. 0000950146-97-000217). 7. Incorporated by reference to Post-Effective Amendment No. 12 to Registration Statement on Form N-4 (File No. 33-75964), as filed electronically on February 11, 1997 (Accession No. 0000950146-97-000159). 8. Incorporated by reference to Post-Effective Amendment No. 8 to Registration Statement on Form N-4 (File No. 33-75964), as filed electronically on August 30, 1996 (Accession No. 0000928389-96-000150). 9. Incorporated by reference to Post-Effective Amendment No. 9 to Registration Statement on Form N-4 (File No. 33-75982), as filed electronically on April 7, 1998 (Accession No. 0000950146-98-000564). 10. Incorporated by reference to Post-Effective Amendment No. 13 to Registration Statement on Form N-4 (File No. 33-75996), as filed electronically on August 21, 1997 (Accession No. 0000950146-97-001326). 11. Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-60477), as filed electronically on April 15, 1996 (Accession No. 0000950146-96-000534). 12. Incorporated by reference to Post-Effective Amendment No. 12 to Registration Statement on Form N-4 (File No. 33-91846), as filed electronically on October 30, 1997 (Accession No. 0000950146-97-001589). 13. Incorporated by reference to Post-Effective Amendment No. 8 to Registration Statement on Form N-4 (File No. 333-01107), as filed electronically on February 19, 1998 (Accession No. 0000950146-98-000248). 14. Incorporated by reference to Post-Effective Amendment No. 30 to Registration Statement on Form N-4 (File No. 33-34370), as filed electronically on September 29, 1997 (Accession No. 0000950146-97-001485). 15. Incorporated by Reference to Post-Effective Amendment No. 16 to Registration Statement on Form N-4 (File No. 33-75964), as filed electronically on February 9, 1998 (Accession No. 0000950146-98-000179). 16. Incorporated by reference to Post-Effective Amendment No. 9 to Registration Statement on Form N-4 (File No. 333-01107), as filed electronically on April 7, 1998 (Accession No. 0000950146-98-000564). 17. Incorporated by Reference to Post-Effective Amendment No. 7 to Registration Statement on Form S-6 (File No. 33-75248), as filed electronically on February 24, 1998 (Accession No. 0000950146-98-000267). 18. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-88720), as filed electronically on June 28, 1996 (Accession No. 0000928389-96-000136). 19. Incorporated by reference to Post-Effective Amendment No. 10 to Registration Statement on Form N-4 (File No. 33-75992), as filed electronically on December 31, 1997 (Accession No. 0000950146-97-001982). 20. Incorporated by reference to Post-Effective Amendment No. 27 to Registration Statement on Form N-4 (File No. 33-34370), as filed electronically on April 16, 1997 (Accession No. 0000950146-97-000617). Item 25. Directors and Officers of the Depositor Name and Principal Business Address* Positions and Offices with Depositor - ----------------- ------------------------------------ Thomas J. McInerney Director and President Shaun P. Mathews Director and Senior Vice President Catherine H. Smith Director, Chief Financial Officer and Senior Vice President Deborah Koltenuk Vice President and Treasurer, Corporate Controller Frederick D. Kelsven Vice President and Chief Compliance Officer Kirk P. Wickman Vice President, General Counsel and Corporate Secretary * The principal business address of all directors and officers listed is 151 Farmington Avenue, Hartford, Connecticut 06156. Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant Incorporated herein by reference to Item 26 of Post-Effective Amendment No. 9 to the Registration Statement on Form N-4 (File No. 333-01107), as filed electronically on April 7, 1998 (Accession No. 0000950146-98-000564). Item 27. Number of Contract Owners As of February 28, 1998, there were 63,194 individuals holding interests in variable annuity contracts funded through Variable Annuity Account B. Item 28. Indemnification Reference is hereby made to Section 33-771(f) of the Connecticut General Statutes ("C.G.S.") regarding indemnification of directors and Section 33-776(4) 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 indemnify their officers, directors, employees and agents against "liability" (defined as the obligation to pay a judgment, settlement, penalty, fine, excise tax in the case of an employee benefit plan or reasonable expenses incurred with respect to a proceeding). In the case of a proceeding by or in the right of the corporation, indemnification is limited to reasonable expenses incurred in connection with the proceeding against the corporation to which the individual was named a party. The corporation's obligation to provide such indemnification does not apply unless (1) the individual has met the standard of conduct set forth in Section 33-771; and (2) a determination is made (by majority vote of a quorum of the board of directors who were not parties to the proceeding, or if a quorum cannot be obtained, by a committee of the board selected as described in Section 33-775(b)(2); by special legal counsel selected by the board of directors or members thereof as described in Section 33-775(b)(3); by shareholders) that the individual met the standard set forth in Section 33-771; or (3) the court, upon application by the individual, determines in view of all the circumstances that such person is reasonably entitled to be indemnified. Also, unless limited by its Certificate of Incorporation, a corporation must 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 of his relationship as director, officer, employee or agent of the corporation. The statute does specifically authorize a corporation to procure indemnification insurance on behalf of an individual who is or was a director, officer, employer or agent of the corporation. Consistent with the statute, Aetna Inc. has procured insurance from Lloyd's of London and several major United States excess insurers for its directors and officers and the directors and officers of its subsidiaries, including the Depositor. Item 29. Principal Underwriter (a) In addition to serving as the principal underwriter and depositor for the Registrant, Aetna Life Insurance and Annuity Company (Aetna) also acts as the principal underwriter and investment adviser for Portfolio Partners, Inc., Aetna Variable Encore Fund, Aetna Variable Fund, Aetna Generation Portfolios, Inc., Aetna Income Shares, Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers Fund, Inc.), Aetna GET Fund, and Aetna Variable Portfolios, Inc. (all management investment companies registered under the Investment Company Act of 1940 (1940 Act)). Effective May 1, 1998, Aetna will no longer be the investment adviser for Aetna Variable Encore Fund, Aetna Variable Fund, Aetna Generation Portfolios, Inc., Aetna Income Shares, Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers Fund, Inc.), Aetna GET Fund, and Aetna Variable Portfolios, Inc. Additionally, Aetna acts as the principal underwriter and depositor for Variable Life Account B of Aetna, Variable Annuity Account C of Aetna and Variable Annuity Account G of Aetna (separate accounts of Aetna registered as unit investment trusts under the 1940 Act). Aetna is also the principal underwriter for Variable Annuity Account I of Aetna Insurance Company of America (AICA) (a separate account of AICA registered as a unit investment trust under the 1940 Act). (b) See Item 25 regarding the Depositor. (c) Compensation as of December 31, 1997:
(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 $347,583 $29,637,063 and Annuity Company
* Compensation shown in column 5 includes deductions for mortality and expense risk guarantees and contract charges assessed to cover costs incurred in the sales and administration of the contracts issued under Variable Annuity Account B. Item 30. Location of Accounts and Records All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the rules under it relating to the securities described in and issued under this Registration Statement are located at the home office of the Depositor as follows: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156 Item 31. Management Services Not applicable Item 32. Undertakings Registrant hereby undertakes: (a) to file a post-effective amendment to this registration statement on Form N-4 as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than sixteen months old for as long as payments under the variable annuity contracts may be accepted; (b) to include as part of any application to purchase a contract offered by a prospectus which is part of this registration statement on Form N-4, a space that an applicant can check to request a Statement of Additional Information; and (c) to deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-4 promptly upon written or oral request. (d) Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (e) Aetna Life Insurance and Annuity Company represents that the fees and charges deducted under the contracts covered by this registration statement, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Variable Annuity Account B of Aetna Life Insurance and Annuity Company, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment to its Registration Statement on Form N-4 (File No. 33-75996) and has caused this Post-Effective Amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hartford, State of Connecticut, on the 16th day of April, 1998. 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. 14 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- Thomas J. McInerney* Director and President ) - ------------------------------------ (principal executive officer) ) Thomas J. McInerney ) ) Shaun P. Mathews* Director ) April - ------------------------------------ ) Shaun P. Mathews ) 16, 1998 ) Catherine H. Smith* Director and Chief Financial Officer ) - ------------------------------------ ) Catherine H. Smith ) ) Deborah Koltenuk* Vice President and Treasurer, Corporate Controller ) - ------------------------------------ ) Deborah Koltenuk )
/s/ Mary Katherine Johnson By: ------------------------------------------------------------ Mary Katherine Johnson *Attorney-in-Fact VARIABLE ANNUITY ACCOUNT B EXHIBIT INDEX
Exhibit No. Exhibit Page - ----------- ------- ---- 99-B.1 Resolution of the Board of Directors of Aetna Life Insurance and Annuity * Company establishing Variable Annuity Account B 99-B.3.1 Broker-Dealer Agreement * 99-B.3.2 Alternative Form of Wholesaling Agreement and Related Selling Agreement * 99-B.4.1 Variable Annuity Contract (G-CDA-HF) * 99-B.4.2 Variable Annuity Certificate (GTCC-HF) * 99-B.4.3 Variable Annuity Contract (IA-CDA-IA) * 99-B.4.4 Variable Annuity Contract (G-CDA-HD) * 99-B.4.5 Variable Annuity Contracts (GID-CDA-HO), (GLID-CDA-HO) and (GSD-CDA-HO) * 99-B.4.6 Variable Annuity Contract (I-CDA-HD) * 99-B.4.7 Endorsement (EGET-IC(R)) to Contract G-CDA-HF * 99-B.4.8 Endorsements (EIGET-IC(R), EIGF-IC, and * EGF-IC(SPD)) to Contract IA-CDA-IA 99-B.4.9 Endorsement (EFUND97) to Contracts GID-CDA-HO, GLID-CDA-HO and GSD-CDA-HO * 99-B.4.10 Endorsement (E98-G-CDA-HF/HD) to Contracts G-CDA-HF and G-CDA-HD * 99-B.4.11 Endorsement (E98-CDA-HO) to Contracts GLID-CDA-HO, * GID-CDA-HO and GSD-CDA-HO 99-B.5.1 Variable Annuity Contract Application (300-GTD-IA) * 99-B.5.2 Variable Annuity Contract Application (710.00.141) *
*Incorporated by reference
Exhibit No. Exhibit Page - ----------- ------- ---- 99-B.6.1 Certification of Incorporation of Aetna Life Insurance and Annuity Company * 99-B.6.2 Amendment of Certificate of Incorporation of Aetna Life Insurance and Annuity * Company 99-B.6.3 By-Laws as amended September 17, 1997 of Aetna Life Insurance and Annuity * Company 99-B.8.1 Fund Participation Agreement among Calvert Responsibly Invested Balanced * Portfolio, Calvert Asset Management Company, Inc. and Aetna Life Insurance and Annuity Company dated December 1, 1997 99-B.8.2 Service Agreement between Calvert Asset Management Company, Inc. and Aetna Life * Insurance and Annuity Company dated December 1, 1997 99-B.8.3 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 99-B.8.4 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 99-B.8.5 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
*Incorporated by reference
Exhibit No. Exhibit Page - ----------- ------- ---- 99-B.8.6 Form of 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 99-B.8.7 Fund Participation Agreement between Aetna Life Insurance and Annuity * Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996 99-B.8.8 Fifth Amendment dated as of May 1, 1997 to the Fund Participation Agreement * between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996 99-B.8.9 Sixth Amendment dated as of January 20, 1998 to the Fund Participation * Agreement between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996 and May 1, 1997 99-B.8.10 Form of Seventh Amendment dated as of May 1, 1998 to the Fund Participation * Agreement between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997 and January 20, 1998 99-B.8.11 Service Agreement between Aetna Life Insurance and Annuity Company and Fidelity * Investments Institutional Operations Company dated as of November 1, 1995
*Incorporated by reference
Exhibit No. Exhibit Page - ----------- ------- ---- 99-B.8.12 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 99-B.8.13 Fund Participation Agreement among Janus Aspen Series and Aetna Life Insurance * and Annuity Company and Janus Capital Corporation dated December 8, 1997 99-B.8.14 Service Agreement between Janus Capital Corporation and Aetna Life Insurance * and Annuity Company dated December 8, 1997 99-B.8.15 Fund Participation Agreement between Aetna Life Insurance and Annuity Company * and Lexington Management Corporation regarding Natural Resources Trust dated December 1, 1988 and amended on February 11, 1991 99-B.8.16 Fund Participation Agreement between Aetna Life Insurance and Annuity Company * and Oppenheimer Variable Annuity Account Funds and OppenheimerFunds, Inc. 99-B.8.17 Service Agreement between OppenheimerFunds, Inc. and Aetna Life Insurance and * Annuity Company 99-B.9 Opinion and Consent of Counsel -------------- 99-B.10 Consent of Independent Auditors -------------- 99-B.13 Schedule for Computation of Performance Data -------------- 99-B.15.1 Powers of Attorney * 99-B.15.2 Authorization for Signatures *
*Incorporated by reference EX-99.B.9 2 OPINION AND CONSENT OF COUNSEL [Aetna logo] [Aetna letterhead] 151 Farmington Avenue Hartford, CT 06156 Julie E. Rockmore Counsel Law Division, RE4A April 16, 1998 Investments & Financial Services (860) 273-4686 Fax: (860) 273-8340 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: Aetna Life Insurance and Annuity Company and its Variable Annuity Account B Post-Effective Amendment No. 14 to Registration Statement on Form N-4 Prospectus Title: Group Variable Annuity Contracts for Employer-Sponsored Deferred Compensation Plans File Nos. 33-75996* and 811-2512 Dear Sir or Madam: The undersigned serves as counsel to Aetna Life Insurance and Annuity Company, a Connecticut life insurance company (the "Company"). It is my understanding that the Company, as depositor, has registered an indefinite amount of securities (the "Securities") under the Securities Act of 1933 (the "Securities Act") as provided in Rule 24f-2 under the Investment Company Act of 1940 (the "Investment Company Act"). In connection with this opinion, I have reviewed the N-4 Registration Statement, as amended to the date hereof, and this Post-Effective Amendment No. 14. I have also examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, trust records and other instruments I have deemed necessary or appropriate for the purpose of rendering this opinion. For purposes of such examination, I have assumed the genuineness of all signatures on original documents and the conformity to the original of all copies. I am admitted to practice law in Connecticut, and do not purport to be an expert on the laws of any other state. My opinion herein as to any other law is based upon a limited inquiry thereof which I have deemed appropriate under the circumstances. - -------- * Pursuant to Rule 429(a) under the Securities Act of 1933, Registrant has included a combined prospectus under this Registration Statement which includes all the information which would currently be required in a prospectus relating to the securities covered by Registration Statement No. 2-52448 and the individual deferred compensation contracts covered by Registration Statement No. 33-76000. Based upon the foregoing, and, assuming the Securities are sold in accordance with the provisions of the prospectus, I am of the opinion that the Securities being registered will be legally issued and will represent binding obligations of the Company. I consent to the filing of this opinion as an exhibit to the Registration Statement. Sincerely, /s/ Julie E. Rockmore - ---------------------- Julie E. Rockmore EX-99.B.10 3 CONSENT OF INDEPENDENT AUDITORS Consent of Independent Auditors The Board of Directors of Aetna Life Insurance and Annuity Company and Contractholders of Aetna Variable Annuity Account B: We consent to the use of our reports dated February 3, 1998 and February 27, 1998 included in this Post-Effective Amendment No. 14 to Registration Statement (No. 33-75996) on Form N-4 and to the references to our firm under the headings "Condensed Financial Information" in the prospectus and "Independent Auditors" in the statement of additional information. /s/ KPMG Peat Marwick LLP Hartford, Connecticut April 16, 1998 EX-99.B.13 4 SCHED. FOR COMPUTATION OF TOTAL RETURN SCHEDULE FOR COMPUTATION OF TOTAL RETURN CALCULATIONS TOTAL RETURN CALCULATION (STANDARDIZED) The standardized rate represents fund performance for the most recent 1-year, 5-year and 10-year periods. The "1-year rate" represents fund performance for the period January 1, 1997 through December 31, 1997; the "5-year rate" is for the period January 1, 1993 through December 31, 1997; the "10-year rate" is for the period January 1, 1988 through December 31, 1997. "Since inception" figures assume the redemption on December 31, 1997 of values attributable to a $1,000 payment made on the date contributions were first received in the fund under the separate account. The formula used in the computation of the total return calculation is as follows: Formula P(1 + T) (n) = ERV P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value at the end of 1, 5, or 10 year periods (or a fractional portion thereof) of a hypothetical $1,000 payment made at the beginning of the 1, 5, or 10 year periods The total returns reflect the deduction of all recurring charges during each period (e.g., mortality and expense risk charges, maintenance fees, administrative charges (if applicable) and deferred sales charges). TOTAL RETURN CALCULATION (NON-STANDARDIZED) The non-standardized rate represents fund performance for the most recent 1-year, 3-year, 5-year and 10-year periods. The "1-year rate" represents fund performance for the period January 1, 1997 through December 31, 1997; the "3-year rate" is for the period January 1, 1995 through December 31, 1997; the "5-year rate" is for the period January 1, 1993 through December 31, 1997; and the "10-year rate" is for the period January 1, 1988 through December 31, 1997. The non-standardized figures will be calculated in a manner similar to the one discussed above for the standardized figures, except that non-standardized figures will not reflect the deduction of any applicable deferred sales charge (which would decrease the level of performance shown if reflected in these calculations), and the "since inception" figures assume the redemption on December 31, 1997 of values attributable to a $1,000 payment made on the inception dates of the funds. For an illustration of the Computation of the Total Return Quotations, both Standardized and Non-Standardized, see attached.
Maintenance One Year Fund Name Fee As of Date As of AUV as of Date --------- --- ---------- --------- ---------- Aetna Ascent VP 0 12/31/97 15.363659 12/31/96 Aetna Balanced VP, Inc. 0 12/31/97 18.954286 12/31/96 Aetna Bond VP 0 12/31/97 13.337069 12/31/96 Aetna Crossroads VP 0 12/31/97 14.405824 12/31/96 Aetna Growth and Income VP 0 12/31/97 21.988129 12/31/96 Aetna Growth VP 0 12/31/97 13.14919 05/30/97 Aetna Index Plus Large Cap VP 0 12/31/97 14.417642 12/31/96 Aetna Legacy VP 0 12/31/97 13.292374 12/31/96 Aetna Money Market VP 0 12/31/97 11.908464 12/31/96 Aetna Small Company VP 0 12/31/97 13.629438 05/30/97 Aetna Value Opportunity VP 0 12/31/97 13.23711 05/30/97 Calvert Social Balanced Portfolio 0 12/31/97 17.74605 12/31/96 Fidelity VIP Equity-Income Portfolio 0 12/31/97 15.754806 12/31/96 Fidelity VIP Growth Portfolio 0 12/31/97 13.879092 12/31/96 Fidelity VIP Overseas Portfolio 0 12/31/97 12.35844 12/31/96 Fidelity VIP II Contrafund Portfolio 0 12/31/97 15.34573 12/31/96 Janus Aspen Aggressive Growth Portfolio 0 12/31/97 15.382197 12/31/96 Janus Aspen Balanced Portfolio 0 12/31/97 14.963008 12/31/96 Janus Aspen Flexible Income Portfolio 0 12/31/97 14.366731 12/31/96 Janus Aspen Growth Portfolio 0 12/31/97 15.386104 12/31/96 Janus Aspen Worldwide Growth Portfolio 0 12/31/97 16.714269 12/31/96 Lexington Natural Resources Trust 0 12/31/97 13.870259 12/31/96 Portfolio Partners MFS Emerging Equities Portfolio 0 12/31/97 15.191684 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 0 12/31/97 15.191684 12/31/96 Portfolio Partners MFS Research Growth Portfolio 0 12/31/97 12.721137 11/28/97 American Century VP Capital Appreciation/PPI-MFS Research Growth 0 12/31/97 12.721137 12/31/96 Portfolio Partners MFS Value Equity Portfolio 0 12/31/97 21.303881 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 0 12/31/97 21.303881 12/31/96 Portfolio Partners Scudder International Growth Portfolio 0 12/31/97 17.870379 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 0 12/31/97 17.870379 12/31/96 Portfolio Partners T. Rowe Price Growth Equity Portfolio 0 12/31/97 14.373807 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 0 12/31/97 14.373807 12/31/96 One Year One Year Five Year Five Year as of AUV w/ DSC as of Date as of AUV --------- ------ ---------- --------- Aetna Ascent VP 13.007981 12.20% 08/31/95 Aetna Balanced VP, Inc. 15.708767 14.63% 12/31/92 10.40738 Aetna Bond VP 12.500976 1.35% 12/31/92 10.280831 Aetna Crossroads VP 12.437862 10.03% 08/31/95 Aetna Growth and Income VP 17.184259 21.56% 12/31/92 10.489404 Aetna Growth VP 05/30/97 Aetna Index Plus Large Cap VP 10.931112 25.30% 10/31/96 Aetna Legacy VP 11.783998 7.16% 08/31/95 Aetna Money Market VP 11.460943 (1.29%) 12/31/92 10.143459 Aetna Small Company VP 05/30/97 Aetna Value Opportunity VP 05/30/97 Calvert Social Balanced Portfolio 15.00215 12.38% 12/31/92 10.427986 Fidelity VIP Equity-Income Portfolio 12.483795 19.89% 12/30/94 Fidelity VIP Growth Portfolio 11.409657 15.56% 12/30/94 Fidelity VIP Overseas Portfolio 11.245733 4.40% 01/31/95 Fidelity VIP II Contrafund Portfolio 12.548201 16.18% 06/30/95 Janus Aspen Aggressive Growth Portfolio 13.859436 5.44% 10/31/94 Janus Aspen Balanced Portfolio 12.439777 14.27% 01/31/95 Janus Aspen Flexible Income Portfolio 13.049188 4.59% 10/31/94 Janus Aspen Growth Portfolio 12.724236 14.87% 07/29/94 Janus Aspen Worldwide Growth Portfolio 13.889779 14.32% 04/28/95 Lexington Natural Resources Trust 13.140514 0.28% 05/26/93 Portfolio Partners MFS Emerging Equities Portfolio 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 14.118514 2.22% 09/30/93 Portfolio Partners MFS Research Growth Portfolio 11/28/97 American Century VP Capital Appreciation/PPI-MFS Research Growth 13.307187 (9.18%) 12/31/92 10.331524 Portfolio Partners MFS Value Equity Portfolio 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 17.11649 18.24% 12/31/92 12.458274 Portfolio Partners Scudder International Growth Portfolio 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 16.644264 2.00% 12/31/92 10.137018 Portfolio Partners T. Rowe Price Growth Equity Portfolio 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 11.377178 20.02% 02/28/95 Five Year Ten Year Ten Year Ten Year w/ DSC as of Date as of AUV w/ DSC ------ ---------- --------- ------ Aetna Ascent VP 08/31/95 Aetna Balanced VP, Inc. 11.82% 06/30/89 Aetna Bond VP 4.49% 12/31/87 6.412017 7.60% Aetna Crossroads VP 08/31/95 Aetna Growth and Income VP 15.01% 12/31/87 5.48045 14.90% Aetna Growth VP 05/30/97 Aetna Index Plus Large Cap VP 10/31/96 Aetna Legacy VP 08/31/95 Aetna Money Market VP 2.42% 12/31/87 7.758691 4.38% Aetna Small Company VP 05/30/97 Aetna Value Opportunity VP 05/30/97 Calvert Social Balanced Portfolio 10.31% 11/30/92 Fidelity VIP Equity-Income Portfolio 12/30/94 Fidelity VIP Growth Portfolio 12/30/94 Fidelity VIP Overseas Portfolio 01/31/95 Fidelity VIP II Contrafund Portfolio 06/30/95 Janus Aspen Aggressive Growth Portfolio 10/31/94 Janus Aspen Balanced Portfolio 01/31/95 Janus Aspen Flexible Income Portfolio 10/31/94 Janus Aspen Growth Portfolio 07/29/94 Janus Aspen Worldwide Growth Portfolio 04/28/95 Lexington Natural Resources Trust 05/26/93 Portfolio Partners MFS Emerging Equities Portfolio 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 09/30/93 Portfolio Partners MFS Research Growth Portfolio 11/28/97 American Century VP Capital Appreciation/PPI -MFS Research Growth 3.40% 08/31/92 Portfolio Partners MFS Value Equity Portfolio 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 10.42% 11/30/92 Portfolio Partners Scudder International Growth Portfolio 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 11.10% 08/31/92 Portfolio Partners T. Rowe Price Growth Equity Portfolio 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 02/28/95 Separate Inception Inception Inception Account Free Date AUV w/ DSC Charge Out ---- --- ------ ------ --- Aetna Ascent VP 08/31/95 10.154247 16.82% 150 0 Aetna Balanced VP, Inc. 06/30/89 7.819138 10.84% 150 0 Aetna Bond VP 150 0 Aetna Crossroads VP 08/31/95 10.145231 13.68% 150 0 Aetna Growth and Income VP 150 0 Aetna Growth VP 05/30/97 11.06641 12.88% 150 0 Aetna Index Plus Large Cap VP 10/31/96 10.453674 26.06% 150 0 Aetna Legacy VP 08/31/95 10.016646 10.43% 150 0 Aetna Money Market VP 150 0 Aetna Small Company VP 05/30/97 11.311947 14.46% 150 0 Aetna Value Opportunity VP 05/30/97 10.973415 14.60% 150 0 Calvert Social Balanced Portfolio 11/30/92 10.248754 10.51% 150 0 Fidelity VIP Equity-Income Portfolio 12/30/94 8.331717 21.54% 150 0 Fidelity VIP Growth Portfolio 12/30/94 7.571407 20.29% 150 0 Fidelity VIP Overseas Portfolio 01/31/95 8.933572 9.83% 150 0 Fidelity VIP II Contrafund Portfolio 06/30/95 9.464531 18.83% 150 0 Janus Aspen Aggressive Growth Portfolio 10/31/94 10.539627 10.87% 150 0 Janus Aspen Balanced Portfolio 01/31/95 8.987406 17.03% 150 0 Janus Aspen Flexible Income Portfolio 10/31/94 10.058404 10.12% 150 0 Janus Aspen Growth Portfolio 07/29/94 8.443881 17.38% 150 0 Janus Aspen Worldwide Growth Portfolio 04/28/95 8.859555 24.36% 150 0 Lexington Natural Resources Trust 05/26/93 10.033815 6.10% 150 0 Portfolio Partners MFS Emerging Equities Portfolio 11/28/97 15.386026 (6.20%) 150 0 Alger American Small Cap/PPI-MFS Emerging Equities 09/30/93 10.073592 8.82% 150 0 Portfolio Partners MFS Research Growth Portfolio 11/28/97 12.974509 (6.86%) 150 0 American Century VP Capital Appreciation/PPI -MFS Research Growth 08/31/92 9.414125 5.00% 150 0 Portfolio Partners MFS Value Equity Portfolio 11/28/97 21.00465 (3.65%) 150 0 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 11/30/92 12.248739 10.61% 150 0 Portfolio Partners Scudder International Growth Portfolio 11/28/97 17.653474 (3.83%) 150 0 Scudder International Portfolio Class A/PPI-Scudder International Growth 08/31/92 10.703098 9.25% 150 0 Portfolio Partners T. Rowe Price Growth Equity Portfolio 11/28/97 14.089607 (3.08%) 150 0 Alger American Growth/PPI-T. Rowe Price Growth Equity 02/28/95 7.895791 21.29% 150 0 One Year Three Year Five Year Ten Year Inception DSC DSC DSC DSC DSC --- --- --- --- --- Aetna Ascent VP 5.00% 5.00% 4.00% 0.00% 5.00% Aetna Balanced VP, Inc. 5.00% 5.00% 4.00% 0.00% 1.00% Aetna Bond VP 5.00% 5.00% 4.00% 0.00% Aetna Crossroads VP 5.00% 5.00% 4.00% 0.00% 5.00% Aetna Growth and Income VP 5.00% 5.00% 4.00% 0.00% Aetna Growth VP 5.00% 5.00% 4.00% 0.00% 5.00% Aetna Index Plus Large Cap VP 5.00% 5.00% 4.00% 0.00% 5.00% Aetna Legacy VP 5.00% 5.00% 4.00% 0.00% 5.00% Aetna Money Market VP 5.00% 5.00% 4.00% 0.00% Aetna Small Company VP 5.00% 5.00% 4.00% 0.00% 5.00% Aetna Value Opportunity VP 5.00% 5.00% 4.00% 0.00% 5.00% Calvert Social Balanced Portfolio 5.00% 5.00% 4.00% 0.00% 4.00% Fidelity VIP Equity-Income Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% Fidelity VIP Growth Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% Fidelity VIP Overseas Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% Fidelity VIP II Contrafund Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% Janus Aspen Aggressive Growth Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% Janus Aspen Balanced Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% Janus Aspen Flexible Income Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% Janus Aspen Growth Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% Janus Aspen Worldwide Growth Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% Lexington Natural Resources Trust 5.00% 5.00% 4.00% 0.00% 5.00% Portfolio Partners MFS Emerging Equities Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% Alger American Small Cap/PPI-MFS Emerging Equities 5.00% 5.00% 4.00% 0.00% 5.00% Portfolio Partners MFS Research Growth Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% American Century VP Capital Appreciation/PPI -MFS Research Growth 5.00% 5.00% 4.00% 0.00% 4.00% Portfolio Partners MFS Value Equity Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% Neuberger & Berman AMT Growth/PPI-MFS Value Equity 5.00% 5.00% 4.00% 0.00% 4.00% Portfolio Partners Scudder International Growth Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% Scudder International Portfolio Class A/PPI-Scudder International Growth 5.00% 5.00% 4.00% 0.00% 4.00% Portfolio Partners T. Rowe Price Growth Equity Portfolio 5.00% 5.00% 4.00% 0.00% 5.00% Alger American Growth/PPI-T. Rowe Price Growth Equity 5.00% 5.00% 4.00% 0.00% 5.00%
Maintenance One Year Fund Name Fee As of Date As of AUV as of Date --------- --- ---------- --------- ---------- Aetna Ascent VP 0 12/31/97 15.363659 12/31/96 Aetna Balanced VP, Inc. 0 12/31/97 18.954286 12/31/96 Aetna Bond VP 0 12/31/97 13.337069 12/31/96 Aetna Crossroads VP 0 12/31/97 14.405824 12/31/96 Aetna Growth and Income VP 0 12/31/97 21.988129 12/31/96 Aetna Growth VP 0 12/31/97 13.14919 12/31/96 Aetna Index Plus Large Cap VP 0 12/31/97 14.417642 12/31/96 Aetna Legacy VP 0 12/31/97 13.292374 12/31/96 Aetna Money Market VP 0 12/31/97 11.908464 12/31/96 Aetna Small Company VP 0 12/31/97 13.629438 12/31/96 Aetna Value Opportunity VP 0 12/31/97 13.23711 12/31/96 Calvert Social Balanced Portfolio 0 12/31/97 17.74605 12/31/96 Fidelity VIP Equity-Income Portfolio 0 12/31/97 15.754806 12/31/96 Fidelity VIP Growth Portfolio 0 12/31/97 13.879092 12/31/96 Fidelity VIP Overseas Portfolio 0 12/31/97 12.35844 12/31/96 Fidelity VIP II Contrafund Portfolio 0 12/31/97 15.34573 12/31/96 Janus Aspen Aggressive Growth Portfolio 0 12/31/97 15.382197 12/31/96 Janus Aspen Balanced Portfolio 0 12/31/97 14.963008 12/31/96 Janus Aspen Flexible Income Portfolio 0 12/31/97 14.366731 12/31/96 Janus Aspen Growth Portfolio 0 12/31/97 15.386104 12/31/96 Janus Aspen Worldwide Growth Portfolio 0 12/31/97 16.714269 12/31/96 Lexington Natural Resources Trust 0 12/31/97 13.870259 12/31/96 Oppenheimer Global Securities Fund 0 12/31/97 22.330132 12/31/96 Oppenheimer Strategic Bond Fund 0 12/31/97 23.09456 12/31/96 Portfolio Partners MFS Emerging Equities Portfolio 0 12/31/97 15.191684 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 0 12/31/97 15.191684 12/31/96 Portfolio Partners MFS Research Growth Portfolio 0 12/31/97 12.721137 11/28/97 American Century VP Capital Appreciation/PPI -MFS Research Growth 0 12/31/97 12.721137 12/31/96 Portfolio Partners MFS Value Equity Portfolio 0 12/31/97 21.303881 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 0 12/31/97 21.303881 12/31/96 Portfolio Partners Scudder International Growth Portfolio 0 12/31/97 17.870379 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 0 12/31/97 17.870379 12/31/96 Portfolio Partners T. Rowe Price Growth Equity Portfolio 0 12/31/97 14.373807 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 0 12/31/97 14.373807 12/31/96 One Year One Year Three Year Three Year as of AUV w/out DSC as of Date as of AUV --------- --------- ---------- --------- Aetna Ascent VP 13.007981 18.11% Aetna Balanced VP, Inc. 15.708767 20.66% 12/30/94 11.046601 Aetna Bond VP 12.500976 6.69% 12/30/94 10.516557 Aetna Crossroads VP 12.437862 15.82% Aetna Growth and Income VP 17.184259 27.96% 12/30/94 10.757689 Aetna Growth VP 10.035507 31.03% Aetna Index Plus Large Cap VP 10.931112 31.90% Aetna Legacy VP 11.783998 12.80% Aetna Money Market VP 11.460943 3.91% 12/30/94 10.569499 Aetna Small Company VP 10.287284 32.49% Aetna Value Opportunity VP 9.642074 37.29% Calvert Social Balanced Portfolio 15.00215 18.29% 12/30/94 10.576392 Fidelity VIP Equity-Income Portfolio 12.483795 26.20% 12/30/94 8.331717 Fidelity VIP Growth Portfolio 11.409657 21.64% 12/30/94 7.571407 Fidelity VIP Overseas Portfolio 11.245733 9.89% 12/30/94 9.332669 Fidelity VIP II Contrafund Portfolio 12.548201 22.29% Janus Aspen Aggressive Growth Portfolio 13.859436 10.99% 12/30/94 10.377817 Janus Aspen Balanced Portfolio 12.439777 20.28% 12/30/94 8.841129 Janus Aspen Flexible Income Portfolio 13.049188 10.10% 12/30/94 9.942095 Janus Aspen Growth Portfolio 12.724236 20.92% 12/30/94 8.50301 Janus Aspen Worldwide Growth Portfolio 13.889779 20.34% 12/30/94 8.708162 Lexington Natural Resources Trust 13.140514 5.55% 12/30/94 9.130879 Oppenheimer Global Securities Fund 18.515504 20.60% 12/30/94 15.842932 Oppenheimer Strategic Bond Fund 21.566079 7.09% 12/30/94 17.194815 Portfolio Partners MFS Emerging Equities Portfolio 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 14.118514 7.60% 12/30/94 9.675696 Portfolio Partners MFS Research Growth Portfolio 11/28/97 American Century VP Capital Appreciation/PPI -MFS Research Growth 13.307187 (4.40%) 12/30/94 10.93157 Portfolio Partners MFS Value Equity Portfolio 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 17.11649 24.46% 12/30/94 12.267411 Portfolio Partners Scudder International Growth Portfolio 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 16.644264 7.37% 12/30/94 13.448227 Portfolio Partners T. Rowe Price Growth Equity Portfolio 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 11.377178 26.34% 12/31/94 7.583454 Three Year Five Year Five Year Five Year w/out DSC as of Date as of AUV w/out DSC --------- ---------- --------- --------- Aetna Ascent VP 07/05/95 Aetna Balanced VP, Inc. 19.72% 12/31/92 10.40738 12.74% Aetna Bond VP 8.24% 12/31/92 10.280831 5.34% Aetna Crossroads VP 07/05/95 Aetna Growth and Income VP 26.91% 12/31/92 10.489404 15.95% Aetna Growth VP 12/13/96 Aetna Index Plus Large Cap VP 09/16/96 Aetna Legacy VP 07/05/95 Aetna Money Market VP 4.06% 12/31/92 10.143459 3.26% Aetna Small Company VP 12/27/96 Aetna Value Opportunity VP 12/13/96 Calvert Social Balanced Portfolio 18.83% 12/31/92 10.427986 11.22% Fidelity VIP Equity-Income Portfolio 23.66% 12/31/92 6.776659 18.38% Fidelity VIP Growth Portfolio 22.38% 12/31/92 6.535998 16.25% Fidelity VIP Overseas Portfolio 9.81% 12/31/92 6.88092 12.43% Fidelity VIP II Contrafund Portfolio 01/03/95 Janus Aspen Aggressive Growth Portfolio 14.02% 09/13/93 Janus Aspen Balanced Portfolio 19.17% 09/13/93 Janus Aspen Flexible Income Portfolio 13.06% 09/13/93 Janus Aspen Growth Portfolio 21.86% 09/13/93 Janus Aspen Worldwide Growth Portfolio 24.28% 09/13/93 Lexington Natural Resources Trust 14.95% 12/31/92 8.965767 9.12% Oppenheimer Global Securities Fund 12.12% 12/31/92 10.166175 17.04% Oppenheimer Strategic Bond Fund 10.33% 05/03/93 Portfolio Partners MFS Emerging Equities Portfolio 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 16.23% 12/31/92 9.203586 10.54% Portfolio Partners MFS Research Growth Portfolio 11/28/97 American Century VP Capital Appreciation/PPI -MFS Research Growth 5.18% 12/31/92 10.331524 4.25% Portfolio Partners MFS Value Equity Portfolio 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 20.20% 12/31/92 12.458274 11.33% Portfolio Partners Scudder International Growth Portfolio 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 9.94% 12/31/92 10.137018 12.01% Portfolio Partners T. Rowe Price Growth Equity Portfolio 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 23.76% 12/31/92 6.288259 17.98% Ten Year Ten Year Ten Year Inception as of Date as of AUV w/out DSC Date ---------- --------- --------- ---- Aetna Ascent VP 07/05/95 07/05/95 Aetna Balanced VP, Inc. 04/03/89 04/03/89 Aetna Bond VP 12/31/87 6.412017 7.60% Aetna Crossroads VP 07/05/95 07/05/95 Aetna Growth and Income VP 12/31/87 5.48045 14.90% Aetna Growth VP 12/13/96 12/13/96 Aetna Index Plus Large Cap VP 09/16/96 09/16/96 Aetna Legacy VP 07/05/95 07/05/95 Aetna Money Market VP 12/31/87 7.758691 4.38% Aetna Small Company VP 12/27/96 12/27/96 Aetna Value Opportunity VP 12/13/96 12/13/96 Calvert Social Balanced Portfolio 12/31/87 6.392101 10.75% Fidelity VIP Equity-Income Portfolio 12/31/87 3.89535 15.00% Fidelity VIP Growth Portfolio 12/31/87 3.298861 15.45% Fidelity VIP Overseas Portfolio 12/31/87 5.725953 8.00% Fidelity VIP II Contrafund Portfolio 01/03/95 01/03/95 Janus Aspen Aggressive Growth Portfolio 09/13/93 09/13/93 Janus Aspen Balanced Portfolio 09/13/93 09/13/93 Janus Aspen Flexible Income Portfolio 09/13/93 09/13/93 Janus Aspen Growth Portfolio 09/13/93 09/13/93 Janus Aspen Worldwide Growth Portfolio 09/13/93 09/13/93 Lexington Natural Resources Trust 10/14/91 10/14/91 Oppenheimer Global Securities Fund 11/12/90 11/12/90 Oppenheimer Strategic Bond Fund 05/03/93 05/03/93 Portfolio Partners MFS Emerging Equities Portfolio 11/28/97 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 09/21/88 09/21/88 Portfolio Partners MFS Research Growth Portfolio 11/28/97 11/28/97 American Century VP Capital Appreciation/PPI -MFS Research Growth 12/31/87 6.402009 7.11% Portfolio Partners MFS Value Equity Portfolio 11/28/97 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 12/31/87 6.30606 12.95% Portfolio Partners Scudder International Growth Portfolio 11/28/97 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 12/31/87 6.808426 10.13% Portfolio Partners T. Rowe Price Growth Equity Portfolio 11/28/97 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 01/09/89 01/09/89 Separate Inception Inception Account Free AUV w/out DSC Charge Out --- --------- ------ --- Aetna Ascent VP 9.745523 20.03% 150 0 Aetna Balanced VP, Inc. 7.700989 10.85% 150 0 Aetna Bond VP 150 0 Aetna Crossroads VP 9.794833 16.73% 150 0 Aetna Growth and Income VP 150 0 Aetna Growth VP 9.898549 30.99% 150 0 Aetna Index Plus Large Cap VP 10.013462 32.59% 150 0 Aetna Legacy VP 9.747012 13.25% 150 0 Aetna Money Market VP 150 0 Aetna Small Company VP 10.174528 33.43% 150 0 Aetna Value Opportunity VP 9.446518 37.81% 150 0 Calvert Social Balanced Portfolio 150 0 Fidelity VIP Equity-Income Portfolio 150 0 Fidelity VIP Growth Portfolio 150 0 Fidelity VIP Overseas Portfolio 150 0 Fidelity VIP II Contrafund Portfolio 7.63177 26.30% 150 0 Janus Aspen Aggressive Growth Portfolio 7.703959 17.45% 150 0 Janus Aspen Balanced Portfolio 8.338176 14.57% 150 0 Janus Aspen Flexible Income Portfolio 10.158664 8.40% 150 0 Janus Aspen Growth Portfolio 8.151211 15.93% 150 0 Janus Aspen Worldwide Growth Portfolio 7.341295 21.09% 150 0 Lexington Natural Resources Trust 8.639781 7.92% 150 0 Oppenheimer Global Securities Fund 10.887089 10.59% 150 0 Oppenheimer Strategic Bond Fund 17.57304 6.03% 150 0 Portfolio Partners MFS Emerging Equities Portfolio 15.387291 (1.27%) 150 0 Alger American Small Cap/PPI-MFS Emerging Equities 3.479337 17.22% 150 0 Portfolio Partners MFS Research Growth Portfolio 12.975576 (1.96%) 150 0 American Century VP Capital Appreciation/PPI -MFS Research Growth 150 0 Portfolio Partners MFS Value Equity Portfolio 21.034911 1.28% 150 0 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 150 0 Portfolio Partners Scudder International Growth Portfolio 17.616845 1.44% 150 0 Scudder International Portfolio Class A/PPI-Scudder International Growth 150 0 Portfolio Partners T. Rowe Price Growth Equity Portfolio 14.10727 1.89% 150 0 Alger American Growth/PPI-T. Rowe Price Growth Equity 3.271276 17.93% 150 0
Maintenance One Year Fund Name Fee As of Date As of AUV as of Date --------- --- ---------- --------- ---------- Aetna Ascent VP 20 12/31/97 15.363659 12/31/96 Aetna Balanced VP, Inc. 20 12/31/97 18.954286 12/31/96 Aetna Bond VP 20 12/31/97 13.337069 12/31/96 Aetna Crossroads VP 20 12/31/97 14.405824 12/31/96 Aetna Growth and Income VP 20 12/31/97 21.988129 12/31/96 Aetna Growth VP 20 12/31/97 13.14919 05/30/97 Aetna Index Plus Large Cap VP 20 12/31/97 14.417642 12/31/96 Aetna Legacy VP 20 12/31/97 13.292374 12/31/96 Aetna Money Market VP 20 12/31/97 11.908464 12/31/96 Aetna Small Company VP 20 12/31/97 13.629438 05/30/97 Aetna Value Opportunity VP 20 12/31/97 13.23711 05/30/97 Calvert Social Balanced Portfolio 20 12/31/97 17.74605 12/31/96 Fidelity VIP Equity-Income Portfolio 20 12/31/97 15.754806 12/31/96 Fidelity VIP Growth Portfolio 20 12/31/97 13.879092 12/31/96 Fidelity VIP Overseas Portfolio 20 12/31/97 12.35844 12/31/96 Fidelity VIP II Contrafund Portfolio 20 12/31/97 15.34573 12/31/96 Janus Aspen Aggressive Growth Portfolio 20 12/31/97 15.382197 12/31/96 Janus Aspen Balanced Portfolio 20 12/31/97 14.963008 12/31/96 Janus Aspen Flexible Income Portfolio 20 12/31/97 14.366731 12/31/96 Janus Aspen Growth Portfolio 20 12/31/97 15.386104 12/31/96 Janus Aspen Worldwide Growth Portfolio 20 12/31/97 16.714269 12/31/96 Lexington Natural Resources Trust 20 12/31/97 13.870259 12/31/96 Portfolio Partners MFS Emerging Equities Portfolio 20 12/31/97 15.191684 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 20 12/31/97 15.191684 12/31/96 Portfolio Partners MFS Research Growth Portfolio 20 12/31/97 12.721137 11/28/97 American Century VP Capital Appreciation/PPI -MFS Research Growth 20 12/31/97 12.721137 12/31/96 Portfolio Partners MFS Value Equity Portfolio 20 12/31/97 21.303881 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 20 12/31/97 21.303881 12/31/96 Portfolio Partners Scudder International Growth Portfolio 20 12/31/97 17.870379 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 20 12/31/97 17.870379 12/31/96 Portfolio Partners T. Rowe Price Growth Equity Portfolio 20 12/31/97 14.373807 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 20 12/31/97 14.373807 12/31/96 One Year One Year Five Year Five Year as of AUV w/ DSC as of Date as of AUV --------- ------ ---------- --------- Aetna Ascent VP 13.007981 12.20% 08/31/95 Aetna Balanced VP, Inc. 15.708767 14.62% 12/31/92 10.40738 Aetna Bond VP 12.500976 1.35% 12/31/92 10.280831 Aetna Crossroads VP 12.437862 10.02% 08/31/95 Aetna Growth and Income VP 17.184259 21.55% 12/31/92 10.489404 Aetna Growth VP 05/30/97 Aetna Index Plus Large Cap VP 10.931112 25.29% 10/31/96 Aetna Legacy VP 11.783998 7.15% 08/31/95 Aetna Money Market VP 11.460943 (1.30%) 12/31/92 10.143459 Aetna Small Company VP 05/30/97 Aetna Value Opportunity VP 05/30/97 Calvert Social Balanced Portfolio 15.00215 12.37% 12/31/92 10.427986 Fidelity VIP Equity-Income Portfolio 12.483795 19.89% 12/30/94 Fidelity VIP Growth Portfolio 11.409657 15.55% 12/30/94 Fidelity VIP Overseas Portfolio 11.245733 4.39% 01/31/95 Fidelity VIP II Contrafund Portfolio 12.548201 16.17% 06/30/95 Janus Aspen Aggressive Growth Portfolio 13.859436 5.43% 10/31/94 Janus Aspen Balanced Portfolio 12.439777 14.26% 01/31/95 Janus Aspen Flexible Income Portfolio 13.049188 4.59% 10/31/94 Janus Aspen Growth Portfolio 12.724236 14.87% 07/29/94 Janus Aspen Worldwide Growth Portfolio 13.889779 14.31% 04/28/95 Lexington Natural Resources Trust 13.140514 0.27% 05/26/93 Portfolio Partners MFS Emerging Equities Portfolio 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 14.118514 2.21% 09/30/93 Portfolio Partners MFS Research Growth Portfolio 11/28/97 American Century VP Capital Appreciation/PPI -MFS Research Growth 13.307187 (9.19%) 12/31/92 10.331524 Portfolio Partners MFS Value Equity Portfolio 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 17.11649 18.23% 12/31/92 12.458274 Portfolio Partners Scudder International Growth Portfolio 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 16.644264 1.99% 12/31/92 10.137018 Portfolio Partners T. Rowe Price Growth Equity Portfolio 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 11.377178 20.02% 02/28/95 Five Year Ten Year Ten Year Ten Year w/ DSC as of Date as of AUV w/ DSC ------ ---------- --------- ------ Aetna Ascent VP 08/31/95 Aetna Balanced VP, Inc. 11.58% 06/30/89 Aetna Bond VP 4.26% 12/31/87 6.412017 7.59% Aetna Crossroads VP 08/31/95 Aetna Growth and Income VP 14.76% 12/31/87 5.48045 14.90% Aetna Growth VP 05/30/97 Aetna Index Plus Large Cap VP 10/31/96 Aetna Legacy VP 08/31/95 Aetna Money Market VP 2.20% 12/31/87 7.758691 4.37% Aetna Small Company VP 05/30/97 Aetna Value Opportunity VP 05/30/97 Calvert Social Balanced Portfolio 10.08% 11/30/92 Fidelity VIP Equity-Income Portfolio 12/30/94 Fidelity VIP Growth Portfolio 12/30/94 Fidelity VIP Overseas Portfolio 01/31/95 Fidelity VIP II Contrafund Portfolio 06/30/95 Janus Aspen Aggressive Growth Portfolio 10/31/94 Janus Aspen Balanced Portfolio 01/31/95 Janus Aspen Flexible Income Portfolio 10/31/94 Janus Aspen Growth Portfolio 07/29/94 Janus Aspen Worldwide Growth Portfolio 04/28/95 Lexington Natural Resources Trust 05/26/93 Portfolio Partners MFS Emerging Equities Portfolio 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 09/30/93 Portfolio Partners MFS Research Growth Portfolio 11/28/97 American Century VP Capital Appreciation/PPI -MFS Research Growth 3.18% 08/31/92 Portfolio Partners MFS Value Equity Portfolio 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 10.18% 11/30/92 Portfolio Partners Scudder International Growth Portfolio 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 10.86% 08/31/92 Portfolio Partners T. Rowe Price Growth Equity Portfolio 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 02/28/95 Separate Inception Inception Inception Account Free Date AUV w/ DSC Charge Out ---- --- ------ ------ --- Aetna Ascent VP 08/31/95 10.154247 16.81% 150 0 Aetna Balanced VP, Inc. 06/30/89 7.819138 10.30% 150 0 Aetna Bond VP 150 0 Aetna Crossroads VP 08/31/95 10.145231 13.68% 150 0 Aetna Growth and Income VP 150 0 Aetna Growth VP 05/30/97 11.06641 12.87% 150 0 Aetna Index Plus Large Cap VP 10/31/96 10.453674 26.05% 150 0 Aetna Legacy VP 08/31/95 10.016646 10.43% 150 0 Aetna Money Market VP 150 0 Aetna Small Company VP 05/30/97 11.311947 14.46% 150 0 Aetna Value Opportunity VP 05/30/97 10.973415 14.59% 150 0 Calvert Social Balanced Portfolio 11/30/92 10.248754 10.28% 150 0 Fidelity VIP Equity-Income Portfolio 12/30/94 8.331717 21.53% 150 0 Fidelity VIP Growth Portfolio 12/30/94 7.571407 20.28% 150 0 Fidelity VIP Overseas Portfolio 01/31/95 8.933572 9.82% 150 0 Fidelity VIP II Contrafund Portfolio 06/30/95 9.464531 18.82% 150 0 Janus Aspen Aggressive Growth Portfolio 10/31/94 10.539627 10.86% 150 0 Janus Aspen Balanced Portfolio 01/31/95 8.987406 17.02% 150 0 Janus Aspen Flexible Income Portfolio 10/31/94 10.058404 10.11% 150 0 Janus Aspen Growth Portfolio 07/29/94 8.443881 17.37% 150 0 Janus Aspen Worldwide Growth Portfolio 04/28/95 8.859555 24.35% 150 0 Lexington Natural Resources Trust 05/26/93 10.033815 6.10% 150 0 Portfolio Partners MFS Emerging Equities Portfolio 11/28/97 15.386026 (6.21%) 150 0 Alger American Small Cap/PPI-MFS Emerging Equities 09/30/93 10.073592 8.82% 150 0 Portfolio Partners MFS Research Growth Portfolio 11/28/97 12.974509 (6.86%) 150 0 American Century VP Capital Appreciation/PPI -MFS Research Growth 08/31/92 9.414125 4.79% 150 0 Portfolio Partners MFS Value Equity Portfolio 11/28/97 21.00465 (3.65%) 150 0 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 11/30/92 12.248739 10.37% 150 0 Portfolio Partners Scudder International Growth Portfolio 11/28/97 17.653474 (3.84%) 150 0 Scudder International Portfolio Class A/PPI-Scudder International Growth 08/31/92 10.703098 9.03% 150 0 Portfolio Partners T. Rowe Price Growth Equity Portfolio 11/28/97 14.089607 (3.09%) 150 0 Alger American Growth/PPI-T. Rowe Price Growth Equity 02/28/95 7.895791 21.28% 150 0 One Year Three Year Five Year Ten Year Inception DSC DSC DSC DSC DSC --- --- --- --- --- Aetna Ascent VP 5.00% 5.00% 5.00% 0.00% 5.00% Aetna Balanced VP, Inc. 5.00% 5.00% 5.00% 0.00% 5.00% Aetna Bond VP 5.00% 5.00% 5.00% 0.00% Aetna Crossroads VP 5.00% 5.00% 5.00% 0.00% 5.00% Aetna Growth and Income VP 5.00% 5.00% 5.00% 0.00% Aetna Growth VP 5.00% 5.00% 5.00% 0.00% 5.00% Aetna Index Plus Large Cap VP 5.00% 5.00% 5.00% 0.00% 5.00% Aetna Legacy VP 5.00% 5.00% 5.00% 0.00% 5.00% Aetna Money Market VP 5.00% 5.00% 5.00% 0.00% Aetna Small Company VP 5.00% 5.00% 5.00% 0.00% 5.00% Aetna Value Opportunity VP 5.00% 5.00% 5.00% 0.00% 5.00% Calvert Social Balanced Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Fidelity VIP Equity-Income Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Fidelity VIP Growth Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Fidelity VIP Overseas Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Fidelity VIP II Contrafund Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Janus Aspen Aggressive Growth Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Janus Aspen Balanced Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Janus Aspen Flexible Income Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Janus Aspen Growth Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Janus Aspen Worldwide Growth Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Lexington Natural Resources Trust 5.00% 5.00% 5.00% 0.00% 5.00% Portfolio Partners MFS Emerging Equities Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Alger American Small Cap/PPI-MFS Emerging Equities 5.00% 5.00% 5.00% 0.00% 5.00% Portfolio Partners MFS Research Growth Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% American Century VP Capital Appreciation/PPI -MFS Research Growth 5.00% 5.00% 5.00% 0.00% 5.00% Portfolio Partners MFS Value Equity Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Neuberger & Berman AMT Growth/PPI-MFS Value Equity 5.00% 5.00% 5.00% 0.00% 5.00% Portfolio Partners Scudder International Growth Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Scudder International Portfolio Class A/PPI-Scudder International Growth 5.00% 5.00% 5.00% 0.00% 5.00% Portfolio Partners T. Rowe Price Growth Equity Portfolio 5.00% 5.00% 5.00% 0.00% 5.00% Alger American Growth/PPI-T. Rowe Price Growth Equity 5.00% 5.00% 5.00% 0.00% 5.00%
Maintenance One Year Fund Name Fee As of Date As of AUV as of Date --------- --- ---------- --------- ---------- Aetna Ascent VP 20 12/31/97 15.363659 12/31/96 Aetna Balanced VP, Inc. 20 12/31/97 18.954286 12/31/96 Aetna Bond VP 20 12/31/97 13.337069 12/31/96 Aetna Crossroads VP 20 12/31/97 14.405824 12/31/96 Aetna Growth and Income VP 20 12/31/97 21.988129 12/31/96 Aetna Growth VP 20 12/31/97 13.14919 12/31/96 Aetna Index Plus Large Cap VP 20 12/31/97 14.417642 12/31/96 Aetna Legacy VP 20 12/31/97 13.292374 12/31/96 Aetna Money Market VP 20 12/31/97 11.908464 12/31/96 Aetna Small Company VP 20 12/31/97 13.629438 12/31/96 Aetna Value Opportunity VP 20 12/31/97 13.23711 12/31/96 Calvert Social Balanced Portfolio 20 12/31/97 17.74605 12/31/96 Fidelity VIP Equity-Income Portfolio 20 12/31/97 15.754806 12/31/96 Fidelity VIP Growth Portfolio 20 12/31/97 13.879092 12/31/96 Fidelity VIP Overseas Portfolio 20 12/31/97 12.35844 12/31/96 Fidelity VIP II Contrafund Portfolio 20 12/31/97 15.34573 12/31/96 Janus Aspen Aggressive Growth Portfolio 20 12/31/97 15.382197 12/31/96 Janus Aspen Balanced Portfolio 20 12/31/97 14.963008 12/31/96 Janus Aspen Flexible Income Portfolio 20 12/31/97 14.366731 12/31/96 Janus Aspen Growth Portfolio 20 12/31/97 15.386104 12/31/96 Janus Aspen Worldwide Growth Portfolio 20 12/31/97 16.714269 12/31/96 Lexington Natural Resources Trust 20 12/31/97 13.870259 12/31/96 Oppenheimer Global Securities Fund 20 12/31/97 22.330132 12/31/96 Oppenheimer Strategic Bond Fund 20 12/31/97 23.09456 12/31/96 Portfolio Partners MFS Emerging Equities Portfolio 20 12/31/97 15.191684 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 20 12/31/97 15.191684 12/31/96 Portfolio Partners MFS Research Growth Portfolio 20 12/31/97 12.721137 11/28/97 American Century VP Capital Appreciation/PPI -MFS Research Growth 20 12/31/97 12.721137 12/31/96 Portfolio Partners MFS Value Equity Portfolio 20 12/31/97 21.303881 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 20 12/31/97 21.303881 12/31/96 Portfolio Partners Scudder International Growth Portfolio 20 12/31/97 17.870379 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 20 12/31/97 17.870379 12/31/96 Portfolio Partners T. Rowe Price Growth Equity Portfolio 20 12/31/97 14.373807 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 20 12/31/97 14.373807 12/31/96 One Year One Year Three Year Three Year as of AUV w/out DSC as of Date as of AUV --------- --------- ----------- --------- Aetna Ascent VP 13.007981 18.10% Aetna Balanced VP, Inc. 15.708767 20.65% 12/30/94 11.046601 Aetna Bond VP 12.500976 6.68% 12/30/94 10.516557 Aetna Crossroads VP 12.437862 15.82% Aetna Growth and Income VP 17.184259 27.95% 12/30/94 10.757689 Aetna Growth VP 10.035507 31.02% Aetna Index Plus Large Cap VP 10.931112 31.89% Aetna Legacy VP 11.783998 12.79% Aetna Money Market VP 11.460943 3.90% 12/30/94 10.569499 Aetna Small Company VP 10.287284 32.48% Aetna Value Opportunity VP 9.642074 37.28% Calvert Social Balanced Portfolio 15.00215 18.28% 12/30/94 10.576392 Fidelity VIP Equity-Income Portfolio 12.483795 26.20% 12/30/94 8.331717 Fidelity VIP Growth Portfolio 11.409657 21.64% 12/30/94 7.571407 Fidelity VIP Overseas Portfolio 11.245733 9.89% 12/30/94 9.332669 Fidelity VIP II Contrafund Portfolio 12.548201 22.29% Janus Aspen Aggressive Growth Portfolio 13.859436 10.98% 12/30/94 10.377817 Janus Aspen Balanced Portfolio 12.439777 20.28% 12/30/94 8.841129 Janus Aspen Flexible Income Portfolio 13.049188 10.09% 12/30/94 9.942095 Janus Aspen Growth Portfolio 12.724236 20.91% 12/30/94 8.50301 Janus Aspen Worldwide Growth Portfolio 13.889779 20.33% 12/30/94 8.708162 Lexington Natural Resources Trust 13.140514 5.55% 12/30/94 9.130879 Oppenheimer Global Securities Fund 18.515504 20.60% 12/30/94 15.842932 Oppenheimer Strategic Bond Fund 21.566079 7.08% 12/30/94 17.194815 Portfolio Partners MFS Emerging Equities Portfolio 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 14.118514 7.59% 12/30/94 9.675696 Portfolio Partners MFS Research Growth Portfolio 11/28/97 American Century VP Capital Appreciation/PPI -MFS Research Growth 13.307187 (4.41%) 12/30/94 10.93157 Portfolio Partners MFS Value Equity Portfolio 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 17.11649 24.46% 12/30/94 12.267411 Portfolio Partners Scudder International Growth Portfolio 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 16.644264 7.36% 12/30/94 13.448227 Portfolio Partners T. Rowe Price Growth Equity Portfolio 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 11.377178 26.33% 12/31/94 7.583454 Three Year Five Year Five Year Five Year w/out DSC as of Date as of AUV w/out DSC --------- ---------- --------- --------- Aetna Ascent VP 07/05/95 Aetna Balanced VP, Inc. 19.71% 12/31/92 10.40738 12.73% Aetna Bond VP 8.24% 12/31/92 10.280831 5.34% Aetna Crossroads VP 07/05/95 Aetna Growth and Income VP 26.90% 12/31/92 10.489404 15.95% Aetna Growth VP 12/13/96 Aetna Index Plus Large Cap VP 09/16/96 Aetna Legacy VP 07/05/95 Aetna Money Market VP 4.05% 12/31/92 10.143459 3.25% Aetna Small Company VP 12/27/96 Aetna Value Opportunity VP 12/13/96 Calvert Social Balanced Portfolio 18.82% 12/31/92 10.427986 11.21% Fidelity VIP Equity-Income Portfolio 23.65% 12/31/92 6.776659 18.37% Fidelity VIP Growth Portfolio 22.38% 12/31/92 6.535998 16.25% Fidelity VIP Overseas Portfolio 9.81% 12/31/92 6.88092 12.42% Fidelity VIP II Contrafund Portfolio 01/03/95 Janus Aspen Aggressive Growth Portfolio 14.01% 09/13/93 Janus Aspen Balanced Portfolio 19.16% 09/13/93 Janus Aspen Flexible Income Portfolio 13.05% 09/13/93 Janus Aspen Growth Portfolio 21.85% 09/13/93 Janus Aspen Worldwide Growth Portfolio 24.27% 09/13/93 Lexington Natural Resources Trust 14.95% 12/31/92 8.965767 9.11% Oppenheimer Global Securities Fund 12.11% 12/31/92 10.166175 17.04% Oppenheimer Strategic Bond Fund 10.33% 05/03/93 Portfolio Partners MFS Emerging Equities Portfolio 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 16.22% 12/31/92 9.203586 10.54% Portfolio Partners MFS Research Growth Portfolio 11/28/97 American Century VP Capital Appreciation/PPI -MFS Research Growth 5.18% 12/31/92 10.331524 4.24% Portfolio Partners MFS Value Equity Portfolio 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 20.19% 12/31/92 12.458274 11.32% Portfolio Partners Scudder International Growth Portfolio 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 9.93% 12/31/92 10.137018 12.00% Portfolio Partners T. Rowe Price Growth Equity Portfolio 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 23.75% 12/31/92 6.288259 17.97% Ten Year Ten Year Ten Year Inception as of Date as of AUV w/out DSC Date ---------- --------- --------- ---- Aetna Ascent VP 07/05/95 07/05/95 Aetna Balanced VP, Inc. 04/03/89 04/03/89 Aetna Bond VP 12/31/87 6.412017 7.59% Aetna Crossroads VP 07/05/95 07/05/95 Aetna Growth and Income VP 12/31/87 5.48045 14.90% Aetna Growth VP 12/13/96 12/13/96 Aetna Index Plus Large Cap VP 09/16/96 09/16/96 Aetna Legacy VP 07/05/95 07/05/95 Aetna Money Market VP 12/31/87 7.758691 4.37% Aetna Small Company VP 12/27/96 12/27/96 Aetna Value Opportunity VP 12/13/96 12/13/96 Calvert Social Balanced Portfolio 12/31/87 6.392101 10.74% Fidelity VIP Equity-Income Portfolio 12/31/87 3.89535 14.99% Fidelity VIP Growth Portfolio 12/31/87 3.298861 15.44% Fidelity VIP Overseas Portfolio 12/31/87 5.725953 7.99% Fidelity VIP II Contrafund Portfolio 01/03/95 01/03/95 Janus Aspen Aggressive Growth Portfolio 09/13/93 09/13/93 Janus Aspen Balanced Portfolio 09/13/93 09/13/93 Janus Aspen Flexible Income Portfolio 09/13/93 09/13/93 Janus Aspen Growth Portfolio 09/13/93 09/13/93 Janus Aspen Worldwide Growth Portfolio 09/13/93 09/13/93 Lexington Natural Resources Trust 10/14/91 10/14/91 Oppenheimer Global Securities Fund 11/12/90 11/12/90 Oppenheimer Strategic Bond Fund 05/03/93 05/03/93 Portfolio Partners MFS Emerging Equities Portfolio 11/28/97 11/28/97 Alger American Small Cap/PPI-MFS Emerging Equities 09/21/88 09/21/88 Portfolio Partners MFS Research Growth Portfolio 11/28/97 11/28/97 American Century VP Capital Appreciation/PPI -MFS Research Growth 12/31/87 6.402009 7.10% Portfolio Partners MFS Value Equity Portfolio 11/28/97 11/28/97 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 12/31/87 6.30606 12.94% Portfolio Partners Scudder International Growth Portfolio 11/28/97 11/28/97 Scudder International Portfolio Class A/PPI-Scudder International Growth 12/31/87 6.808426 10.12% Portfolio Partners T. Rowe Price Growth Equity Portfolio 11/28/97 11/28/97 Alger American Growth/PPI-T. Rowe Price Growth Equity 01/09/89 01/09/89 Separate Inception Inception Account Free AUV w/out DSC Charge Out --- --------- ------ --- Aetna Ascent VP 9.745523 20.02% 150 0 Aetna Balanced VP, Inc. 7.700989 10.84% 150 0 Aetna Bond VP 150 0 Aetna Crossroads VP 9.794833 16.73% 150 0 Aetna Growth and Income VP 150 0 Aetna Growth VP 9.898549 30.98% 150 0 Aetna Index Plus Large Cap VP 10.013462 32.58% 150 0 Aetna Legacy VP 9.747012 13.24% 150 0 Aetna Money Market VP 150 0 Aetna Small Company VP 10.174528 33.42% 150 0 Aetna Value Opportunity VP 9.446518 37.81% 150 0 Calvert Social Balanced Portfolio 150 0 Fidelity VIP Equity-Income Portfolio 150 0 Fidelity VIP Growth Portfolio 150 0 Fidelity VIP Overseas Portfolio 150 0 Fidelity VIP II Contrafund Portfolio 7.63177 26.29% 150 0 Janus Aspen Aggressive Growth Portfolio 7.703959 17.45% 150 0 Janus Aspen Balanced Portfolio 8.338176 14.56% 150 0 Janus Aspen Flexible Income Portfolio 10.158664 8.39% 150 0 Janus Aspen Growth Portfolio 8.151211 15.92% 150 0 Janus Aspen Worldwide Growth Portfolio 7.341295 21.09% 150 0 Lexington Natural Resources Trust 8.639781 7.91% 150 0 Oppenheimer Global Securities Fund 10.887089 10.59% 150 0 Oppenheimer Strategic Bond Fund 17.57304 6.03% 150 0 Portfolio Partners MFS Emerging Equities Portfolio 15.387291 (1.28%) 150 0 Alger American Small Cap/PPI-MFS Emerging Equities 3.479337 17.21% 150 0 Portfolio Partners MFS Research Growth Portfolio 12.975576 (1.97%) 150 0 American Century VP Capital Appreciation/PPI -MFS Research Growth 150 0 Portfolio Partners MFS Value Equity Portfolio 21.034911 1.27% 150 0 Neuberger & Berman AMT Growth/PPI-MFS Value Equity 150 0 Portfolio Partners Scudder International Growth Portfolio 17.616845 1.43% 150 0 Scudder International Portfolio Class A/PPI-Scudder International Growth 150 0 Portfolio Partners T. Rowe Price Growth Equity Portfolio 14.10727 1.88% 150 0 Alger American Growth/PPI-T. Rowe Price Growth Equity 3.271276 17.92% 150 0
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