-----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, WQbDbgIfFl9TOXXXh8r5F7SuDQfpOZR7uWFzvbSzFEA2yNgqkWdOgAoXsXLTOaGR hMq+1AMK+5cAer6mVC9VvA== 0000950146-00-000434.txt : 20000427 0000950146-00-000434.hdr.sgml : 20000427 ACCESSION NUMBER: 0000950146-00-000434 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20000426 EFFECTIVENESS DATE: 20000426 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: 333-87305 FILM NUMBER: 609196 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-02512 FILM NUMBER: 609197 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. 333-87305 Commission on April 26, 2000 Registration No. 811-2512 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 - -------------------------------------------------------------------------------- POST-EFFECTIVE AMENDMENT NO. 3 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and Amendment to REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 - -------------------------------------------------------------------------------- Variable Annuity Account B of Aetna Life Insurance and Annuity Company Aetna Life Insurance and Annuity Company 151 Farmington Avenue, TS31, Hartford, Connecticut 06156 Depositor's Telephone Number, including Area Code: (860) 273-4686 Julie E. Rockmore, Counsel Aetna Life Insurance and Annuity Company 151 Farmington Avenue, TS31, Hartford, Connecticut 06156 (Name and Address of Agent for Service) - -------------------------------------------------------------------------------- It is proposed that this filing will become effective: immediately upon filing pursuant to paragraph (b) of Rule 485 ------ X on May 1, 2000 pursuant to paragraph (b) of Rule 485 ------ VARIABLE ANNUITY ACCOUNT B CROSS REFERENCE SHEET FORM N-4 PART A (PROSPECTUS) LOCATION - PROSPECTUS DATED ITEM NO. MAY 1, 2000 1 Cover Page.......................... Cover Page 2 Definitions......................... Not Applicable 3 Synopsis............................ Contract Overview; Fee Table 4 Condensed Financial Information..... Condensed Financial Information 5 General Description of Registrant, Depositor, and Portfolio Companies.. Other Topics - The Company; Variable Annuity Account B; Appendix III - Description of Underlying Funds 6 Deductions and Expenses............. Fees 7 General Description of Variable Annuity Contracts................... Contract Overview 8 Annuity Period...................... The Income Phase 9 Death Benefit....................... Death Benefit 10 Purchases and Contract Value........ Purchase and Rights; Your Account Value 11 Redemptions......................... Your Right to Cancel; Systematic Distribution Options 12 Taxes............................... Taxation 13 Legal Proceedings................... Other Topics - Legal Matters and Proceedings 14 Table of Contents of the Statement of Additional Information.............. Contents of the Statement of Additional Information FORM N-4 PART B (STATEMENT OF LOCATION - STATEMENT OF ITEM NO. ADDITIONAL INFORMATION) ADDITIONAL INFORMATION DATED MAY 1, 2000 15 Cover Page.......................... Cover page 16 Table of Contents................... Table of Contents 17 General Information and History..... General Information and History 18 Services............................ General Information and History; Independent Auditors 19 Purchase of Securities Being Offered Offering and Purchase of Contracts 20 Underwriters........................ Offering and Purchase of Contracts 21 Calculation of Performance Data..... Performance Data; Average Annual Total Return Quotations 22 Annuity Payments.................... Income Phase 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 Aetna Life Insurance and Annuity Company Supplement Dated May 1, 2000 to May 1, 2000 Prospectus GENERAL DESCRIPTION OF GET I Series I of the Aetna GET Fund (GET I) is an investment option that may be available during the accumulation phase of the contract. Aetna Life Insurance and Annuity Company (the Company, we, our) makes a guarantee, as described below, when you direct money into GET I. Aeltus Investment Management, Inc. serves as investment adviser to GET I. We will offer GET I shares only during its offering period, which is scheduled to run from March 15, 2000 through the close of business on June 14, 2000. GET I may not be available under your contract, your plan or in your state. Please read the GET I prospectus for a more complete description of GET I, including its charges and expenses. INVESTMENT OBJECTIVE OF GET I GET I seeks to achieve maximum total return, without compromising a minimum targeted return, by participating in favorable equity market performance during the guarantee period. GET I's guarantee period runs from June 15, 2000 through June 14, 2005. During the offering period, all GET I assets will be invested in short-term instruments, and during the guarantee period will be invested in a combination of fixed income and equity securities. THE GET FUND GUARANTEE The guarantee period for GET I will end on June 14, 2005 which is GET I's maturity date. The Company guarantees that the value of an accumulation unit of the GET I subaccount under the contract on the maturity date (as valued after the close of business on June 14, 2005) will not be less than its value as determined after the close of business on the last day of the offering period. If the value on the maturity date is lower than it was on the last day of the offering period, we will transfer funds from our general account to the GET I subaccount to make up the difference. This means that if you remain invested in GET I until the maturity date, at the maturity date you will receive no less than the value of your separate account investment directed to GET I as of the last day of the offering period, less any maintenance fees or any amounts you transfer or withdraw from the GET I subaccount. The value of dividends and distributions made by GET I throughout the guarantee period is taken into account in determining whether, for purposes of the guarantee, the value of your GET I investment on the maturity date is no less than its value as of the last day of the offering period. The guarantee does not promise that you will earn the fund's minimum targeted return referred to in the investment objective. If you withdraw or transfer funds from GET I before the maturity date, we will process the transactions at the actual unit value next determined after we receive your order. The guarantee will not apply to these amounts or to amounts deducted as a maintenance fee, if applicable. MATURITY DATE Before the maturity date, we will send a notice to each contract holder who has amounts in GET I. This notice will remind you that the maturity date is approaching and that you must choose other investment options for your GET I amounts. If you do not make a choice, on the maturity date we will transfer your GET I amounts to another available series of the GET Fund that is accepting deposits. If no GET Fund series is available, we will transfer your GET I amounts to the fund or funds designated by the Company. X.GETI87305-A May 2000 The following information supplements the "Fee Table" contained in the prospectus: MAXIMUM FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT In addition to the amounts currently listed under the heading "Fee Table" in the prospectus, we will make a daily deduction of a GET I Guarantee Charge, equal on an annual basis to the percentage shown below, from the amounts allocated to the GET I investment option: GET I Guarantee Charge (deducted daily during the Guarantee Period) ..... 0.50% Maximum Total Separate Account Expenses .................................. 2.10%(1)
(1) The total separate account expenses that apply to your contract may be lower. Please refer to the "Fee Table" section of your prospectus. The following information supplements the "Fund Expense Table" contained in the prospectus: Aetna GET Fund Series I Annual Expenses (As a percentage of the average net assets)
Investment Total Fund Annual Expenses Advisory Fees(2) Other Expenses(3) (after expense reimbursement)(4) ---------------- ----------------- ------------------------------- Aetna GET Fund Series I 0.60% 0.15% 0.75%
For more information regarding expenses paid out of assets of the fund, see the GET I prospectus. - ----------------------- (2) The Investment Advisory Fee will be 0.25% during the offering period and 0.60% during the guarantee period. (3) "Other Expenses" include an annual fund administrative fee of 0.075% of the average daily net assets of GET I and any additional direct fund expenses. (4) The investment adviser is contractually obligated through GET I's maturity date to waive all or a portion of its investment advisory fee and/or its administrative fee and/or to reimburse a portion of the fund's other expenses in order to ensure that GET I's Total Fund Annual Expenses do not exceed 0.75% of the fund's average daily net assets. It is not expected that GET I's actual expenses without this waiver or reimbursement will exceed this amount. The following information supplements the "Hypothetical Examples" contained in the prospectus. HYPOTHETICAL EXAMPLES--AETNA GET FUND SERIES I Account Fees You May Incur Over Time. The following hypothetical examples show the fees and expenses paid over time if you invest $1,000 in the GET I investment option under the contract (until GET I's maturity date) and assume a 5% annual return on the investment.(5)
> THESE EXAMPLES ARE PURELY Example A Example B HYPOTHETICAL. If you withdraw your entire If at the end of the periods > THEY SHOULD NOT BE account value at the end of shown you (1) leave your CONSIDERED A REPRESENTATION the periods shown, you would entire account value invested OF PAST OR FUTURE EXPENSES pay the following expenses, or (2) select an income phase OR EXPECTED RETURNS. including any applicable early payment option, you would > ACTUAL EXPENSES AND/OR withdrawal charge: pay the following expenses RETURNS MAY BE MORE OR LESS (no early withdrawal charge is THAN THOSE SHOWN BELOW. reflected): 1 Year 3 Years 5 Years 1 Year 3 Years 5 Years -------- --------- --------- -------- --------- -------- Aetna GET Fund Series I $101 $151 $196 $29 $89 $151
- ----------------------- (5) The examples shown above reflect an annual mortality and expense risk charge of 1.45%, an annual contract administrative expense charge of 0.15%, an annual GET I guarantee charge of 0.50%, a $30 annual maintenance fee that has been converted to a percentage of assets equal to 0.022%, and all charges and expenses of the GET I Fund. The effect of the premium bonus is not reflected in the examples. Example A reflects an early withdrawal charge of 8% of the purchase payments at the end of year 1, 7% at the end of year 3, and 5% at the end of year 5. (The expenses that you would pay under your contract may be lower. Please refer to the "Fee Table" section of your prospectus.) The following information supplements "Appendix III--Description of Underlying Funds" contained in the prospectus: Aetna GET Fund (Series I) INVESTMENT OBJECTIVE Seeks to achieve maximum total return without compromising a minimum targeted return (Targeted Return) by participating in favorable equity market performance during the guarantee period, from June 15, 2000 through June 14, 2005, the maturity date. POLICIES Prior to June 15, 2000, assets are invested entirely in short-term instruments. After that date, assets are allocated between equities and fixed income securities. Equities consist primarily of common stocks. Fixed income securities consist primarily of short- to intermediate-duration U.S. Government securities and may also consist of mortgage backed securities and corporate obligations. The investment adviser uses a proprietary computer model to determine the percentage of assets to allocate between the fixed and the equity components. As the value of the equity component declines, more assets are allocated to the fixed component. RISKS The principal risks of investing in Series I are those generally attributable to stock and bond investing. The success of Series I's strategy depends on the investment adviser's skill in allocating assets between the equity and fixed components and in selecting investments within each component. Because Series I invests in both stocks and bonds, it may underperform stock funds when stocks are in favor and underperform bond funds when bonds are in favor. The risks associated with investing in stocks include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. The principal risk associated with investing in bonds is that interest rates may rise, which generally causes bond prices to fall. If at the inception of, or any time during, the guarantee period interest rates are low, Series I assets may be largely invested in the fixed component in order to increase the likelihood of achieving the Targeted Return at the maturity date. The effect of low interest rates on Series I would likely be more pronounced at the beginning of the guarantee period as the initial allocation of assets would include more fixed income securities. In addition, if during the guarantee period the equity markets experienced a major decline, Series I assets may become largely invested in the fixed component in order to increase the likelihood of achieving the Targeted Return at the maturity date. Use of the fixed component reduces Series I's ability to participate as fully in upward equity market movements, and therefore represents some loss of opportunity, or opportunity cost, compared to a portfolio that is fully invested in equities. Investment Adviser: Aeltus Investment Management, Inc. X.GETI87305-A May 2000 VARIABLE ANNUITY ACCOUNT B Aetna Life Insurance and Annuity Company Supplement Dated May 1, 2000 to May 1, 2000 Prospectus GENERAL DESCRIPTION OF GET J Series J of the Aetna GET Fund (GET J) is an investment option that may be available during the accumulation phase of the contract. Aetna Life Insurance and Annuity Company (the Company, we, our) makes a guarantee, as described below, when you direct money into GET J. Aeltus Investment Management, Inc. serves as investment adviser to GET J. We will offer GET J shares only during its offering period, which is scheduled to run from June 15, 2000 through the close of business on September 13, 2000. GET J may not be available under your contract, your plan or in your state. Please read the GET J prospectus for a more complete description of GET J, including its charges and expenses. INVESTMENT OBJECTIVE OF GET J GET J seeks to achieve maximum total return, without compromising a minimum targeted return, by participating in favorable equity market performance during the guarantee period. GET J's guarantee period runs from September 14, 2000 through September 13, 2005. During the offering period, all GET J assets will be invested in short-term instruments, and during the guarantee period will be invested in a combination of fixed income and equity securities. THE GET FUND GUARANTEE The guarantee period for GET J will end on September 13, 2005 which is GET J's maturity date. The Company guarantees that the value of an accumulation unit of the GET J subaccount under the contract on the maturity date (as valued after the close of business on September 13, 2005) will not be less than its value as determined after the close of business on the last day of the offering period. If the value on the maturity date is lower than it was on the last day of the offering period, we will transfer funds from our general account to the GET J subaccount to make up the difference. This means that if you remain invested in GET J until the maturity date, at the maturity date you will receive no less than the value of your separate account investment directed to GET J as of the last day of the offering period, less any maintenance fees or any amounts you transfer or withdraw from the GET J subaccount. The value of dividends and distributions made by GET J throughout the guarantee period is taken into account in determining whether, for purposes of the guarantee, the value of your GET J investment on the maturity date is no less than its value as of the last day of the offering period. The guarantee does not promise that you will earn the fund's minimum targeted return referred to in the investment objective. If you withdraw or transfer funds from GET J before the maturity date, we will process the transactions at the actual unit value next determined after we receive your order. The guarantee will not apply to these amounts or to amounts deducted as a maintenance fee, if applicable. MATURITY DATE Before the maturity date, we will send a notice to each contract holder who has amounts in GET J. This notice will remind you that the maturity date is approaching and that you must choose other investment options for your GET J amounts. If you do not make a choice, on the maturity date we will transfer your GET J amounts to another available series of the GET Fund that is accepting deposits. If no GET Fund series is available, we will transfer your GET J amounts to the fund or funds designated by the Company. X.GETJ87305-0 May 2000 The following information supplements the "Fee Table" contained in the prospectus: MAXIMUM FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT In addition to the amounts currently listed under the heading "Fee Table" in the prospectus, we will make a daily deduction of a GET J Guarantee Charge, equal on an annual basis to the percentage shown below, from the amounts allocated to the GET J investment option: GET J Guarantee Charge (deducted daily during the Guarantee Period) ..... 0.50% Maximum Total Separate Account Expenses .................................. 2.10%(1)
(1) The total separate account expenses that apply to your contract may be lower. Please refer to the "Fee Table" section of your prospectus. The following information supplements the "Fund Expense Table" contained in the prospectus: Aetna GET Fund Series J Annual Expenses (As a percentage of the average net assets)
Investment Total Fund Annual Expenses Advisory Fees(2) Other Expenses(3) (after expense reimbursement)(4) ---------------- ----------------- ------------------------------- Aetna GET Fund Series J 0.60% 0.15% 0.75%
For more information regarding expenses paid out of assets of the fund, see the GET J prospectus. - ----------------------- (2) The Investment Advisory Fee will be 0.25% during the offering period and 0.60% during the guarantee period. (3) "Other Expenses" include an annual fund administrative fee of 0.075% of the average daily net assets of GET J and any additional direct fund expenses. (4) The investment adviser is contractually obligated through GET J's maturity date to waive all or a portion of its investment advisory fee and/or its administrative fee and/or to reimburse a portion of the fund's other expenses in order to ensure that GET J Total Fund Annual Expenses do not exceed 0.75% of the fund's average daily net assets. It is not expected that GET J actual expenses without this waiver or reimbursement will exceed this amount. The following information supplements the "Hypothetical Examples" contained in the prospectus. HYPOTHETICAL EXAMPLES--AETNA GET FUND SERIES J Account Fees You May Incur Over Time. The following hypothetical examples show the fees and expenses paid over time if you invest $1,000 in the GET J investment option under the contract (until GET J's maturity date) and assume a 5% annual return on the investment.(5)
> THESE EXAMPLES ARE PURELY HYPOTHETICAL. > THEY SHOULD NOT BE Example A Example B CONSIDERED A REPRESENTATION If you withdraw your entire If at the end of the periods OF PAST OR FUTURE EXPENSES account value at the end of shown you (1) leave your OR EXPECTED RETURNS. the periods shown, you would entire account value invested > ACTUAL EXPENSES AND/OR pay the following expenses, or (2) select an income phase RETURNS MAY BE MORE OR LESS including any applicable early payment option, you would THAN THOSE SHOWN BELOW. withdrawal charge: pay the following expenses (no early withdrawal charge is reflected): 1 Year 3 Years 5 Years 1 Year 3 Years 5 Years -------- --------- --------- -------- --------- -------- Aetna GET Fund Series J $101 $151 $196 $29 $89 $151
- ----------------------- (5) The examples shown above reflect an annual mortality and expense risk charge of 1.45%, an annual contract administrative expense charge of 0.15%, an annual GET J guarantee charge of 0.50%, a $30 annual maintenance fee that has been converted to a percentage of assets equal to 0.022%, and all charges and expenses of the GET J Fund. The effect of the premium bonus is not reflected in the examples. Example A reflects an early withdrawal charge of 8% of the purchase payments at the end of year 1, 7% at the end of year 3, and 5% at the end of year 5. (The expenses that you would pay under your contract may be lower. Please refer to the "Fee Table" section of your prospectus.) The following information supplements "Appendix III--Description of Underlying Funds" contained in the prospectus: Aetna GET Fund (Series J) INVESTMENT OBJECTIVE Seeks to achieve maximum total return without compromising a minimum targeted return (Targeted Return) by participating in favorable equity market performance during the guarantee period, from September 14, 2000 through September 13, 2005, the maturity date. POLICIES Prior to September 14, 2000, assets are invested entirely in short-term instruments. After that date, assets are allocated between equities and fixed income securities. Equities consist primarily of common stocks. Fixed income securities consist primarily of short- to intermediate-duration U.S. Government securities and may also consist of mortgage backed securities and corporate obligations. The investment adviser uses a proprietary computer model to determine the percentage of assets to allocate between the fixed and the equity components. As the value of the equity component declines, more assets are allocated to the fixed component. RISKS The principal risks of investing in Series J are those generally attributable to stock and bond investing. The success of Series J's strategy depends on the investment adviser's skill in allocating assets between the equity and fixed components and in selecting investments within each component. Because Series J invests in both stocks and bonds, it may underperform stock funds when stocks are in favor and underperform bond funds when bonds are in favor. The risks associated with investing in stocks include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. The principal risk associated with investing in bonds is that interest rates may rise, which generally causes bond prices to fall. If at the inception of, or any time during, the guarantee period interest rates are low, Series J assets may be largely invested in the fixed component in order to increase the likelihood of achieving the Targeted Return at the maturity date. The effect of low interest rates on Series J would likely be more pronounced at the beginning of the guarantee period as the initial allocation of assets would include more fixed income securities. In addition, if during the guarantee period the equity markets experienced a major decline, Series J assets may become largely invested in the fixed component in order to increase the likelihood of achieving the Targeted Return at the maturity date. Use of the fixed component reduces Series J's ability to participate as fully in upward equity market movements, and therefore represents some loss of opportunity, or opportunity cost, compared to a portfolio that is fully invested in equities. Investment Adviser: Aeltus Investment Management, Inc. X.GETJ87305-0 May 2000 VARIABLE ANNUITY ACCOUNT B Aetna Life Insurance and Annuity Company Supplement Dated May 1, 2000 to May 1, 2000 Prospectus GENERAL DESCRIPTION OF GET K Series K of the Aetna GET Fund (GET K) is an investment option that may be available during the accumulation phase of the contract. Aetna Life Insurance and Annuity Company (the Company, we, our) makes a guarantee, as described below, when you direct money into GET K. Aeltus Investment Management, Inc. serves as investment adviser to GET K. We will offer GET K shares only during its offering period, which is scheduled to run from September 14, 2000 through the close of business on December 13, 2000. GET K may not be available under your contract, your plan or in your state. Please read the GET K prospectus for a more complete description of GET K, including its charges and expenses. INVESTMENT OBJECTIVE OF GET K GET K seeks to achieve maximum total return, without compromising a minimum targeted return, by participating in favorable equity market performance during the guarantee period. GET K's guarantee period runs from December 14, 2000 through December 13, 2005. During the offering period, all GET K assets will be invested in short-term instruments, and during the guarantee period will be invested in a combination of fixed income and equity securities. THE GET FUND GUARANTEE The guarantee period for GET K will end on December 13, 2005 which is GET K's maturity date. The Company guarantees that the value of an accumulation unit of the GET K subaccount under the contract on the maturity date (as valued after the close of business on December 13, 2005) will not be less than its value as determined after the close of business on the last day of the offering period. If the value on the maturity date is lower than it was on the last day of the offering period, we will transfer funds from our general account to the GET K subaccount to make up the difference. This means that if you remain invested in GET K until the maturity date, at the maturity date you will receive no less than the value of your separate account investment directed to GET K as of the last day of the offering period, less any maintenance fees or any amounts you transfer or withdraw from the GET K subaccount. The value of dividends and distributions made by GET K throughout the guarantee period is taken into account in determining whether, for purposes of the guarantee, the value of your GET K investment on the maturity date is no less than its value as of the last day of the offering period. The guarantee does not promise that you will earn the fund's minimum targeted return referred to in the investment objective. If you withdraw or transfer funds from GET K before the maturity date, we will process the transactions at the actual unit value next determined after we receive your order. The guarantee will not apply to these amounts or to amounts deducted as a maintenance fee, if applicable. MATURITY DATE Before the maturity date, we will send a notice to each contract holder who has amounts in GET K. This notice will remind you that the maturity date is approaching and that you must choose other investment options for your GET K amounts. If you do not make a choice, on the maturity date we will transfer your GET K amounts to another available series of the GET Fund that is accepting deposits. If no GET Fund series is available, we will transfer your GET K amounts to the fund or funds designated by the Company. X.GETK87305-0 May 2000 The following information supplements the "Fee Table" contained in the prospectus: MAXIMUM FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT In addition to the amounts currently listed under the heading "Fee Table" in the prospectus, we will make a daily deduction of a GET K Guarantee Charge, equal on an annual basis to the percentage shown below, from the amounts allocated to the GET K investment option: GET K Guarantee Charge (deducted daily during the Guarantee Period) ..... 0.50% Maximum Total Separate Account Expenses .................................. 2.10%(1)
(1) The total separate account expenses that apply to your contract may be lower. Please refer to the "Fee Table" section of your prospectus. The following information supplements the "Fund Expense Table" contained in the prospectus: Aetna GET Fund Series K Annual Expenses (As a percentage of the average net assets)
Investment Total Fund Annual Expenses Advisory Fees(2) Other Expenses(3) (after expense reimbursement)(4) ---------------- ----------------- ------------------------------- Aetna GET Fund Series K 0.60% 0.15% 0.75%
For more information regarding expenses paid out of assets of the fund, see the GET K prospectus. - ----------------------- (2) The Investment Advisory Fee will be 0.25% during the offering period and 0.60% during the guarantee period. (3) "Other Expenses" include an annual fund administrative fee of 0.075% of the average daily net assets of GET K and any additional direct fund expenses. (4) The investment adviser is contractually obligated through GET K's maturity date to waive all or a portion of its investment advisory fee and/or its administrative fee and/or to reimburse a portion of the fund's other expenses in order to ensure that GET K's Total Fund Annual Expenses do not exceed 0.75% of the fund's average daily net assets. It is not expected that GET K's actual expenses without this waiver or reimbursement will exceed this amount. The following information supplements the "Hypothetical Examples" contained in the prospectus. HYPOTHETICAL EXAMPLES--AETNA GET FUND SERIES K Account Fees You May Incur Over Time. The following hypothetical examples show the fees and expenses paid over time if you invest $1,000 in the GET K investment option under the contract (until GET K's maturity date) and assume a 5% annual return on the investment.(5)
> THESE EXAMPLES ARE PURELY Example A Example B HYPOTHETICAL. If you withdraw your entire If at the end of the periods > THEY SHOULD NOT BE account value at the end of shown you (1) leave your CONSIDERED A REPRESENTATION the periods shown, you would entire account value invested OF PAST OR FUTURE EXPENSES pay the following expenses, or (2) select an income phase OR EXPECTED RETURNS. including any applicable early payment option, you would > ACTUAL EXPENSES AND/OR withdrawal charge: pay the following expenses RETURNS MAY BE MORE OR LESS (no early withdrawal charge is THAN THOSE SHOWN BELOW. reflected): 1 Year 3 Years 5 Years 1 Year 3 Years 5 Years -------- --------- --------- -------- --------- -------- Aetna GET Fund Series K $101 $151 $196 $29 $89 $151
- ----------------------- (5) The examples shown above reflect an annual mortality and expense risk charge of 1.45%, an annual contract administrative expense charge of 0.15%, an annual GET K guarantee charge of 0.50%, a $30 annual maintenance fee that has been converted to a percentage of assets equal to 0.022%, and all charges and expenses of the GET K Fund. The effect of the premium bonus is not reflected in the examples. Example A reflects an early withdrawal charge of 8% of the purchase payments at the end of year 1, 7% at the end of year 3, and 5% at the end of year 5. (The expenses that you would pay under your contract may be lower. Please refer to the "Fee Table" section of your prospectus.) The following information supplements "Appendix III--Description of Underlying Funds" contained in the prospectus: Aetna GET Fund (Series K) INVESTMENT OBJECTIVE Seeks to achieve maximum total return without compromising a minimum targeted return (Targeted Return) by participating in favorable equity market performance during the guarantee period, from December 14, 2000 through December 13, 2005, the maturity date. POLICIES Prior to December 14, 2000, assets are invested entirely in short-term instruments. After that date, assets are allocated between equities and fixed income securities. Equities consist primarily of common stocks. Fixed income securities consist primarily of short- to intermediate-duration U.S. Government securities and may also consist of mortgage backed securities and corporate obligations. The investment adviser uses a proprietary computer model to determine the percentage of assets to allocate between the fixed and the equity components. As the value of the equity component declines, more assets are allocated to the fixed component. RISKS The principal risks of investing in Series K are those generally attributable to stock and bond investing. The success of Series K's strategy depends on the investment adviser's skill in allocating assets between the equity and fixed components and in selecting investments within each component. Because Series K invests in both stocks and bonds, it may underperform stock funds when stocks are in favor and underperform bond funds when bonds are in favor. The risks associated with investing in stocks include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. The principal risk associated with investing in bonds is that interest rates may rise, which generally causes bond prices to fall. If at the inception of, or any time during, the guarantee period interest rates are low, Series K assets may be largely invested in the fixed component in order to increase the likelihood of achieving the Targeted Return at the maturity date. The effect of low interest rates on Series K would likely be more pronounced at the beginning of the guarantee period as the initial allocation of assets would include more fixed income securities. In addition, if during the guarantee period the equity markets experienced a major decline, Series K assets may become largely invested in the fixed component in order to increase the likelihood of achieving the Targeted Return at the maturity date. Use of the fixed component reduces Series K's ability to participate as fully in upward equity market movements, and therefore represents some loss of opportunity, or opportunity cost, compared to a portfolio that is fully invested in equities. Investment Adviser: Aeltus Investment Management, Inc. X.GETK87305-0 May 2000 Contract Prospectus - May 1, 2000 - -------------------------------------------------------------------------------- The Funds o Aetna Balanced VP, Inc. o Aetna Income Shares d/b/a Aetna Bond VP o Aetna Growth VP o Aetna Variable Fund d/b/a Aetna Growth and Income VP o Aetna Index Plus Large Cap VP o Aetna International VP o Aetna Variable Encore Fund d/b/a Aetna Money Market VP o Aetna Small Company VP o Aetna Technology VP o AIM V.I. Capital Appreciation Fund o AIM V.I. Government Securities Fund o AIM V.I. Growth Fund o AIM V.I. Growth and Income Fund o AIM V.I. Value Fund o Alliance Variable Products--Growth and Income Portfolio o Alliance Variable Products--Premier Growth Portfolio o Alliance Variable Products--Quasar Portfolio o Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio o Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio o Fidelity Variable Insurance Products Fund (VIP) High Income Portfolio o Fidelity Variable Insurance Products Fund II (VIP II) Contrafund[RegTM] Portfolio o Janus Aspen Aggressive Growth Portfolio o Janus Aspen Balanced Portfolio o Janus Aspen Growth Portfolio o Janus Aspen Worldwide Growth Portfolio o MFS Total Return Series [o Mitchell Hutchins Series Trust Growth and Income Portfolio] [o Mitchell Hutchins Series Trust Small Cap Portfolio] [o Mitchell Hutchins Series Trust Tactical Allocation Portfolio] o Oppenheimer Aggressive Growth Fund/VA o Oppenheimer Main Street Growth & Income Fund/VA o Oppenheimer Strategic Bond Fund/VA o Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (formerly PPI MFS Value Equity Portfolio) o Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio o Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio o Portfolio Partners, Inc. (PPI) Scudder International Growth Portfolio The Contract. The contract described in this prospectus is a group or individual deferred variable annuity contract issued by Aetna Life Insurance and Annuity Company (the Company, we, us). It is issued to you, the contract holder, as either a qualified Individual Retirement Annuity (IRA), a qualified Roth IRA, a qualified contract under certain employer sponsored retirement plans, or as a nonqualified deferred annuity contract. - -------------------------------------------------------------------------------- Why Reading this Prospectus Is Important. This prospectus contains facts about the contract and its investment options you should know before purchasing. This information will help you decide if the contract is right for you. Please read this prospectus carefully. Table of Contents . . . page 3 - -------------------------------------------------------------------------------- Purchase Payments/Premium Bonuses. We credit a premium bonus to your account for each eligible purchase payment you make. Purchase payments and any corresponding premium bonuses are allocated to the investment options you select. Over time, the amount of the premium bonus may be more than offset by the fees associated with the bonus. Investment Options. The contract offers variable investment options and fixed interest options. When we establish your account you instruct us to direct account dollars to any of the available options. Variable Investment Options. These options are called subaccounts. The subaccounts are within Variable Annuity Account B (the separate account), a separate account of the Company. Each subaccount invests in one of the mutual funds listed on this page. Earnings on amounts invested in a subaccount will vary depending upon the performance of its underlying fund. You do not invest directly in or hold shares of the funds. Risks Associated with Investing in the Funds. The funds in which the subaccounts invest have various risks. Information about the risks of investing in the funds is located in the "Investment Options" section on page 12 in Appendix III-- Description of Underlying Funds and in each fund prospectus. Read this prospectus in conjunction with the fund prospectuses, and retain the prospectuses for future reference. Getting Additional Information. You may obtain the May 1, 2000, Statement of Additional Information (SAI) about the separate account by indicating your request on your application or calling us at 1-800-238-6219. You may also obtain an SAI for any of the funds by calling that number. The SEC also makes available to the public reports and information about the separate account and the funds. Certain reports and information, including this prospectus and SAI, are available on the EDGAR Database on the Securities and Exchange Commission (SEC) web site, www.sec.gov, or at the SEC Public Reference Room in Washington, D.C. You may call 1-202-942-8090 to get information about the operations of the Public Reference Room. You may obtain copies of reports and other information about the separate account and the funds, after paying a duplicating fee, by sending an e-mail request to publicinfo@sec.gov or by writing to the SEC Public Reference Section, Washington, D.C. 20549-0102. The SAI table of contents is listed on page 51 of this prospectus. The SAI is incorporated into this prospectus by reference. Additional Disclosure Information. Neither the SEC nor any state securities commission has approved or disapproved the securities offered through this prospectus or passed on the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. We do not intend for this prospectus to be an offer to sell or a solicitation of an offer to buy these securities in any state that does not permit their sale. We have not authorized anyone to provide you with information that is different than that contained in this prospectus. Prospectus - May 1, 2000 (continued) - -------------------------------------------------------------------------------- Fixed Interest Options. > ALIAC Guaranteed Account (the Guaranteed Account) > Fixed Account Except as specifically mentioned, this prospectus describes only the investment options offered through the separate account. However, we describe the fixed interest options in appendices to this prospectus. There is also a separate Guaranteed Account prospectus. Availability of Options. Some variable investment options or fixed interest options may be unavailable through your contract or in your state. The contract is not a deposit with, obligation of or guaranteed or endorsed by any bank, nor is it insured by the FDIC. The contract is subject to investment risk, including the possible loss of the principal amount of your investment. TABLE OF CONTENTS - --------------------------------------------------------------- Contract Overview ....................................... 4 Contract Design Contract Facts Questions: Contacting the Company Sending Forms and Written Requests in Good Order Sending Additional Purchase Payments Contract Phases: The Accumulation Phase, The Income Phase - ---------------------------------------------------------------
Fee Table ................................................ 7 Condensed Financial Information .......................... 12 Investment Options ....................................... 12 Transfers Among Investment Options..................... .. 14 Purchase and Rights ...................................... 16 Premium Bonus ............................................ 17 Right to Cancel .......................................... 20 Fees ..................................................... 21 Your Account Value ....................................... 24 Withdrawals .............................................. 27 Systematic Distribution Options .......................... 29 Death Benefit ............................................ 30 The Income Phase ......................................... 34 Taxation ................................................. 38 Other Topics ............................................. 46
The Company -- Variable Annuity Account B -- Contract Distribution -- Payment of Commissions -- Payment Delay or Suspension -- Performance Reporting -- Voting Rights -- Contract Modifications -- Transfer of Ownership: Assignment -- Involuntary Terminations -- Legal Matters and Proceedings Contents of the Statement of Additional Information ......... 51 Appendix I -- ALIAC Guaranteed Account ...................... 52 Appendix II -- Fixed Account ................................ 55 Appendix III -- Description of Underlying Funds ............. 56
[Start Side Bar] Questions: Contacting the Company. To answer your questions, contact your sales representative or write or call our Home Office at: Aetna Financial Services Annuity Services 151 Farmington Avenue Hartford, CT 06156-1258 1-800-238-6219 Sending Forms and Written Requests in Good Order. If you are writing to change your beneficiary, request a withdrawal or for any other purpose, contact us or your sales representative to learn what information is required for the request to be in "good order." We can only act upon requests that are received in good order. Sending Additional Purchase Payments. Use one of the following addresses when sending additional purchase payments. If using the U.S. Postal Service: ALIAC Attn: New Business Unit P.O. Box 30670 Hartford, CT 06150-0670 If using express mail: Fleet Bank/ALIAC #30670 Lockbox CT/EH F03E 99 Founders Plaza, 3rd Floor East Hartford, CT 06108 Express mail packages should not be sent to the P.O. Box address. [End Side Bar] Contract Overview - -------------------------------------------------------------------------------- The following is intended as a summary. Please read each section of this prospectus for additional detail. - -------------------------------------------------------------------------------- Contract Design - -------------------------------------------------------------------------------- The contract described in this prospectus is a group or individual deferred variable annuity contract. It is intended to be a retirement savings vehicle that offers a variety of investment options to help meet long-term financial goals. The term "contract" in this prospectus refers to individual contracts and to certificates issued under group contracts. - -------------------------------------------------------------------------------- Contract Facts - -------------------------------------------------------------------------------- Premium Bonus. We will credit a premium bonus to your account whenever you make an eligible purchase payment. Your initial purchase payment is always eligible for a premium bonus. Thereafter, any withdrawals you make from the contract reduce dollar-for-dollar the eligibility of subsequent purchase payments for a premium bonus. To determine the eligibility of subsequent purchase payments for a premium bonus, we subtract the sum of your withdrawals from the sum of your purchase payments. The result equals your net cumulative purchase payments. Next, we subtract from the net cumulative purchase payment amount the sum of your previous purchase payments upon which we paid a premium bonus, which results in the amount of the purchase payment eligible for a premium bonus. See "Premium Bonus" for an example of the effect of withdrawals on eligibility for a premium bonus. The amount of your premium bonus is a certain percentage of the eligible purchase payment. The particular percentage is determined according to the following schedule, which is based on three ranges of net cumulative purchase payments.
- ------------------------------------------------------------ Net Cumulative Purchase Payments Premium Bonus Percentage - ------------------------------------------------------------ $1,500 to $14,999 2.00% $15,000 to $2,499,999 4.00% $2,500,000 or more 5.00% - ------------------------------------------------------------
The premium bonus is included in your account value and will be allocated among the investment options you have selected in the same proportion as the purchase payment. In certain circumstances, a premium bonus previously credited to your account will not be included when calculating the death benefit or income phase payments. See "Premium Bonus," "Death Benefit -- Death Benefit Amount" and "The Income Phase -- Premium Bonus." Also, if you exercise your free look privilege and cancel your contract, the amount refunded to you will not include any premium bonus. See "Right to Cancel." Free Look/Right to Cancel. You may cancel your contract within ten days (some states require more than ten days) of receipt. See "Right to Cancel." Death Benefit. Your beneficiary may receive a financial benefit in the event of your death prior to the income phase. The amount of the death benefit will depend upon the death benefit option selected, and once a death benefit option is selected it may not be changed. Each death benefit option has a different mortality and expense risk charge. See "Fees" and "Death Benefit." 4 Any death benefit during the income phase will depend upon the income phase payment option selected. See "The Income Phase." Withdrawals. During the accumulation phase, you may withdraw all or part of your account value. Certain fees, taxes and early withdrawal penalties may apply. In addition, the Internal Revenue Code of 1986, as amended (Tax Code), restricts full and partial withdrawals in some circumstances. See "Withdrawals." Amounts withdrawn from the Guaranteed Account may be subject to a market value adjustment. See Appendix I. Systematic Distribution Options. These are made available for you to receive periodic withdrawals from your account, while retaining the account in the accumulation phase. See "Systematic Distribution Options." Fees and Expenses. Certain fees and expenses are deducted from the value of your contract. See "Fee Table" and "Fees." Taxation. You will generally not pay taxes on any earnings from the annuity contract described in this prospectus until they are withdrawn. Tax-qualified retirement arrangements (e.g. IRAs or 403(b) plans) also defer payment of taxes on earnings until they are withdrawn. If you are considering funding a tax-qualified retirement arrangement with an annuity contract, you should know that the annuity contract does not provide any additional tax deferral of earnings beyond the tax deferral provided by the tax-qualified retirement arrangement. However, annuities do provide other features and benefits which may be valuable to you. You should discuss your decision with your financial representative. Taxes will generally be due when you receive a distribution. Tax penalties may apply in some circumstances. See "Taxation." 5 - -------------------------------------------------------------------------------- Contract Phases - -------------------------------------------------------------------------------- I. The Accumulation Phase (accumulating dollars under your contract) STEP 1: You provide us with --------------------- your completed application and | Payments to | initial purchase payment. We | Your Account | establish an account for you --------------------- and credit that account with Step 1 [arrow down] your initial purchase payment - -------------------------------------------- and premium bonus. | | | Aetna Life Insurance and Annuity Company | STEP 2: You direct us to | | invest your purchase payment - -------------------------------------------- and the premium bonus in one (a)[arrow down] Step 2 [arrow down] (b) or more of the following - ---------- -------------------------------- investment options: | | | Variable Annuity | (a) Fixed Interest Options; or | Fixed | | Account B | |Interest| | | (b) Variable Investment | Options| | | Options. (The variable | | | Variable Investment Options | investment options are | | | | the subaccounts of | | | | Variable Annuity Account | | | | B. Each one invests in a - ---------- -------------------------------- specific mutual fund.) | The Subaccounts | -------------------------------- STEP 3: Each subaccount you | | | | select purchases shares of its | A | B | Etc. | assigned fund. | | | | -------------------------------- [arrow down] Step 3 [arrow down] ---------------------- | Mutual | Mutual | | Fund A | Fund B | ---------------------- II. The Income Phase (receiving income phase payments from your contract) When you want to begin receiving payments from your contract, you may select from the options available. The contract offers several income phase payment options (see "The Income Phase"). In general, you may: > Receive income phase payments for a specified period of time or for life; > Receive income phase payments monthly, quarterly, semi-annually or annually; > Select an income phase payment option that provides for payments to your beneficiary; or > Select income phase payments that are fixed or vary depending upon the performance of the variable investment options you select. 6 [Start Side Bar] In this Section: > Maximum Transaction Fees > Maximum Fees Deducted from Investments in the Separate Account > Fees Deducted by the Funds > Hypothetical Examples Also see the "Fees" section for: > How, When and Why Fees are Deducted > Reduction, Waiver and/or Elimination of Certain Fees > Premium and Other Taxes [End Side Bar] Fee Table - -------------------------------------------------------------------------------- The tables and examples in this section show the fees that may affect your account value during the accumulation phase. See "The Income Phase" for fees that may apply after you begin receiving income phase payments under the contract. The fees shown do not reflect any premium tax that may apply. Maximum Transaction Fees Early Withdrawal Charge. (As a percentage of purchase payments withdrawn.)
- ----------------------------------------------------------------- Years From Receipt of Purchase Payment Early Withdrawal Charge - ----------------------------------------------------------------- Less than 3 8% 3 or more but less than 4 7% 4 or more but less than 5 6% 5 or more but less than 6 5% 6 or more but less than 7 4% 7 or more but less than 8 3% 8 or more 0% - -----------------------------------------------------------------
Annual Maintenance Fee................................................$30.00(1) Transfer charge........................................................$0.00(2) Maximum Fees Deducted from Investments in the Separate Account Amount During the Accumulation Phase. (Daily deductions, equal to the following percentages on an annual basis, from amounts invested in the subaccounts.) > Death Benefit Option I-- Mortality and Expense Risk Charge 1.25% Administrative Expense Charge 0.15% ---- Total Separate Account Expenses 1.40% ====
> Death Benefit Option II-- Mortality and Expense Risk Charge 1.45% Administrative Expense Charge 0.15% ---- Total Separate Account Expenses 1.60% ==== Amount During the Income Phase. (Daily deductions, equal to the following percentages on an annual basis, from amounts invested in the subaccounts.) Mortality and Expense Risk Charge 1.25% Administrative Expense Charge 0.00% - 0.25%(3) ----- ------- Total Separate Account Expenses 1.25% - 1.50%(3) ==== =======
(1) The annual maintenance fee will be waived if your account value is $50,000 or greater on the date this fee is due. See "Fees--Annual Maintenance Fee." (2) During the accumulation phase, we currently allow you 12 free transfers each account year. We reserve the right to charge $10 for each additional transfer. We currently do not impose this charge. See "Transfers" for additional information. (3) We currently do not deduct an administrative expense charge during the income phase; however, we reserve the right to deduct a daily charge of not more than 0.25% per year. See "The Income Phase--Charges Deducted." 7 Fees Deducted by the Funds Using this information. The following table shows the investment advisory fees and other expenses charged annually by each fund. Fund fees are one factor that impacts the value of a fund share. To learn about additional factors impacting the share value, refer to the fund prospectus. How fees are deducted. The fund fees are not deducted from account values. Instead, they are deducted from the value of the fund shares on a daily basis, which in turn affects the value of each subaccount that purchases fund shares. Except as noted below, the following figures are a percentage of the average net assets of each fund, and are based on figures for the year ended December 31, 1999. Fund Expense Table
Total Fund Net Fund Annual Annual Expenses Expenses Investment Without Total After Advisory Other Waivers or Waivers and Waivers or Fund Name Fees(1) Expenses Reductions Reductions Reductions --------- ---------- -------- ---------- ----------- ---------- Aetna Balanced VP, Inc. 0.50% 0.09% 0.59% -- 0.59% Aetna Bond VP 0.40% 0.09% 0.49% -- 0.49% Aetna Growth VP(2) 0.60% 0.11% 0.71% 0.00% 0.71% Aetna Growth and Income VP 0.50% 0.08% 0.58% -- 0.58% Aetna Index Plus Large Cap VP(2) 0.35% 0.10% 0.45% 0.00% 0.45% Aetna International VP(2) 0.85% 0.77% 1.62% 0.47% 1.15% Aetna Money Market VP 0.25% 0.09% 0.34% -- 0.34% Aetna Small Company VP(2) 0.75% 0.13% 0.88% 0.00% 0.88% Aetna Technology VP(2)(3) 0.95% 0.25% 1.20% 0.05% 1.15% AIM V.I. Capital Appreciation Fund 0.62% 0.11% 0.73% -- 0.73% AIM V.I. Government Securities Fund 0.50% 0.40% 0.90% -- 0.90% AIM V.I. Growth Fund 0.63% 0.10% 0.73% -- 0.73% AIM V.I. Growth and Income Fund 0.61% 0.16% 0.77% -- 0.77% AIM V.I. Value Fund 0.61% 0.15% 0.76% -- 0.76% Alliance Growth and Income Portfolio 0.63% 0.08% 0.71% -- 0.71% Alliance Premier Growth Portfolio 1.00% 0.05% 1.05% -- 1.05% Alliance Quasar Portfolio(4) 1.00% 0.19% 1.19% 0.24% 0.95% Fidelity VIP Equity-Income Portfolio(5) 0.48% 0.09% 0.57% -- 0.57% Fidelity VIP Growth Portfolio(5) 0.58% 0.08% 0.66% -- 0.66% Fidelity VIP High Income Portfolio(5) 0.58% 0.11% 0.69% -- 0.69% Fidelity VIP II Contrafund[RegTM] Portfolio(5) 0.58% 0.09% 0.67% -- 0.67% Janus Aspen Aggressive Growth Portfolio(6) 0.65% 0.02% 0.67% 0.00% 0.67% Janus Aspen Balanced Portfolio(6) 0.65% 0.02% 0.67% 0.00% 0.67% Janus Aspen Growth Portfolio(6) 0.65% 0.02% 0.67% 0.00% 0.67% Janus Aspen Worldwide Growth Portfolio(6) 0.65% 0.05% 0.70% 0.00% 0.70% MFS Total Return Series(7) 0.75% 0.15% 0.90% 0.00% 0.90% [Mitchell Hutchins Growth and Income Portfolio(9) 0.70% 0.78% 1.48% -- 1.48%] [Mitchell Hutchins Small Cap Portfolio(9) 1.00% 3.05% 4.05% -- 4.05%] [Mitchell Hutchins Tactical Allocation Portfolio(9) 0.50% 0.49% 0.99% -- 0.99%] Oppenheimer Aggressive Growth Fund/VA 0.66% 0.01% 0.67% -- 0.67% Oppenheimer Main Street Growth & Income Fund/VA 0.73% 0.05% 0.78% -- 0.78% Oppenheimer Strategic Bond Fund/VA 0.74% 0.04% 0.78% -- 0.78% PPI MFS Capital Opportunities Portfolio(8) 0.65% 0.25% 0.90% 0.00% 0.90% PPI MFS Emerging Equities Portfolio(8) 0.67% 0.13% 0.80% 0.00% 0.80% PPI MFS Research Growth Portfolio(8) 0.70% 0.15% 0.85% 0.00% 0.85% PPI Scudder International Growth Portfolio(8) 0.80% 0.20% 1.00% 0.00% 1.00%
8 Footnotes to the "Fund Expense Table" (1) Certain of the fund advisers reimburse the company for administrative costs incurred in connection with administering the funds as variable funding options under the contract. These reimbursements are generally paid out of the Investment Advisory Fees and are not charged to investors. For the AIM Funds, the reimbursements may be paid out of fund assets in an amount up to 0.25% annually. Any such reimbursements paid from the AIM Funds' assets are included in the "Other Expenses" column. (2) The investment adviser is contractually obligated through December 31, 2000 to waive all or a portion of its investment advisory fee and/or its administrative services fee and/or to reimburse a portion of other expenses in order to ensure that the fund's "Total Fund Annual Expenses Without Waivers or Reductions" do not exceed the percentage reflected under "Net Fund Annual Expenses After Waivers or Reductions." (3) Aetna Technology VP commenced operations on May 1, 2000. Amounts reflected in "Other Expenses" and "Total Fund Annual Expenses Without Waivers or Reductions" are estimated amounts for the current fiscal year based on expenses for comparable funds. Actual expenses may vary from those shown. (4) The investment manager has agreed to waive its fees and reimburse the Quasar Variable Portfolio to limit total expenses to 0.95% of daily net assets until at least May 1, 2001. (5) A portion of the brokerage commissions that certain funds pay was used to reduce fund expenses. In addition, through arrangements with certain funds', or the investment adviser on behalf of certain funds', custodian, credits realized as a result of uninvested cash balances were used to reduce a portion of each applicable fund's expenses. These credits are not included under Total Waivers and Reductions. If these credits had been included, the amounts shown under Net Fund Annual Expenses After Waivers or Reductions presented in the table would have been 0.56% for Fidelity VIP Equity-Income Portfolio; 0.65% for Fidelity VIP Growth Portfolio; and 0.65% for Fidelity VIP II Contrafund[RegTM] Portfolio. (6) Expenses are based upon expenses for the fiscal year ended December 31, 1999, restated to reflect a reduction in the management fee for Aggressive Growth, Balanced, Growth and Worldwide Growth Portfolios. All expenses are shown without the effect of expense offset arrangements. (7) The series has an expense offset arrangement which reduces the series' custodian fee based upon the amount of cash maintained by the series with its custodian and dividend disbursing agent. The series may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the series' expenses. The "Other Expenses" shown above do not take into account these expense reductions, and are therefore higher than the actual expenses of the series. Had these fee reductions been taken into account, Net Fund Annual Expenses After Waivers or Reductions would be lower and would equal 0.89% for the series. (8) The investment adviser has agreed to reimburse the portfolios for expenses and/or waive its fees, so that, through at least April 30, 2001, the aggregate of each portfolio's expenses will not exceed the combined investment advisory fees and other expenses shown under the Net Fund Annual Expenses After Waivers or Reductions column above. (9) [The "Other Expenses" include an annual 0.25% fee imposed under a distribution plan pursuant to Rule 12b-1 under the Investment Company Act of 1940. This plan provides that each portfolio pays to the distributor of the portfolios a distribution fee at an annual rate of 0.25% of its average daily net assets attributable to its Class I shares. The distributor of the portfolios uses the distribution fee to pay insurance companies whose separate accounts purchase Class I shares for distribution-related services that the insurance companies provide with respect to the Class I shares.] 9 Hypothetical Example: Option Package I Account Fees You May Incur Over Time. The following hypothetical examples show the fees and expenses paid over time if you invest $1,000 in the contract and assume a 5% annual return on the investment. For the purpose of these examples, we deducted total annual fund expenses and the maximum charges under the contract (i.e., a mortality and expense risk charge of 0.1.25% annually for Death benefit Option I, an administrative expense charge of 0.15% annually and an annual maintenance fee of $30 (converted to a percentage of assets equal to 0.022%)). The total annual fund expenses used are those shown in the column "Total Fund Annual Expenses Without Waivers or Reductions" in the Fund Expense Table.
EXAMPLE A EXAMPLE B - ----------------------------------------- --------- --------- > These examples are purely hypothetical. If you withdraw your entire account If at the end of the periods shown you > They should not be considered a value at the end of the periods shown, (1) leave your entire account value representation of past or future you would pay the following invested or (2) select an income expenses or expected returns. expenses, including any applicable phase payment option, you would > Actual expenses and/or returns may be early withdrawal charge: pay the following expenses (no early more or less than those shown in these withdrawal charge is reflected):* examples. - ----------------------------------------- 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years ------ ------- ------- -------- ------ ------- ------- -------- Aetna Balanced VP, Inc. $ 92 $125 $153 $234 $20 $ 63 $108 $234 Aetna Bond VP $ 91 $122 $147 $223 $19 $ 60 $103 $223 Aetna Growth VP $ 93 $129 $159 $246 $22 $ 67 $115 $246 Aetna Growth and Income VP $ 92 $125 $152 $233 $20 $ 63 $108 $233 Aetna Index Plus Large Cap VP $ 91 $121 $145 $219 $19 $ 59 $101 $219 Aetna International VP $103 $157 $204 $336 $31 $ 94 $160 $336 Aetna Money Market VP $ 90 $118 $140 $208 $18 $ 55 $ 96 $208 Aetna Small Company VP $ 95 $134 $167 $264 $23 $ 72 $123 $264 Aetna Technology VP $ 92 $126 $153 $235 $21 $ 63 $109 $235 AIM V.I. Capital Appreciation Fund $ 94 $130 $160 $248 $22 $ 67 $116 $248 AIM V.I. Government Securities Fund $ 95 $135 $168 $266 $24 $ 73 $124 $266 AIM V.I. Growth Fund $ 94 $130 $160 $248 $22 $ 67 $116 $248 AIM V.I. Growth and Income Fund $ 94 $131 $162 $253 $22 $ 69 $118 $253 AIM V.I. Value Fund $ 94 $131 $161 $252 $22 $ 68 $117 $252 Alliance Growth and Income Portfolio $ 93 $129 $159 $246 $22 $ 67 $115 $246 Alliance Premier Growth Portfolio $ 97 $139 $176 $281 $25 $ 77 $132 $281 Alliance Quasar Portfolio $ 98 $144 $183 $295 $26 $ 81 $139 $295 Fidelity VIP Equity-Income Portfolio $ 92 $125 $152 $232 $20 $ 63 $107 $232 Fidelity VIP Growth Portfolio $ 93 $128 $156 $241 $21 $ 65 $112 $241 Fidelity VIP High Income Portfolio $ 93 $129 $158 $244 $21 $ 66 $113 $244 Fidelity VIP II Contrafund[RegTM] Portfolio $ 93 $128 $157 $242 $21 $ 66 $112 $242 Janus Aspen Aggressive Growth Portfolio $ 93 $128 $157 $242 $21 $ 66 $112 $242 Janus Aspen Balanced Portfolio $ 93 $128 $157 $242 $21 $ 66 $112 $242 Janus Aspen Growth Portfolio $ 93 $128 $157 $242 $21 $ 66 $112 $242 Janus Aspen Worldwide Growth Portfolio $ 93 $129 $158 $245 $22 $ 66 $114 $245 MFS Total Return Series $ 95 $135 $168 $266 $24 $ 73 $124 $266 [Mitchell Hutchins Growth and Income Portfolio $101 $152 $197 $323 $29 $ 90 $153 $323] [Mitchell Hutchins Small Cap Portfolio $127 $226 $316 $534 $55 $163 $270 $534] [Mitchell Hutchins Tactical Allocation Portfolio $ 96 $138 $173 $275 $24 $ 75 $129 $275] Oppenheimer Aggressive Growth Fund/VA $ 93 $128 $157 $242 $21 $ 66 $112 $242 Oppenheimer Main Street Growth & Income Fund/VA $ 94 $131 $162 $254 $22 $ 69 $118 $254 Oppenheimer Strategic Bond Fund/VA $ 94 $131 $162 $254 $22 $ 69 $118 $254 PPI MFS Capital Opportunities Portfolio $ 95 $135 $168 $266 $24 $ 73 $124 $266 PPI MFS Emerging Equities Portfolio $ 94 $132 $163 $256 $23 $ 69 $119 $256 PPI MFS Research Growth Portfolio $ 95 $133 $166 $261 $23 $ 71 $122 $261 PPI Scudder International Growth Portfolio $ 96 $138 $173 $276 $25 $ 76 $129 $276
- ----------------- * This example does not apply during the income phase if you select a nonlifetime income phase payment option with variable payments and take a lump-sum withdrawal after payments start. In this case the lump-sum payment is treated as a withdrawal during the accumulation phase and may be subject to an early withdrawal charge (refer to Example A). 10 Hypothetical Example--Death Benefit Option II Account Fees You May Incur Over Time. The following hypothetical examples show the fees and expenses paid over time if you invest $1,000 in the contract and assume a 5% annual return on the investment. For the purpose of these examples, we deducted total annual fund expenses and the maximum charges under the contract (i.e., a mortality and expense risk charge of 1.45% annually for Death Benefit Option II, an administrative expense charge of 0.15% annually and an annual maintenance fee of $30 (converted to a percentage of assets equal to 0.022%)). The total annual fund expenses used are those shown in the column "Total Fund Annual Expenses Without Waivers or Reductions" in the Fund Expense Table.
- ----------------------------------------- EXAMPLE A EXAMPLE B > These examples are purely hypothetical. --------- --------- > They should not be considered a If you withdraw your entire account If at the end of the periods shown you representation of past or future value at the end of the periods shown, (1) leave your entire account value expenses or expected returns. you would pay the following invested or (2) select an income > Actual expenses and/or returns may be expenses, including any applicable phase payment option, you would more or less than those shown in these early withdrawal charge: pay the following expenses (no early examples. withdrawal charge is reflected):* - ----------------------------------------- 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years ------ ------- ------- -------- ------ ------- ------- -------- Aetna Balanced VP, Inc. $ 94 $132 $163 $255 $22 $ 69 $119 $255 Aetna Bond VP $ 93 $129 $158 $244 $21 $ 66 $113 $244 Aetna Growth VP $ 95 $135 $169 $267 $24 $ 73 $125 $267 Aetna Growth and Income VP $ 94 $131 $162 $254 $22 $ 69 $118 $254 Aetna Index Plus Large Cap VP $ 93 $127 $156 $240 $21 $ 65 $111 $240 Aetna International VP $105 $162 $214 $354 $33 $100 $169 $354 Aetna Money Market VP $ 92 $124 $150 $229 $20 $ 62 $106 $229 Aetna Small Company VP $ 97 $140 $177 $284 $25 $ 78 $133 $284 Aetna Technology VP $100 $150 $193 $315 $29 $ 87 $149 $315 AIM V.I. Capital Appreciation Fund $ 96 $136 $170 $269 $24 $ 73 $126 $269 AIM V.I. Government Securities Fund $ 97 $141 $178 $286 $26 $ 79 $134 $286 AIM V.I. Growth Fund $ 96 $136 $170 $269 $24 $ 73 $126 $269 AIM V.I. Growth and Income Fund $ 96 $137 $172 $273 $24 $ 75 $128 $273 AIM V.I. Value Fund $ 96 $137 $171 $272 $24 $ 74 $127 $272 Alliance Growth and Income Portfolio $ 95 $135 $169 $267 $24 $ 73 $125 $267 Alliance Premier Growth Portfolio $ 99 $145 $186 $300 $27 $ 83 $142 $300 Alliance Quasar Portfolio $100 $150 $193 $314 $28 $ 87 $149 $314 Fidelity VIP Equity-Income Portfolio $ 94 $131 $162 $253 $22 $ 69 $118 $253 Fidelity VIP Growth Portfolio $ 95 $134 $166 $262 $23 $ 71 $122 $262 Fidelity VIP High Income Portfolio $ 95 $135 $168 $265 $23 $ 72 $124 $265 Fidelity VIP II Contrafund[00ae] Portfolio $ 95 $134 $167 $263 $23 $ 72 $123 $263 Janus Aspen Aggressive Growth Portfolio $ 95 $134 $167 $263 $23 $ 72 $123 $263 Janus Aspen Balanced Portfolio $ 95 $134 $167 $263 $23 $ 72 $123 $263 Janus Aspen Growth Portfolio $ 95 $134 $167 $263 $23 $ 72 $123 $263 Janus Aspen Worldwide Growth Portfolio $ 95 $135 $168 $266 $24 $ 73 $124 $266 MFS Total Return Series $ 97 $141 $178 $286 $26 $ 79 $134 $286 [Mitchell Hutchins Growth and Income Portfolio $103 $158 $207 $341 $31 $ 96 $163 $341] [Mitchell Hutchins Small Cap Portfolio $129 $232 $324 $549 $57 $168 $279 $549] [Mitchell Hutchins Tactical Allocation Portfolio $ 98 $144 $183 $295 $26 $ 81 $139 $295] Oppenheimer Aggressive Growth Fund/VA $ 95 $134 $167 $263 $23 $ 72 $123 $263 Oppenheimer Main Street Growth & Income Fund/ VA $ 96 $137 $172 $274 $24 $ 75 $128 $274 Oppenheimer Strategic Bond Fund/VA $ 96 $137 $172 $274 $24 $ 75 $128 $274 PPI MFS Capital Opportunities Portfolio $ 97 $141 $178 $286 $26 $ 79 $134 $286 PPI MFS Emerging Equities Portfolio $ 96 $138 $173 $276 $25 $ 76 $129 $276 PPI MFS Research Growth Portfolio $ 97 $139 $176 $281 $25 $ 77 $132 $281 PPI Scudder International Growth Portfolio $ 98 $144 $183 $296 $27 $ 82 $139 $296
- ----------------- * This example does not apply during the income phase if you select a nonlifetime income phase payment option with variable payments and take a lump-sum withdrawal after payments start. In this case the lump-sum payment is treated as a withdrawal during the accumulation phase and may be subject to an early withdrawal charge (refer to Example A). 11 Condensed Financial Information - -------------------------------------------------------------------------------- As of December 31, 1999, we had not begun selling the contract and the subaccounts did not have any assets attributable to the contract. Therefore, no condensed financial information is presented herein. Investment Options - -------------------------------------------------------------------------------- The contract offers variable investment options and fixed interest options. Variable Investment Options. These options are called subaccounts. The subaccounts are within Variable Annuity Account B (the separate account), a separate account of the Company. Each subaccount invests in a specific mutual fund. You do not invest directly in or hold shares of the funds. > Mutual Fund (fund) Descriptions. We provide brief descriptions of the funds in Appendix III. Investment results of the funds are likely to differ significantly and there is no assurance that any of the funds will achieve their respective investment objectives. Shares of the funds will rise and fall in value and you could lose money by investing in the funds. Shares of the funds are not bank deposits and are not guaranteed, endorsed or insured by any financial institution, the Federal Deposit Insurance Corporation or any other government agency. Unless otherwise noted, all funds are diversified as defined under the Investment Company Act of 1940. Refer to the fund prospectuses for additional information. Fund prospectuses may be obtained, free of charge, from our Home Office at the address and phone number listed in "Contract Overview--Questions: Contacting the Company" or by contacting the SEC Public Reference Room. Fixed Interest Options. If available in your state, the ALIAC Guaranteed Account (the Guaranteed Account) or the Fixed Account. The Guaranteed Account offers certain guaranteed minimum interest rates for a stated period of time. Amounts must remain in the Guaranteed Account for specific periods to receive the quoted interest rates, or a market value adjustment will be applied. The market value adjustment may be positive or negative. The Fixed Account guarantees payment of the minimum interest rate specified in the contract. The Fixed Account is only available in certain states. For a description of these options, see Appendices I and II and the Guaranteed Account prospectus. 12 - -------------------------------------------------------------------------------- Selecting Investment Options o Choose options appropriate for you. Your sales representative can help you evaluate which investment options may be appropriate for your financial goals. o Understand the risks associated with the options you choose. Some subaccounts invest in funds that are considered riskier than others. Funds with additional risks are expected to have values that rise and fall more rapidly and to a greater degree than other funds. For example, funds investing in foreign or international securities are subject to risks not associated with domestic investments, and their investment performance may vary accordingly. Also, funds using derivatives in their investment strategy may be subject to additional risks. o Be informed. Read this prospectus, the fund prospectuses, the Guaranteed Account and Fixed Account appendices and the Guaranteed Account prospectus. - -------------------------------------------------------------------------------- Limits on Availability of Options. Some funds or fixed interest options may be unavailable through your contract or in your state. We may add, withdraw or substitute funds, subject to the conditions in your contract and compliance with regulatory requirements. Limits on How Many Investment Options You May Select. Although there is currently no limit, we reserve the right to limit the number of investment options you may select at any one time or during the life of the contract. For purposes of determining any limit, each subaccount and each guaranteed term of the Guaranteed Account, or an investment in the Fixed Account in certain contracts, will be considered an investment option. Limits Imposed by the Underlying Fund. Orders for the purchase of fund shares may be subject to acceptance by the fund. We reserve the right to reject, without prior notice, any allocation of a purchase payment or premium bonus to a subaccount if the subaccount's investment in the corresponding fund is not accepted by the fund for any reason. Additional Risks of Investing in the Funds (Mixed and Shared Funding). "Shared funding" occurs when shares of a fund, which the subaccounts buy for variable annuity contracts, are also bought by other insurance companies for their variable annuity contracts. "Mixed funding" occurs when shares of a fund, which the subaccounts buy for variable annuity contracts, are bought for variable life insurance contracts issued by us or other insurance companies. > Shared--bought by more than one company. > Mixed--bought for annuities and life insurance. It is possible that a conflict of interest may arise due to mixed and/or shared funding, which could adversely impact the value of a fund. For example, if a conflict of interest occurred and one of the subaccounts withdrew its investment in a fund, the fund may be forced to sell its securities at disadvantageous prices, causing its share value to decrease. Each fund's Board of Directors or Trustees will monitor events to identify any conflicts which may arise and to determine what action, if any, should be taken to address such conflicts. 13 Transfers Among Investment Options - -------------------------------------------------------------------------------- You may transfer amounts among the available subaccounts. During the accumulation phase, we allow you 12 free transfers each account year. We reserve the right to charge $10 for each additional transfer. We currently do not impose this charge. During the income phase, if approved in your state, transfers are limited to 12 each account year and allowed only if you select variable income phase payments. We reserve the right to allow more than 12 transfers each account year. Transfers from the Guaranteed Account are subject to certain restrictions and may be subject to a market value adjustment. Transfers from the Fixed Account are subject to certain restrictions and transfers into the Fixed Account from any of the other investment options are not allowed. Transfers must be made in accordance with the terms of your contract. Transfer Requests. Requests may be made in writing, by telephone or, where applicable, electronically. Limits on Frequent Transfers. The contract is not designed to serve as a vehicle for frequent trading in response to short-term fluctuations in the market. Such frequent trading can disrupt management of a fund and raise its expenses. This in turn can have an adverse effect on fund performance. Accordingly, organizations or individuals that use market-timing investment strategies and make frequent transfers should not purchase the contract. We reserve the right to restrict, in our sole discretion and without prior notice, transfers initiated by a market-timing organization or an individual or other party authorized to give transfer instructions on behalf of multiple contract holders. Such restrictions could include: (1) not accepting transfer instructions from an agent acting on behalf of more than one contract holder; and (2) not accepting preauthorized transfer forms from market timers or other entities acting on behalf of more than one contract holder at a time. We further reserve the right to impose, without prior notice, restrictions on transfers that we determine, in our sole discretion, will disadvantage or potentially hurt the rights or interests of other contract holders. Additionally, orders for the purchase of fund shares may be subject to acceptance by the fund. We reserve the right to reject, without prior notice, any transfer request to a subaccount if the subaccount's investment in the corresponding fund is not accepted for any reason. Value of Your Transferred Dollars. The value of amounts transferred into or out of subaccounts will be based on the subaccount unit values next determined after we receive your transfer request in good order at our Home Office or, if you are participating in the dollar cost averaging or account rebalancing programs after your scheduled transfer or reallocation. Telephone and Electronic Transactions: Security Measures. To prevent fraudulent use of telephone and electronic transactions (including, but not limited to, internet transactions), we have established security procedures. These include recording calls on our toll-free telephone lines and requiring use of a personal identification number (PIN) to execute transactions. You are responsible for keeping your PIN and account information confidential. If we fail to follow reasonable security procedures, we may be liable for losses due to unauthorized or fraudulent telephone or other electronic transactions. We are 14 not liable for losses resulting from telephone or electronic instructions we believe to be genuine. If a loss occurs when we rely on such instructions, you will bear the loss. The Dollar Cost Averaging Program. Dollar cost averaging is an investment strategy whereby you purchase fixed dollar amounts of an investment at regular intervals, regardless of price. Under this program a fixed dollar amount is automatically transferred from certain subaccounts, the Guaranteed Account or Fixed Account to any of the other subaccounts. A market value adjustment will not be applied to dollar cost averaging transfers from a guaranteed term of the Guaranteed Account during participation in the dollar cost averaging program. If such participation is discontinued, we will automatically transfer the remaining balance in that guaranteed term to another guaranteed term of the same duration, unless you initiate a transfer into another investment option. In either case a market value adjustment will apply. See Appendix I for more information about dollar cost averaging from the Guaranteed Account. If dollar cost averaging is stopped with respect to amounts invested in the Fixed Account, the remaining balance will be transferred to the money market subaccount. Dollar cost averaging neither ensures a profit nor guarantees against loss in a declining market. You should consider your financial ability to continue purchases through periods of low price levels. There is no additional charge for this program and transfers made under this program do not count as transfers when determining the number of free transfers that may be made each calendar year. For additional information about this program, contact your sales representative or call us at the number listed in "Contract Overview--Questions: Contacting the Company." In certain states purchase payments and premium bonuses allocated to the Fixed Account may require participation in the dollar cost averaging program. Dollar cost averaging is not available if you elect to participate in the account rebalancing program. The Account Rebalancing Program. Account rebalancing allows you to reallocate your account value to match the investment allocations you originally selected. Only account values invested in the subaccounts may be rebalanced. We automatically reallocate your account value annually (or more frequently as we allow). Account rebalancing neither ensures a profit nor guarantees against loss in a declining market. There is no additional charge for this program and transfers made under this program do not count as transfers when determining the number of free transfers that may be made each calendar year. You may participate in this program by completing the account rebalancing section of your application or by contacting us at the address and/or number listed in "Contract Overview--Questions: Contacting the Company." Account rebalancing is not available if you elect to participate in the dollar cost averaging program. 15 Purchase and Rights - -------------------------------------------------------------------------------- How to Purchase. > Individual Contracts. In some states, where group contracts are not available, you may purchase the contract directly from us by completing an application and delivering it and your initial purchase payment to us. Upon our approval we will issue you a contract, set up an account for you under the contract and credit your account with a premium bonus. > Group Contracts. In most states we have distributors, usually broker-dealers or banks, who hold the contract as a group contract (see "Distribution"). You may purchase an interest (or, in other words, participate) in the group contract by contacting a distributor and completing an application and delivering it with your initial purchase payment to that distributor. Upon our approval, we will set up an account for you under the group contract, issue you a certificate showing your rights under the contract and credit your account with a premium bonus. > Joint Contracts (generally spouses). For a nonqualified contract, you may participate in a group contract as a joint contract holder. References to "contract holder" in this prospectus mean both contract holders under joint contracts. Tax law prohibits the purchase of qualified contracts by joint contract holders. Maximum Issue Age. The maximum ages for you and the annuitant (if you are not the annuitant) on the date we establish your account are as follows:
- ------------------------------------------------- Maximum Issue Age - ------------------------------------------------- Death Benefit Option I 85 Death Benefit Option II 75 - -------------------------------------------------
Your Rights Under the Contract. > Individual Contracts. You have all contract rights. > Group Contracts. The holder of the group contract has title to the contract and, generally, only the right to accept or reject any modifications to the contract. You have all other rights to your account under the contract. > Joint Contracts. Joint contract holders have equal rights under the contract with respect to their account. All rights under the contract must be exercised by both joint contract holders with the exception of transfers among investment options. See the "Death Benefit" section for the rights of the surviving joint contract holder upon the death of a joint contract holder prior to the income phase start date. Purchase Payment Methods. The following purchase payment methods are allowed: > One lump sum; > Periodic payments; or > Transfer or rollover from a pre-existing retirement plan or account. We reserve the right to reject any purchase payments to a prospective or existing account without advance notice. 16 Purchase Payment Amounts. The minimum initial purchase payment amounts are as follows:
- ----------------------------------------------------------------------- Non-Qualified: Qualified:* - ----------------------------------------------------------------------- Minimum Initial Purchase Payment $15,000 $1,500 - -----------------------------------------------------------------------
*The Tax Code imposes a maximum limit on annual purchase payments which may be excluded from your gross income. Additional purchase payments must be at least $50 (we may change this amount from time to time). A purchase payment of more than $1,000,000 will be allowed only with our consent. The amount of any premium bonus credited to your account is not considered part of the purchase payment. Reduction of Purchase Payment Amounts. In certain circumstances we may reduce the minimum initial or additional purchase payment amount we will accept under a contract. Whether such a reduction is available will be based on consideration of one or more of the following factors: > The size and type of the prospective group, if any, to which the reduction would apply; > The method and frequency of purchase payments to be made under the contract; and > The amount of compensation to be paid to distributors and their registered representative on each purchase payment. Any reduction of the minimum initial or additional purchase payment amount will not be unfairly discriminatory against any person. We will make any such reduction according to our own rules in effect at the time the purchase payment is received. We reserve the right to change these rules from time to time. Acceptance or Rejection of Your Application. We must accept or reject your application within two business days of receipt. If the application is incomplete, we may hold any forms and accompanying purchase payment(s) for five business days. We may hold purchase payments for longer periods, pending acceptance of the application, only with your permission. If the application is rejected, the application and any purchase payments will be returned to you. Allocating Purchase Payments to the Investment Options. We will allocate your purchase payments and any premium bonuses among the investment options you select. Allocations must be in whole percentages and there may be limits on the number of investment options you may select. When selecting investment options you may find it helpful to review the "Investment Options" section. Premium Bonus - -------------------------------------------------------------------------------- Premium Bonus. We will credit a premium bonus to your account whenever you make an eligible purchase payment. Your initial purchase payment is always eligible for a premium bonus. Thereafter, any withdrawals you make from the contract reduce dollar-for-dollar the eligibility of subsequent purchase payments for a premium bonus. To determine the eligibility of subsequent purchase payments for a premium bonus, we subtract the sum of your withdrawals from the sum of your purchase payments. The result equals your net cumulative purchase payments. Next, we 17 subtract from the net cumulative purchase payment amount the sum of your previous purchase payments upon which we paid a premium bonus, which results in the amount of the purchase payment eligible for a premium bonus. The amount of your premium bonus is a certain percentage of the eligible purchase payment. The particular percentage is determined according to the following schedule, which is based on three ranges of net cumulative purchase payments.
- ----------------------------------------------------------- Net Cumulative Premium Purchase Payments Bonus Percentage - ----------------------------------------------------------- $1,500 to $14,999 2.00% $15,000 to $2,499,999 4.00% $2,500,000 or more 5.00% - -----------------------------------------------------------
Example: If you make the following purchase payments and withdrawals under a qualified contract, we will credit premium bonuses to your account, calculated as follows:
- ---------------------------------------------------------------------------------------- Purchase Premium Payment Bonus Amount Withdrawal Explanation - ---------------------------------------------------------------------------------------- $10,000 $200 This entire purchase payment is eligible for a 2.00% premium bonus. Therefore, a $200 premium bonus would be credited to your account ($10,000 multiplied by 2.00%). - ---------------------------------------------------------------------------------------- $5,000 This withdrawal will reduce the eligibility of subsequent purchase payments to receive the premium bonus. - ---------------------------------------------------------------------------------------- $3,000 $0 This purchase payment is not eligible for a premium bonus because it is completely offset by the prior $5,000 withdrawal. - ---------------------------------------------------------------------------------------- $4,000 $40 The amount of the purchase payment eligible for the premium bonus is $2,000 (the sum of purchase payments made reduced by prior withdrawals minus the sum of purchase payments upon which a premium bonus has previously been paid). The premium bonus percentage is 2% based on a $12,000 net cumulative purchase payment amount. Therefore, a $40 premium bonus would be credited to your account ($2,000 multiplied by 2.00%). - ---------------------------------------------------------------------------------------- $5,000 $200 All of this purchase payment is eligible for a premium bonus because the prior withdrawal was completely used to offset the premium bonuses on the prior two purchase payments. The premium bonus percentage is 4% based on a $17,000 net cumulative purchase payment amount. Accordingly, a $200 premium bonus would be credited to your account ($5,000 multiplied by 4%). - ----------------------------------------------------------------------------------------
18 This example is intended to illustrate how the premium bonus is calculated; it does not include the effect of any early withdrawal charge or market value adjustment for amounts invested in the guaranteed account, related to any withdrawals. The premium bonus is included in your account value and will be allocated among the investment options you have selected in the same proportion as the purchase payment. The amount of any premium bonus credited to your account is not considered part of the purchase payment. Rather, it is considered gain under the contract. The amount of the death benefit will not include any premium bonus credited to your account after or within 12 months of the date of death. See "Death Benefit--Death Benefit Amount." Likewise, any premium bonus credited to your account within 24 months of electing an income phase payment option will be forfeited and not included in your account value when calculating the payment amount. See "The Income Phase--Premium Bonus." Also, if you exercise your free look privilege and cancel your contract, the amount refunded to you will not include any premium bonus. See "Right to Cancel." No premium bonus will be credited on amounts reinvested following a full withdrawal. See "Withdrawals--Reinvesting a Full Withdrawal." We use a portion of the early withdrawal charge and mortality and expense risk charge to help recover the cost of providing the premium bonus under the contract. See "Fees." Under certain circumstances (such as a period of poor market performance) the cost associated with the premium bonus may exceed the sum of the premium bonus and any related earnings. You should consider this possibility before purchasing the contract. 19 Right to Cancel - -------------------------------------------------------------------------------- When and How to Cancel. You may cancel your contract within ten days of receipt (some states require more than ten days) by returning it to our Home Office along with a written notice of cancellation. Refunds. We will issue you a refund within seven days of our receipt of your contract and written notice of cancellation. Unless your state requires otherwise or unless you purchased an IRA, your refund will equal the purchase payments made plus any earnings or minus any losses attributable to those purchase payments allocated among the subaccounts. In other words, you will bear the entire investment risk for amounts allocated among the subaccounts during this period and the amount refunded could be less than the amount paid. If your state requires or if you purchased an IRA, we will refund all purchase payments made. Any refund will not include any premium bonus credited to your account. If the purchase payments for your canceled contract came from a rollover from another contract issued by us or one of our affiliates where an early withdrawal charge was reduced or eliminated, the purchase payments will be restored to your prior contract. 20 [Start Side Bar] Types of Fees There are four types of fees or deductions that may affect your account. TRANSACTION FEES o Early Withdrawal Charge o Annual Maintenance Fee o Transfer Charge FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT o Mortality and Expense Risk Charge o Administrative Expense Charge FEES DEDUCTED BY THE FUNDS o Investment Advisory Fees o Other Expenses PREMIUM AND OTHER TAXES [End Side Bar] Fees - -------------------------------------------------------------------------------- The following repeats and adds to information provided in the "Fee Table" section. Please review both sections for information on fees. TRANSACTION FEES Early Withdrawal Charge Withdrawals of all or a portion of your account value may be subject to a charge. Amount. A percentage of the purchase payments that you withdraw. Early Withdrawal Charge Schedule
- ------------------------------------------------------------------- Years From Receipt of Purchase Payment Early Withdrawal Charge - ------------------------------------------------------------------- Less than 3 8% 3 or more but less than 4 7% 4 or more but less than 5 6% 5 or more but less than 6 5% 6 or more but less than 7 4% 7 or more but less than 8 3% 8 or more 0% - -------------------------------------------------------------------
Purpose. This is a deferred sales charge. It reimburses us for some of the sales, administrative and premium bonus expenses associated with the contract. If our expenses are greater than the amount we collect for the early withdrawal charge, we may use any of our corporate assets, including potential profit that may arise from the mortality and expense risk charge, to make up any difference. First In, First Out. The early withdrawal charge is calculated separately for each purchase payment withdrawn. For purposes of calculating your early withdrawal charge, we consider that your first purchase payment to the account (first in) is the first you withdraw (first out). For example: We calculate the early withdrawal charge based on the number of years since the purchase payment was received. If your initial purchase payment was made four years ago, we will deduct an early withdrawal charge equal to 6% of the portion of that purchase payment withdrawn. The next time you make a withdrawal we will assess the charge against the portion of the first purchase payment that you did not withdraw and/or your subsequent purchase payments to your account in the order they were received. Earnings (including any premium bonus) may be withdrawn after all purchase payments have been withdrawn. There is no early withdrawal charge for withdrawal of earnings. Free Withdrawals. There is no early withdrawal charge if, during each account year, the amount withdrawn is 10% or less of your account value on the later of the date we established your account or the most recent anniversary of that date. The free withdrawal amount will be adjusted for amounts withdrawn under a systematic distribution option or taken as a required minimum distribution during the account year. 21 Waiver. The early withdrawal charge is waived for purchase payments withdrawn if the withdrawal is: > Used to provide income phase payments to you; > Paid due to the annuitant's death during the accumulation phase in an amount up to the sum of purchase payments made, minus the total of all partial withdrawals, amounts applied to an income phase payment option and deductions made prior to the annuitant's death; > Paid upon a full withdrawal where your account value is $2,500 or less and no part of the account has been withdrawn during the prior 12 months; > Taken because of the election of a systematic distribution option, but, with respect to the Systematic Withdrawal Option (SWO) and the Life Expectancy Option (LEO), only to the extent that the amount taken is 10% or less of your account value on the later of the date we established your account or the most recent anniversary of that date (see "Systematic Distribution Options"); > If approved in your state, taken under a qualified contract when the amount withdrawn is equal to the minimum distribution required by the Tax Code for your account calculated using a method permitted under the Tax Code and agreed to by us (including required minimum distributions using the ECO systematic distribution option); or > Paid upon termination of your account by us (see "Other Topics -- Involuntary Terminations"). Annual Maintenance Fee Maximum Amount. $30.00 When/How. Each year during the accumulation phase we deduct this fee from your account value. We deduct it on your account anniversary and at the time of full withdrawal. It is deducted proportionally from each investment option. Purpose. This fee reimburses us for administrative expenses related to the establishment and maintenance of your account. Elimination. We will not deduct the annual maintenance fee if your account value is $50,000 or more on the date this fee is to be deducted. Transfer Charge Amount. During the accumulation phase we currently allow you 12 free transfers each account year. We reserve the right to charge $10 for each additional transfer. We currently do not impose this charge. Purpose. This charge reimburses us for administrative expenses associated with transferring your dollars among investment options. FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT Mortality and Expense Risk Charge Maximum Amount. During the accumulation phase the amount of this charge depends upon which death benefit option you select. The amount of this charge, on an annual basis, is equal to the following percentages of your account value invested in the subaccounts:
- ------------------------------------------------- Death Benefit Option I Death Benefit Option II - ------------------------------------------------- 1.25% 1.45% - -------------------------------------------------
During the income phase this charge, on an annual basis, is equal to 1.25% of amounts held in the subaccounts. 22 When/How. We deduct this charge daily from the subaccounts corresponding to the funds you select. We do not deduct this charge from any fixed interest option. Purpose. This charge compensates us for the mortality and expense risks we assume under the contract and the expense associated with the premium bonus. > The mortality risks are those risks associated with our promises to pay the death benefit available under the contract and to make lifetime income phase payments based on annuity rates specified in the contract. > The expense risk is the risk that the actual expenses we incur under the contract will exceed the maximum costs that we can charge. If the amount we deduct for this charge is not enough to cover our mortality and expense risk costs and premium bonus expenses under the contract, we will bear the loss. We may use any excess to recover distribution costs relating to the contract and as a source of profit. We expect to make a profit from this fee. Administrative Expense Charge Maximum Amount. During the accumulation phase the amount of this charge, on an annual basis, is equal to the following percentages of your account value invested in the subaccounts:
- ------------------------------------------------- Death Benefit Option I Death Benefit Option II - ------------------------------------------------- 0.15% 0.15% - -------------------------------------------------
There is currently no administrative expense charge during the income phase. We reserve the right, however, to assess an administrative expense charge of up to 0.25% during the income phase. When/How. If imposed, we deduct this charge daily from the subaccounts corresponding to the funds you select. We do not deduct this charge from the fixed interest options. This charge may be assessed during the accumulation phase or the income phase. If we are imposing this charge when you enter the income phase, the charge will apply to you during the entire income phase. Purpose. This charge helps defray our administrative expenses that cannot be covered by the mortality and expense risk charge described above. This charge is not intended to exceed the average expected cost of administering the contract. We do not expect to make a profit from this charge. REDUCTION OR ELIMINATION OF CERTAIN FEES When sales of the contract are made to individuals or a group of individuals in a manner that results in savings of sales or administrative expenses, we may reduce or eliminate the early withdrawal charge, annual maintenance fee, mortality and expense risk charge or administrative expense charge. Our decision to reduce or eliminate any of these fees will be based on one or more of the following: > The size and type of group to whom the contract is issued; > The amount of expected purchase payments; > A prior or existing relationship with the Company, such as being an employee or former employee of the Company or one of our affiliates, receiving distributions or making transfers from other contracts issued by us or one of our affiliates or transferring amounts held under qualified retirement plans sponsored by us or one of our affiliates; 23 > The type and frequency of administrative and sales services provided; or > The level of annual maintenance fee and early withdrawal charges. In the case of an exchange of another contract issued by us or one of our affiliates where the early withdrawal charge has been waived, the early withdrawal charge for certain contracts offered by this prospectus may be determined based on the dates purchase payments were received in the prior contract. The reduction or elimination of any of these fees will not be unfairly discriminatory against any person and will be done according to our rules in effect at the time the contract is issued. We reserve the right to change these rules from time to time. The right to reduce or eliminate any of these fees may be subject to state approval. FEES DEDUCTED BY THE FUNDS Maximum Amount. Each fund's advisory fee and expenses are different. They are set forth in "Fee Table--Fees Deducted by the Funds" and described in more detail in each fund prospectus. When/How. A fund's fees and expenses are not deducted from your account value. Instead, they are reflected in the daily value of fund shares which, in turn, will affect the daily value of the subaccounts. Purpose. These fees and expenses help to pay the fund's investment adviser and operating expenses. PREMIUM AND OTHER TAXES Maximum Amount. Some states and municipalities charge a premium tax on annuities. These taxes currently range from 0% to 4%, depending upon the jurisdiction. When/How. We reserve the right to deduct premium taxes from your account value or from purchase payments to the account at any time, but not before there is a tax liability under state law. Our current practice is to deduct premium taxes at the time of a complete withdrawal or, at the commencement of income phase payments, to reflect the cost of premium taxes in our income phase payment rates. In addition, we reserve the right to assess a charge for any federal taxes due against the separate account. See "Taxation." Your Account Value - -------------------------------------------------------------------------------- During the accumulation phase your account value at any given time equals: > The current dollar value of amounts invested in the subaccounts; plus > The current dollar values of amounts invested in the fixed interest options, including interest earnings to date. 24 Subaccount Accumulation Units. When you select a fund as an investment option, your account dollars invest in "accumulation units" of the Variable Annuity Account B subaccount corresponding to that fund. The subaccount invests directly in the fund shares. The value of your interests in a subaccount is expressed as the number of accumulation units you hold multiplied by an "accumulation unit value," as described below, for each unit. Accumulation Unit Value (AUV). The value of each accumulation unit in a subaccount is called the accumulation unit value or AUV. The AUV varies daily in relation to the underlying fund's investment performance. The value also reflects deductions for fund fees and expenses, the mortality and expense risk charge and the administrative expense charge (if any). We discuss these deductions in more detail in "Fee Table" and "Fees." Valuation. We determine the AUV every normal business day after the close of the New York Stock Exchange. At that time we calculate the current AUV by multiplying the AUV last calculated by the "net investment factor" of the subaccount. The net investment factor measures the investment performance of the subaccount from one valuation to the next. Current AUV = Prior AUV x Net Investment Factor Net Investment Factor. The net investment factor for a subaccount between two consecutive valuations equals the sum of 1.0000 plus the net investment rate. Net Investment Rate. The net investment rate is computed according to a formula that is equivalent to the following: > The net assets of the fund held by the subaccount as of the current valuation; minus > The net assets of the fund held by the subaccount at the preceding valuation; plus or minus > Taxes or provisions for taxes, if any, due to subaccount operations (with any federal income tax liability offset by foreign tax credits to the extent allowed); divided by > The total value of the subaccount's units at the preceding valuation; minus > A daily deduction for the mortality and expense risk charge, the administrative expense charge (if any) and any other fees deducted from investments in the separate account, such as guarantee charges for the Aetna GET fund. See "Fees." The net investment rate may be either positive or negative. 25 Hypothetical Illustration. As a hypothetical illustration assume that your initial purchase payment to a qualified contract is $5,000 and you direct us to invest $3,000 in Fund A and $2,000 in Fund B. Also assume that on the day we receive the purchase payment and credit a 2% premium bonus to your account the applicable AUVs after the next close of business of the New York Stock Exchange are $10 for Subaccount A and $20 for Subaccount B. Your account is credited with 306 accumulation units of Subaccount A and 102 accumulation units of Subaccount B. ---------------------------- Step 1: You make an initial | $5,000 Purchase Payments | purchase payment of $5000 and we ---------------------------- credit your account with a Step 1 [arrow down] corresponding 2% ($100) premium - -------------------------------------------- bonus. | | | Aetna Life Insurance and Annuity Company | Step 2: | | A. You direct us to invest - -------------------------------------------- $3,000 in Fund A. The portion Step 2 [arrow down] of the premium bonus related - -------------------------------------------- to the amount directed to | Subaccount A | Subaccount B | Etc. | Fund A is $60 ($3000 | 306 | 102 | | multiplied by 2%). The | accumulation | accumulation | | purchase payment and premium | units| | units | | bonus purchase 306 | | | | accumulation units of | | | | Subaccount A ($3,060 divided | | | | by the $10 AUV). | | | | - ------------------------------------------- B. You direct us to invest [arrow down] Step 3 [arrow down] $2,000 in Fund B. The portion - ---------------- ------------------ of the premium bonus related | Mutual | | Mutual | to the amount directed to | Fund A | | Fund B | Fund B is $40 ($2000 - --------------- ------------------ multiplied by 2%). The purchase payment and premium bonus purchase 102 accumulation units of Subaccount B ($2,040 divided by the $20 AUV). Step 3: The separate account purchases shares of the applicable funds at the then current market value (net asset value or NAV). Each fund's subsequent investment performance, expenses and charges, and the daily charges deducted from the subaccount, will cause the AUV to move up or down on a daily basis. Purchase Payments to Your Account. If all or a portion of your initial purchase payment is directed to the subaccounts, it and the corresponding premium bonus will purchase subaccount accumulation units at the AUV next computed after our acceptance of your application as described in "Purchase and Rights." Subsequent purchase payments and premium bonuses or transfers directed to the subaccounts will purchase subaccount accumulation units at the AUV next computed following our receipt of the purchase payment or transfer request in good order. The value of subaccounts may vary day to day. 26 [Start Side Bar] Taxes, Fees and Deductions Amounts withdrawn may be subject to one or more of the following: > Early Withdrawal Charge (see "Fees--Early Withdrawal Charge") > Annual Maintenance Fee (see "Fees--Annual Maintenance Fee") > Market Value Adjustment for amounts held in the Guaranteed Account (see Appendix I and the Guaranteed Account prospectus) > Tax Penalty (see "Taxation") > Tax Withholding (see "Taxation") To determine which may apply to you, refer to the appropriate sections of this prospectus, contact your sales representative or call us at the number listed in "Contract Overview--Questions: Contacting the Company." [End Side Bar] Withdrawals - -------------------------------------------------------------------------------- You may withdraw all or a portion of your account value at any time during the accumulation phase. If you participate in the contract through a 403(b) plan, certain restrictions apply. See "Restrictions on Withdrawals From 403(b) Plan Accounts." Steps for Making a Withdrawal > Select the withdrawal amount. (1) Full Withdrawal: You will receive, reduced by any required withholding tax, your account value allocated to the subaccounts, the Guaranteed Account (plus or minus any applicable market value adjustment) and the Fixed Account, minus any applicable early withdrawal charge and annual maintenance fee. (2) Partial Withdrawal (Percentage or Specified Dollar Amount): You will receive, reduced by any required withholding tax, the amount you specify, subject to the value available in your account. However, the amount actually withdrawn from your account will be adjusted by any applicable early withdrawal charge and any positive or negative market value adjustment for amounts withdrawn from the Guaranteed Account. See Appendices I and II and the Guaranteed Account prospectus for more information about withdrawals from the Guaranteed Account and the Fixed Account. > Select investment options. If you do not specify this, we will withdraw dollars proportionally from each of your investment options. > Properly complete a disbursement form and deliver it to our Home Office. Restrictions on Withdrawals From 403(b) Plan Accounts Under Section 403(b) contracts the withdrawal of salary reduction contributions and earnings on such contributions is generally prohibited prior to the participant's death, disability, attainment of age 59 1/2, separation from service or financial hardship. See "Taxation." Calculation of Your Withdrawal. We determine your account value every normal business day after the close of the New York Stock Exchange. We pay withdrawal amounts based on your account value as of the next valuation after we receive a request for withdrawal in good order at our Home Office. Delivery of Payment. Payments for withdrawal requests will be made in accordance with SEC requirements. Normally, your withdrawal amount will be sent no later than seven calendar days following our receipt of a properly-completed disbursement form in good order. Reinvesting a Full Withdrawal. Within 30 days after a full withdrawal, if allowed by law and the contract, you may elect to reinvest all or a portion of your withdrawal. We must receive any reinvested amounts within 60 days of the withdrawal. We reserve the right, however, to accept a reinvestment election received more than 30 days after the withdrawal and accept proceeds received more than 60 days after the withdrawal. We will credit your account for the amount reinvested based on the subaccount values next computed following our receipt of your request and the amount to be reinvested. No premium 27 bonus will be credited on amounts reinvested. We will credit the amount reinvested proportionally for annual maintenance fees and early withdrawal charges imposed at the time of withdrawal. We will deduct from the amount reinvested any annual maintenance fee which fell due after the withdrawal and before the reinvestment. We will reinvest in the same investment options and proportions in place at the time of withdrawal. If you withdraw amounts from a series of the Aetna GET Fund and then elect to reinvest them, we will reinvest them in a GET Fund series then accepting deposits, if one is available. If one is not available, we will reallocate your GET amounts among the other investment options in which you invested, on a pro rata basis. The reinvestment privilege may be used only once. Special rules apply to reinvestments of amounts withdrawn from the Guaranteed Account (see Appendix I and the Guaranteed Account prospectus). We will not credit your account for market value adjustments that we deducted at the time of your withdrawal. Seek competent advice regarding the tax consequences associated with reinvestment. 28 [Start Side Bar] Features of a Systematic Distribution Option A systematic distribution option allows you to receive regular payments from your contract without moving into the income phase. By remaining in the accumulation phase, you retain certain rights and investment flexibility not available during the income phase. [End Side Bar] Systematic Distribution Options - -------------------------------------------------------------------------------- The following systematic distribution options may be available: > SWO--Systematic Withdrawal Option. SWO is a series of automatic partial withdrawals from your account based on a payment method you select. Consider this option if you would like a periodic income while retaining investment flexibility for amounts accumulated in the account. > ECO--Estate Conservation Option. ECO offers the same investment flexibility as SWO, but is designed for those who want to receive only the minimum distribution that the Tax Code requires each year. Under ECO we calculate the minimum distribution amount required by law, generally at age 70 1/2 and pay you that amount once a year. ECO is not available under nonqualified contracts. An early withdrawal charge will not be deducted from and a market value adjustment will not be applied to any part of your account value paid under an ECO. > LEO--Life Expectancy Option. LEO provides for annual payments for a number of years equal to your life expectancy or the life expectancy of you and a designated beneficiary. It is designed to meet the substantially equal periodic payment exception to the 10% premature distribution penalty under Tax Code section 72. See "Taxation." Other Systematic Distribution Options. We may add additional systematic distribution options from time to time. You may obtain additional information relating to any of the systematic distribution options from your sales representative or by calling us at the number listed in "Contract Overview-- Questions: Contacting the Company." Systematic Distribution Option Availability. If allowed by applicable law, we may discontinue the availability of one or more of the systematic distribution options for new elections at any time and/or to change the terms of future elections. Eligibility for a Systematic Distribution Option. To determine if you meet the age and account value criteria and to assess terms and conditions that may apply, contact your sales representative or the Company at the number listed in "Contract Overview--Questions: Contacting the Company." Terminating a Systematic Distribution Option. You may revoke a systematic distribution option at any time by submitting a written request to our Home Office. ECO, once revoked, may not, unless allowed under the Tax Code, be elected again. Charges and Taxation. When you elect a systematic distribution option your account value remains in the accumulation phase and subject to the charges and deductions described in the "Fees" and "Fee Table" sections. Taking a withdrawal under a systematic distribution option may have tax consequences. If you are concerned about tax implications, consult a qualified tax adviser before electing an option. 29 [Start Side Bar] This section provides information about the death benefit during the accumulation phase. For death benefit information applicable to the income phase, see "The Income Phase." Terms to Understand: Account Year/Account Anniversary: A period of 12 months measured from the date we established your account and each anniversary of this date. Account anniversaries are measured from this date. Annuitant(s): The person(s) on whose life or life expectancy(ies) the income phase payments are based. Beneficiary(ies): The person(s) or entity(ies) entitled to receive a death benefit under the contract. Claim Date: The date proof of death and the beneficiary's right to receive the death benefit are received in good order at our Home Office. Contract Holder (You/Your): The contract holder of an individually owned contract or the certificate holder of a group contract. The contract holder and annuitant may be the same person. [End Side Bar] Death Benefit - -------------------------------------------------------------------------------- During the Accumulation Phase Who Receives the Death Benefit? If you would like certain individuals or entities to receive the death benefit when it becomes payable, you may name them as your beneficiaries. However, if you are a joint contract holder and you die, the beneficiary will automatically be the surviving joint contract holder. In this circumstance any other beneficiary you named will be treated as the primary or contingent beneficiary, as originally named, of the surviving joint contract holder. The surviving joint contract holder may change the beneficiary designation. If you die and no beneficiary exists, the death benefit will be paid in a lump sum to your estate. Designating Your Beneficiary. You may designate a beneficiary on your application or by contacting your sales representative or us as indicated in "Contract Overview--Questions: Contacting the Company." When is a Death Benefit Payable? During the accumulation phase a death benefit is payable when the contract holder or the annuitant dies. If there are joint contract holders, the death benefit is payable when either one dies. Death Benefit Amount. The amount of the death benefit will depend upon which death benefit option you selected when you purchased the contract.
- ------------------------------------------------------------------------------------- Death Benefit Death Benefit Option I Option II - ------------------------------------------------------------------------------------- Death Benefit Upon the death of the Upon the death of the on Death of the annuitant, the death benefit annuitant, the death benefit Annuitant: (which is calculated on the (which is calculated on the claim date) will be the greater claim date) will be the of: greatest of: (1) The sum of all purchase (1) The sum of all purchase payments, plus any payments made, plus any premium bonus credited premium bonus credited to your account at least 12 to your account at least 12 months prior to the date months prior to the date of death, adjusted for of death, adjusted for amounts withdrawn or amounts withdrawn or applied to an income applied to an income phase payment option; or phase payment option; or (2) The account value on the (2) The account value on the claim date, less any claim date, less any premium bonus credited premium bonus credited to your account after or to your account after or within 12 months of the within 12 months of the date of death. date of death; or (3) The "step-up value" (as described below) on the claim date. - -------------------------------------------------------------------------------------
Step-up Value. The step-up value is equal to the highest account value on the date we establish your account or any anniversary of that date prior to the annuitant's 85th birthday or death, whichever is earlier, adjusted for purchase payments made and amounts withdrawn or applied to an income phase payment option since the date of the highest account value and less any 30 premium bonus credited to your account after or within 12 months of the date of death. Adjustment. For purposes of determining the death benefit, the adjustment for purchase payments made will be dollar for dollar. The adjustment for amounts withdrawn or applied to an income phase payment option will be proportionate, reducing the sum of all purchase payments made and the highest account value in the same proportion that the account value was reduced on the date of the withdrawal or application to an income phase payment option. Death Benefit Greater than the Account Value. Notwithstanding which death benefit option is selected, on the claim date, if the amount of the death benefit is greater than the account value, the amount by which the death benefit exceeds the account value will be deposited and allocated to the money market subaccount available under the contract, thereby increasing the account value available to the beneficiary to an amount equal to the death benefit. Prior to the election of a method of payment of the death benefit by the beneficiary, the account value will remain in the account and continue to be affected by the investment performance of the investment option(s) selected. The beneficiary has the right to allocate or transfer any amount to any available investment option (subject to a market value adjustment, as applicable). The amount paid to the beneficiary will equal the adjusted account value on the day the payment is processed. Death Benefit Amounts in Certain Cases If the Contract Holder is the Annuitant and a Spousal Beneficiary Continues the Account. If the spousal beneficiary continues the account at the death of a contract holder who was also the annuitant, the spousal beneficiary becomes the annuitant. The death benefit option in effect at the death of the contract holder will also apply to the spousal beneficiary, and the death benefit payable at the spousal beneficiary's death shall be determined under that death benefit option, except that: (1) In calculating the sum of all purchase payments, plus any premium bonus credited to your account at least 12 months prior to the date of death, adjusted for amounts withdrawn or applied to an income phase payment option, the account value on the claim date following the original contract holder's/annuitant's death shall be treated as the spousal beneficiary's initial purchase payment; and (2) In calculating the step-up value, the step-up value on the claim date following the original contract holder's/annuitant's death shall be treated as the spousal beneficiary's initial step-up value. If the Contract Holder is not the Annuitant. Under nonqualified contracts only the death benefit described under the death benefit options above will not apply if a contract holder (including a spousal beneficiary who continues the account) who is not the annuitant dies. In these circumstances the amount paid will be equal to the account value on the date the payment is processed, plus or minus any market value adjustment and minus any premium bonus credited to the account after or within 12 months of the date of death. An early withdrawal charge may apply to any full or partial payment of this death benefit. 31 Because the death benefit in these circumstances equals the account value, plus or minus any market value adjustment and minus any premium bonus credited to the account after or within 12 months of the date of death, a contract holder who is not also the annuitant should seriously consider whether Death Benefit Option II is suitable for their situation. If the spousal beneficiary who is the annuitant continues the account at the death of the contract holder who was not the annuitant, the annuitant will not change. The death benefit option in effect at the death of the contract holder will also apply to the spousal beneficiary, and the death benefit payable at the spousal beneficiary's death shall be determined under that death benefit option. Guaranteed Account. For amounts held in the Guaranteed Account, see Appendix I for a discussion of the calculation of the death benefit. Death Benefit--Methods of Payment For Qualified Contracts. Under a qualified contract if the annuitant dies the beneficiary may choose one of the following three methods of payment: > Apply some or all of the account value, plus or minus any market value adjustment, to any of the income phase payment options (subject to the Tax Code distribution rules (see "Taxation--Minimum Distribution Requirements")); > Receive, at any time, a lump-sum payment equal to all or a portion of the account value, plus or minus any market value adjustment; or > Elect SWO, ECO or LEO (described in "Systematic Distribution Options"), provided the election would satisfy the Tax Code minimum distribution rules. Payments from a Systematic Distribution Option. If the annuitant was receiving payments under a systematic distribution option and died before the Tax Code's required beginning date for minimum distributions, payments under the systematic distribution option will stop. The beneficiary, or contract holder on behalf of the beneficiary, may elect a systematic distribution option provided the election is permitted under the Tax Code minimum distribution rules. If the annuitant dies after the required beginning date for minimum distributions, payments will continue as permitted under the Tax Code minimum distribution rules, unless the option is revoked. Distribution Requirements. Subject to Tax Code limitations, a beneficiary may be able to defer distribution of the death benefit. Death benefit payments must satisfy the distribution rules in Tax Code Section 401(a)(9). See "Taxation." For Nonqualified Contracts. (1) If you die and the beneficiary is your surviving spouse, or if you are a non-natural person and the annuitant dies and the beneficiary is the annuitant's surviving spouse, then the beneficiary becomes the successor contract holder. In this circumstance the Tax Code does not require distributions under the contract until the successor contract holder's death. As the successor contract holder, the beneficiary may exercise all rights under the account and has the following options: (a) Continue the contract in the accumulation phase; 32 (b) Elect to apply some or all of the account value, plus or minus any market value adjustment, to any of the income phase payment options; or (c) Receive at any time a lump-sum payment equal to all or a portion of the account value, plus or minus any market value adjustment. If you die and are not the annuitant, an early withdrawal charge will apply if a lump sum is elected. (2) If you die and the beneficiary is not your surviving spouse, he or she may elect option 1(b) or option 1(c) above (subject to the Tax Code distribution rules). See "Taxation -- Minimum Distribution Requirements." In this circumstance the Tax Code requires any portion of the account value, plus or minus any market value adjustment, not distributed in installments over the beneficiary's life or life expectancy, beginning within one year of your death, must be paid within five years of your death. See "Taxation." (3) If you are a natural person but not the annuitant and the annuitant dies, the beneficiary may elect option 1(b) or 1(c) above. If the beneficiary does not elect option 1(b) within 60 days from the date of death, the gain, if any, will be included in the beneficiary's income in the year the annuitant dies. Payments from a Systematic Distribution Option. If the contract holder or annuitant dies and payments were being made under a SWO, payments will stop. A beneficiary, however, may elect to continue the SWO. Taxation. In general, payments received by your beneficiary after your death are taxed to the beneficiary in the same manner as if you had received those payments. Additionally, your beneficiary may be subject to tax penalties if he or she does not begin receiving death benefit payments within the time-frame required by the Tax Code. See "Taxation." 33 [Start Side Bar] We may have used the following terms in prior prospectuses: Annuity Phase--Income Phase Annuity Option--Income Phase Payment Option Annuity Payment--Income Phase Payment [End Side Bar] The Income Phase - -------------------------------------------------------------------------------- During the income phase you stop contributing dollars to your account and start receiving payments from your accumulated account value. Initiating Income Phase Payments. At least 30 days prior to the date you want to start receiving income phase payments you must notify us in writing of all of the following: > Payment start date; > Income phase payment option (see the income phase payment options table in this section); > Payment frequency (i.e., monthly, quarterly, semi-annually or annually); > Choice of fixed, variable or a combination of both fixed and variable payments; and > Selection of an assumed net investment rate (only if variable payments are elected). Your account will continue in the accumulation phase until you properly initiate income phase payments. Once an income phase payment option is selected it may not be changed. What Affects Payment Amounts? Some of the factors that may affect the amount of your income phase payments include your age, gender, account value, the income phase payment option selected, the number of guaranteed payments (if any) selected and whether you select fixed, variable or a combination of both fixed and variable payments and, for variable payments, the assumed net investment rate selected. Fixed Payments. Amounts funding fixed income phase payments will be held in the Company's general account. The amount of fixed payments does not vary with investment performance over time. Variable Payments. Amounts funding your variable income phase payments will be held in the subaccount(s) you select. Not all subaccounts available during the accumulation phase may be available during the income phase. Payment amounts will vary depending upon the performance of the subaccounts you select. For variable income phase payments, you must select an assumed net investment rate. Assumed Net Investment Rate. If you select variable income phase payments, you must also select an assumed net investment rate of either 5% or 3 1/2%. If you select a 5% rate, income phase your first payment will be higher, but subsequent payments will increase only if the investment performance of the subaccounts you selected is greater than 5% annually, after deduction of fees. Payment amounts will decline if the investment performance is less than 5%, after deduction of fees. If you select a 3 1/2% rate, your first income phase payment will be lower and subsequent payments will increase more rapidly or decline more slowly depending upon changes in the net investment performance of the subaccounts you selected. For more information about selecting an assumed net investment rate, call us for a copy of the SAI. See "Contract Overview--Questions: Contacting the Company." 34 Premium Bonus. Any premium bonus credited to your account within 24 months of electing an income phase payment option will not be included in your account value when calculating the amount of your income phase payments. Minimum Payment Amounts. The income phase payment option you select must result in: > A first income phase payment of at least $50; or > Total yearly income phase payments of at least $250. If your account value is too low to meet these minimum payment amounts, you will receive one lump-sum payment. Unless prohibited by law, we reserve the right to increase the minimum payment amount based on increases reflected in the Consumer Price Index-Urban (CPI-U) since July 1, 1993. Restrictions on Start Dates and the Duration of Payments. Income phase payments may not begin during the first account year, or, unless we consent, later than the later of: (a) The first day of the month following the annuitant's 85th birthday; or (b) The tenth anniversary of the last purchase payment made to your account. Income phase payments will not begin until you have selected an income phase payment option. Failure to select an income phase payment option by the later of the annuitant's 85th birthday or the tenth anniversary of your last purchase payment may have adverse tax consequences. You should consult with a qualified tax adviser if you are considering delaying the selection of an income phase payment option beyond the later of these dates. For qualified contracts only, income phase payments may not extend beyond: (a) The life of the annuitant; (b) The joint lives of the annuitant and beneficiary; (c) A guaranteed period greater than the annuitant's life expectancy; or (d) A guaranteed period greater than the joint life expectancies of the annuitant and beneficiary. When income phase payments start the age of the annuitant plus the number of years for which payments are guaranteed may not exceed 95. See "Taxation" for further discussion of rules relating to income phase payments. Charges Deducted. We make a daily deduction for mortality and expense risks from amounts held in the subaccounts. Therefore, if you choose variable income phase payments and a nonlifetime income phase payment option, we still make this deduction from the subaccounts you select, even though we no longer assume any mortality risks. We may also deduct a daily administrative charge from amounts held in the subaccounts. See "Fees." Death Benefit during the Income Phase. The death benefits that may be available to a beneficiary are outlined in the income phase payment option table below. If a lump-sum payment is due as a death benefit, we will make payment within seven calendar days after we receive proof of death acceptable to us and the request for the payment in good order at our Home Office. If continuing income phase payments are elected, the beneficiary may not elect to receive a lump sum at a future date unless the income phase payment 35 option specifically allows a withdrawal right. We will calculate the value of any death benefit at the next valuation after we receive proof of death and a request for payment. Such value will be reduced by any payments made after the date of death. Beneficiary Rights. A beneficiary's right to elect an income phase payment option or receive a lump-sum payment may have been restricted by the contract holder. If so, such rights or options will not be available to the beneficiary. Taxation. To avoid certain tax penalties, you or your beneficiary must meet the distribution rules imposed by the Tax Code. Additionally, when selecting an income phase payment option, the Tax Code requires that your expected payments will not exceed certain durations. See "Taxation" for additional information. Income Phase Payment Options The following table lists the income phase payment options and accompanying death benefits available during the income phase. We may offer additional income phase payment options under the contract from time to time. Once income phase payments begin the income phase payment option selected may not be changed. Terms to understand: Annuitant(s): The person(s) on whose life expectancy(ies) the income phase payments are based. Beneficiary(ies) The person(s) or entity(ies) entitled to receive a death benefit under the contract. 36 - ------------------------------------------------------------------------------------------------------------------------------------ Lifetime Income Phase Payment Options - ------------------------------------------------------------------------------------------------------------------------------------ Length of Payments: For as long as the annuitant lives. It is possible that only one payment will be Life Income made if the annuitant dies prior to the second payment's due date. Death Benefit--None: All payments end upon the annuitant's death. - ------------------------------------------------------------------------------------------------------------------------------------ Length of Payments: For as long as the annuitant lives, with payments guaranteed for your choice of 5 to 30 years or as otherwise specified in the contract. Life Income -- Death Benefit--Payment to the Beneficiary: If the annuitant dies before we have made all the Guaranteed guaranteed payments, we will continue to pay the beneficiary the remaining payments, unless the Payments beneficiary elects to receive a lump-sum payment equal to the present value of the remaining guaranteed payments. - ------------------------------------------------------------------------------------------------------------------------------------ Length of Payments: For as long as either annuitant lives. It is possible that only one payment will be made if both annuitants die before the second payment's due date. Continuing Payments: When you select this option you choose for: (a) 100%, 662/3% or 50% of the payment to continue to the surviving annuitant after the first Life Income -- death; or Two Lives (b) 100% of the payment to continue to the annuitant on the second annuitant's death, and 50% of the payment to continue to the second annuitant on the annuitant's death. Death Benefit--None: All payments end upon the death of both annuitants. - ------------------------------------------------------------------------------------------------------------------------------------ Length of Payments: For as long as either annuitant lives, with payments guaranteed from 5 to 30 years or as otherwise specified in the contract. Continuing Payments: 100% of the payment to continue to the surviving annuitant after the first Life Income -- death. Two Lives -- Death Benefit--Payment to the Beneficiary: If both annuitants die before we have made all the Guaranteed guaranteed payments, we will continue to pay the beneficiary the remaining payments, unless the Payments beneficiary elects to receive a lump-sum payment equal to the present value of the remaining guaranteed payments. - ------------------------------------------------------------------------------------------------------------------------------------ Life Income -- Length of Payments: For as long as the annuitant lives. Cash Refund Death Benefit--Payment to the Beneficiary: Following the annuitant's death, we will pay a Option (limited lump-sum payment equal to the amount originally applied to the income phase payment availability -- fixed option (less any applicable premium tax) and less the total amount of income payments paid. payments only) - ------------------------------------------------------------------------------------------------------------------------------------ Life Income -- Length of Payments: For as long as either annuitant lives. Two Lives -- Cash Continuing Payments: 100% of the payment to continue after the first death. Refund Option Death Benefit--Payment to the Beneficiary: When both annuitants die we will pay a lump (limited sum payment equal to the amount applied to the income phase payment option (less any availability -- fixed applicable premium tax) and less the total amount of income payments paid. payments only) - ------------------------------------------------------------------------------------------------------------------------------------ Nonlifetime Income Phase Payment Option - ------------------------------------------------------------------------------------------------------------------------------------ Length of Payments: You may select payments for 10 to 30 years. In certain cases a lump-sum payment may be requested at any time (see below). Nonlifetime -- Death Benefit--Payment to the Beneficiary: If the annuitant dies before we make all Guaranteed the guaranteed payments, we will continue to pay the beneficiary the remaining payments, Payments unless the beneficiary elects to receive a lump-sum payment equal to the present value of the Payments remaining guaranteed payments. We will not impose any early withdrawal charge. - ------------------------------------------------------------------------------------------------------------------------------------ Lump-Sum Payment: If the "Nonlifetime--Guaranteed Payments" option is elected with variable payments, you may request at any time that all or a portion of the present value of the remaining payments be paid in one lump sum. Any such lump-sum payments will be treated as if it is a withdrawal during the accumulation phase and may be subject to an early withdrawal charge. See "Fees--Early Withdrawal Charge." Lump-sum payments will be sent within seven calendar days after we receive the request for payment in good order at the Home Office. - ------------------------------------------------------------------------------------------------------------------------------------
Calculation of Lump-Sum Payments: If a lump-sum payment is available under the income phase payment options above, the rate used to calculate the present value of the remaining guaranteed payments is the same rate we used to calculate the income phase payments (i.e., the actual fixed rate used for fixed payments or the 31/2% or 5% assumed net investment rate used for variable payments). 37 [Start Side Bar] In this Section INTRODUCTION CONTRACT TYPE WITHDRAWALS AND OTHER DISTRIBUTIONS o Taxation of Distributions o 10% Penalty Tax o Withholding for Federal Income Tax Liability MINIMUM DISTRIBUTION REQUIREMENTS o 50% Excise Tax o Minimum Distribution of Death Benefit Proceeds (403(b) Plans and 408(b) and 408A IRAs) o Minimum Distribution of Death Benefit Proceeds (Nonqualified Contracts) RULES SPECIFIC TO CERTAIN PLANS o 403(b) Plans o 408(b) and 408A IRAs TAXATION OF NONQUALIFIED CONTRACTS TAXATION OF THE COMPANY When consulting a tax adviser, be certain that he or she has expertise in the Tax Code sections applicable to your tax concerns. [End Side Bar] Taxation - -------------------------------------------------------------------------------- INTRODUCTION This section discusses our understanding of current federal income tax laws affecting the contract. You should keep the following in mind when reading it: > Your tax position (or the tax position of the beneficiary, as applicable) determines federal taxation of amounts held or paid out under the contract; > Tax laws change. It is possible that a change in the future could affect contracts issued in the past; > This section addresses federal income tax rules and does not discuss federal estate and gift tax implications, state and local taxes or any other tax provisions; > We do not make any guarantee about the tax treatment of the contract or any transaction involving the contract; and > Contract holder means the contract holder of an individually owned contract or the certificate holder of a group contract. We do not intend this information to be tax advice. For advice about the effect of federal income taxes or any other taxes on amounts held or paid out under the contract, consult a tax adviser. Taxation of Gains Prior to Distribution. You will generally not pay taxes on any earnings from the annuity contract described in this prospectus until they are withdrawn. Tax-qualified retirement arrangements under Tax Code sections 408(a), 408(b), 408A and 403(b) also generally defer payment of taxes on earnings until they are withdrawn (See "Taxation of Distributions" later in this "Taxation" section for a discussion of how distributions under the various types of arrangements are taxed). If you are considering funding one of these tax-qualified retirement arrangements with an annuity contract, you should know that the annuity contract does not provide any additional tax deferral of earnings beyond the tax deferral provided by the tax-qualified retirement arrangement. However, annuities do provide other features and benefits which may be valuable to you. You should discuss your decision with your financial representative. Additionally, although earnings under the contract are generally not taxed until withdrawn, the Internal Revenue Service (IRS) has stated in published rulings that a variable contract owner will be considered the owner of separate account assets if the owner possesses incidents of investment control over the assets. In these circumstances income and gains from the separate account assets would be includible in the variable contract owner's gross income. The Treasury announced that it will issue guidance regarding the extent to which owners could direct their investments among subaccounts without being treated as owners of the underlying assets of the separate account. It is possible that the Treasury's position, when announced, may adversely affect the tax treatment of existing contracts. The Company therefore reserves the right to modify the contract as necessary to attempt to prevent a contract holder from being considered the federal tax owner of a pro rata share of the assets of the separate account. Diversification. Tax Code section 817(h) requires that in a nonqualified contract the investments of the funds be "adequately diversified" in accordance with Treasury Regulations in order for the contract to qualify as an annuity contract under federal tax law. The separate account, through the funds, 38 intends to comply with the diversification requirements prescribed by the Treasury in Reg. Sec. 1.817-5, which affects how the funds' assets may be invested. CONTRACT TYPE The contract is designed to be used as a nonqualified deferred annuity, including contracts offered to a custodian for an Individual Retirement Account as described in Tax Code section 408(a), and with certain qualified retirement arrangements under Tax Code sections 403(b), 408(b) or 408A . The contract is not available as a SIMPLE IRA under Tax Code Section 408(p). Tax Rules. The tax rules vary according to whether the contract is a nonqualified contract or used with a qualified retirement arrangement. If used with a qualified retirement arrangement, you need to know the Tax Code section under which your arrangement qualifies. Contact your plan sponsor, sales representative or the Company to learn which Tax Code section applies to your arrangement. The Contract. Contract holders are responsible for determining that contributions, distributions and other transactions satisfy applicable laws. Legal counsel and a tax adviser should be consulted regarding the suitability of the contract. If the contract is purchased in conjunction with a retirement plan, the plan is not a part of the contract and we are not bound by the plan's terms or conditions. WITHDRAWALS AND OTHER DISTRIBUTIONS Certain tax rules apply to distributions from the contract. A distribution is any amount taken from the contract including withdrawals, income phase payments, rollovers, exchanges and death benefit proceeds. We report the taxable portion of all distributions to the IRS. Taxation of Distributions Nonqualified Contracts. A full withdrawal of a nonqualified contract is taxable to the extent that the amount received exceeds the investment in the contract. A partial withdrawal is taxable to the extent that the account value immediately before the withdrawal exceeds the investment in the contract. In other words, a partial withdrawal is treated first as a withdrawal of taxable earnings. For income phase payments a portion of each payment which represents the investment in the contract is not taxable. An exclusion ratio is calculated to determine the nontaxable portion. For fixed income phase payments in general, there is no tax on the portion of each payment which represents the same ratio that the investment in the contract bears to the total dollar amount of the expected payments as defined in Tax Code section 72(c). The entire income phase payment will be taxable once the recipient has recovered the investment in the contract. For variable income phase payments, an equation is used to establish a specific dollar amount of each payment that is not taxed. The dollar amount is determined by dividing the investment in the contract by the total number of expected periodic payments. The entire income phase payment will be taxable once the recipient has recovered the investment in the contract. 39 All deferred nonqualified annuity contracts that are issued by the Company (or its affiliates) to the same contract holder during any calendar year are treated as one annuity contract for purposes of determining the amount includible in gross income under Tax Code section 72(e). In addition, the Treasury Department has specific authority to issue regulations that prevent the avoidance of Tax Code section 72(e) through the serial purchase of annuity contracts or otherwise. 403(b) Plans. All distributions from these plans are taxed as received unless either of the following is true: > The distribution is rolled over to another plan of the same type or to a traditional IRA in accordance with the Tax Code; or > You made after-tax contributions to the plan. In this case, depending upon the type of distribution, the amount will be taxed according to the rules detailed in the Tax Code. 408(b) IRAs. All distributions from a traditional IRA are taxed as received unless either one of the following is true: > The distribution is rolled over to another traditional IRA or, if the IRA contains only amounts previously rolled over from a 401(a), 401(k) or 403(b) plan, the distribution is transferred to another plan of the same type; or > You made after-tax contributions to the plan. In this case the distribution will be taxed according to rules detailed in the Tax Code. 408A Roth IRAs. A qualified distribution from a Roth IRA is not taxed when it is received. A qualified distribution is a distribution: > Made after the five-taxable year period beginning with the first taxable year for which a contribution was made; and > Made after you attain age 59 1/2, die, become disabled as defined in the Tax Code or for a qualified first-time home purchase. If a distribution is not qualified, it will be taxable to the extent of the accumulated earnings. A partial distribution will first be treated as a return of contributions which is not taxable and then as taxable accumulated earnings. Taxation of Death Benefit Proceeds. In general, payments received by your beneficiary after your death are taxed in the same manner as if you had received those payments. 10% Penalty Tax Under certain circumstances the Tax Code may impose a 10% penalty tax on the taxable portion of any distribution from a nonqualified contract or from a contract used with a 403(b), 408(b) or 408A arrangement. Nonqualified Contract. The 10% penalty tax applies to the taxable portion of a distribution from a nonqualified annuity unless certain exceptions, including one or more of the following have occurred: (a) You have attained age 59 1/2; (b) You have become disabled as defined in the Tax Code; (c) You have died; (d) The distribution is made in substantially equal periodic payments (at least annually) over your life or life expectancy or the joint lives or joint life expectancies of you and your beneficiary; or 40 (e) The distribution is allocable to investment in the contract before August 14, 1982. 403(b) Plans. The 10% penalty tax applies to the taxable portion of a distribution from a 403(b) plan, unless certain exceptions apply, including one or more of the following. (a) You have attained age 59 1/2; (b) You have become disabled as defined in the Tax Code; (c) You have died; (d) You have separated from service with the plan sponsor at or after age 55; (e) The distribution is rolled over into another plan of the same type or to an IRA in accordance with the Tax Code; (f) You have separated from service with the plan sponsor and the distribution is made in substantially equal periodic payments (at least annually) over your life or life expectancy or the joint lives or joint life expectancies of you and your beneficiary; or (g) The distribution is equal to unreimbursed medical expenses that qualify for deduction as specified in the Tax Code. 408(b) and 408A IRAs. In general, except for (d), the exceptions for 403(b) plans also apply to distributions from an IRA, including a distribution from a Roth IRA that is not a qualified distribution or a rollover to a Roth IRA that is not a qualified rollover contribution. The penalty tax is also waived on a distribution made from an IRA to pay for health insurance premiums for certain unemployed individuals or used for a qualified first-time home purchase or for higher education expenses. Withholding for Federal Income Tax Liability Any distributions under the contract are generally subject to withholding. Federal income tax liability rates vary according to the type of distribution and the recipient's tax status. Nonqualified Contracts. Generally, you or a beneficiary may elect not to have tax withheld from distributions. 403(b) Plans. Generally, distributions from these plans are subject to a mandatory 20% federal income tax withholding. However, withholding will not be required if you elect a direct rollover of the distributions or in the case of certain distributions described in the Tax Code. 408(b) and 408A IRAs. Generally, you or a beneficiary may elect not to have tax withheld from distributions. Non-resident Aliens. If you or your beneficiary are non-resident aliens, then any withholding is governed by Tax Code section 1441 based on the individual's citizenship, the country of domicile and treaty status. MINIMUM DISTRIBUTION REQUIREMENTS To avoid certain tax penalties, you and any beneficiary must meet the minimum distribution requirements imposed by the Tax Code. The requirements do not apply to either nonqualified contracts or Roth IRA contracts, except with regard to death benefits. These rules may dictate one or more of the following: 41 > Start date for distributions; > The time period in which all amounts in your account(s) must be distributed; or > Distribution amounts. Start Date. Generally, you must begin receiving distributions by April 1 of the calendar year following the calendar year in which you attain age 70 1/2 or retire, whichever occurs later, unless: > You are a 5% owner or the contract is an IRA, in which case such distributions must begin by April 1 of the calendar year following the calendar year in which you attain age 70 1/2; or > Under 403(b) plans, if the Company maintains separate records of amounts held as of December 31, 1986. In this case distribution of these amounts generally must begin by the end of the calendar year in which you attain age 75 or retire, if later. However, if you take any distributions in excess of the minimum required amount, then special rules require that some or all of the December 31, 1986 balance be distributed earlier. Time Period. We must pay out distributions from the contract over one of the following time periods: > Over your life or the joint lives of you and your beneficiary; or > Over a period not greater than your life expectancy or the joint life expectancies of you and your beneficiary. 50% Excise Tax 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. Minimum Distribution of Death Benefit Proceeds (403(b) Plans and 408(b) and 408A IRAs) The following applies to 403(b), 408(b) and 408A arrangements. Different distribution requirements apply if your death occurs: > After you begin receiving minimum distributions under the contract; or > Before you begin receiving such distributions. If your death occurs after you begin receiving minimum distributions under the contract, distributions must be made at least as rapidly as under the method in effect at the time of your death. Tax Code section 401(a)(9) provides specific rules for calculating the minimum required distributions at your death. The rules differ, depending upon: > Whether your minimum required distribution was calculated each year based on your single life expectancy or the joint life expectancies of you and your beneficiary; or > Whether life expectancy was recalculated. The rules are complex and any beneficiary should consult with a tax adviser before electing the method of calculation to satisfy the minimum distribution requirements. If your death occurs before you begin receiving minimum distributions under the contract, your entire balance must be distributed by December 31 of the calendar year containing the fifth anniversary of the date of your death. For 42 example, if you die on September 1, 2000, your entire balance must be distributed to the beneficiary by December 31, 2005. However, if the distributions begin by December 31 of the calendar year following the calendar year of your death, then payments may be made over either of the following time-frames: > Over the life of the beneficiary; or > Over a period not extending beyond the life expectancy of the beneficiary. Start Dates for Spousal Beneficiaries. If the beneficiary is your spouse, distributions must begin on or before the later of the following: > 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. Special Rule for IRA Spousal Beneficiaries. In lieu of taking a distribution under these rules, a spousal beneficiary may elect to treat the account as his or her own IRA and defer taking a distribution until his or her age 70 1/2. The surviving spouse is deemed to have made such an election if the surviving spouse makes a rollover to or from the account or fails to take a distribution within the required time period. Minimum Distribution of Death Benefit Proceeds (Nonqualified Contracts) Death of the Contract Holder. The following requirements apply to nonqualified contracts at your death. Different distribution requirements apply if your death occurs: > After you begin receiving income phase payments under the contract; or > Before you begin receiving such distributions. If your death occurs after you begin receiving income phase payments, distributions must be made at least as rapidly as under the method in effect at the time of your death. If your death occurs before you begin receiving income phase payments, your entire balance must be distributed within five years after the date of your death. For example, if you die on September 1, 2000, your entire balance must be distributed by August 31, 2005. However, if distributions begin within one year of your death, then payments may be made over one of the following time-frames: > Over the life of the beneficiary; or > Over a period not extending beyond the life expectancy of the beneficiary. Spousal Beneficiaries. If the beneficiary is your spouse, the account may be continued with the surviving spouse as the new contract holder. Death of Annuitant. If the contract holder is a non-natural person and the annuitant dies, the same rules apply as outlined above for death of a contract holder. If the contract holder is a natural person but not the annuitant and the annuitant dies, the beneficiary must elect an income phase payment option within 60 days of the date of death, or any gain under the contract will be includible in the beneficiary's income in the year the annuitant dies. 43 RULES SPECIFIC TO CERTAIN PLANS 403(b) Plans Under Tax Code section 403(b), contributions made by public school systems or nonprofit healthcare organizations and other Tax Code section 501(c)(3) tax exempt organizations to purchase annuity contracts for their employees are generally excludable from the gross income of the employee. Assignment or Transfer of Contracts. Adverse tax consequences to the plan and/or to you may result if your beneficial interest in the contract is assigned or transferred to any person except to an alternate payee under a qualified domestic relations order in accordance with Tax Code section 414(p) or to the Company as collateral for a loan. Exclusions from Gross Income. In order to be excludable from gross income, total annual contributions made by you and your employer to a 403(b) plan cannot exceed the lesser of the following limits set by the Tax Code: > The first limit, under Tax Code section 415, is generally the lesser of 25% of your compensation or $30,000. Compensation means your compensation from the employer sponsoring the plan and, for years beginning after December 31, 1997, includes any elective deferrals under Tax Code section 402(g) and any amounts not includible in gross income under Tax Code sections 125 or 457; > The second limit, which is the exclusion allowance under Tax Code section 403(b), is usually calculated according to a formula that takes into account your length of employment, any pretax contributions you and your employer have already made under the plan and any pretax contributions to certain other retirement plans; or > An additional limit specifically limits your salary reduction contributions to generally no more than $10,000 annually (subject to indexing). Your own limit may be higher or lower, depending upon certain conditions. The first two limits apply to your contributions as well as to any contributions made by your employer on your behalf. Purchase payments to your account(s) will be excluded from your gross income only if the plan meets certain nondiscrimination requirements. Restrictions on Distributions. Tax Code section 403(b)(11) restricts the distribution under Tax Code section 403(b) contracts of: (1) Salary reduction contributions made after December 31, 1988; (2) Earnings on those contributions; and (3) Earnings during such period on amounts held as of December 31, 1988. Distribution of those amounts may only occur upon your death, attainment of age 59 1/2, separation from service, disability or financial hardship. Income attributable to salary reduction contributions and credited on or after January 1, 1989, may not be distributed in the case of hardship. 408(b) and 408A IRAs Tax Code section 408(b) permits eligible individuals to contribute to a traditional IRA on a pre-tax (deductible) basis. Employers may establish Simplified Employee Pension (SEP) plans and contribute to a traditional IRA owned by the employee. Tax Code section 408A permits eligible individuals to contribute to a Roth IRA on an after-tax (nondeductible) basis. 44 Assignment or Transfer of Contracts. Adverse tax consequences may result if you assign or transfer your interest in the contract to persons other than your spouse incident to a divorce. Eligibility. Eligibility to contribute to a traditional IRA on a pre-tax basis or to establish a Roth IRA or to roll over or transfer from a traditional IRA to a Roth IRA depends upon your adjusted gross income. Rollovers and Transfers. Rollovers and direct transfers are permitted from a 401, 403(a) or a 403(b) arrangement to a traditional IRA. Distributions from these arrangements are not permitted to be transferred or rolled over to a Roth IRA. A Roth IRA can accept transfers/rollovers only from a traditional IRA, subject to ordinary income tax, or from another Roth IRA. TAXATION OF NONQUALIFIED CONTRACTS In General. Tax Code section 72 governs taxation of annuities in general. Under a nonqualified contract, if you are a natural person, you generally are not taxed on increases in the account value until distribution occurs by withdrawing all or part of such account value. The taxable portion of a distribution is taxable as ordinary income. Non-Natural Holders of a Nonqualified Contract. If you are not a natural person, a nonqualified contract generally is not treated as an annuity for income tax purposes and the income on the contract for the taxable year is currently taxable as ordinary income. Income on the contract is any increase over the year in the surrender value, adjusted for purchase payments made during the year, amounts previously distributed and amounts previously included in income. There are some exceptions to this rule and a non-natural person should consult with its tax adviser prior to purchasing the contract. A non-natural person exempt from federal income taxes should consult with its tax adviser regarding treatment of income on the contract for purposes of the unrelated business income tax. When the contract holder is not a natural person, a change in annuitant is treated as the death of the contract holder. Transfers, Assignments or Exchanges of a Nonqualified Contract. A transfer of ownership of a nonqualified contract, the designation of an annuitant, payee or other beneficiary who is not also the contract holder, the selection of certain annuity dates or the exchange of a contract may result in certain tax consequences. The assignment, pledge or agreement to assign or pledge any portion of the account value generally will be treated as a distribution. Anyone contemplating any such designation, transfer, assignment, selection or exchange should contact a tax adviser regarding the potential tax effects of such a transaction. TAXATION OF THE COMPANY We are taxed as a life insurance company under the Tax Code. Variable Annuity Account B is not a separate entity from us. Therefore, it is not taxed separately as a "regulated investment company" but is taxed as part of the Company. We automatically apply investment income and capital gains attributable to the separate account to increase reserves under the contract. Because of this, under existing federal tax law we believe that any such income and gains will not be taxed to the extent that such income and gains are applied to increase 45 reserves under the contract. In addition, any foreign tax credits attributable to the separate account will be first used to reduce any income taxes imposed on the separate account before being used by the Company. In summary, we do not expect that we will incur any federal income tax liability attributable to the separate account and we do not intend to make any provision for such taxes. However, changes in federal tax laws and/or their interpretation may result in our being taxed on income or gains attributable to the separate account. In this case we may impose a charge against the separate account (with respect to some or all of the contracts) to set aside provisions to pay such taxes. We may deduct this amount from the separate account, including from your account value invested in the subaccounts. Other Topics - -------------------------------------------------------------------------------- The Company We issue the contract described in this prospectus and are responsible for providing each contract's insurance and annuity benefits. We are a stock life insurance company organized under the insurance laws of the State of Connecticut in 1976 and an indirect wholly-owned subsidiary of Aetna Inc. Through a merger our operations include the business of Aetna Variable Annuity Life Insurance Company (formerly known as Participating Annuity Life Insurance Company, an Arkansas life insurance company organized in 1954). We are engaged in the business of issuing life insurance and annuities. Our principal executive offices are located at: 151 Farmington Avenue Hartford, Connecticut 06156 Variable Annuity Account B We established Variable Annuity Account B (the separate account) in 1976 as a segregated asset account to fund our variable annuity contracts. The separate account is registered as a unit investment trust under the Investment Company Act of 1940 (the "40 Act"). It also meets the definition of "separate account" under the federal securities laws. The separate account is divided into subaccounts. The subaccounts invest directly in shares of a pre-assigned fund. Although we hold title to the assets of the separate account, such assets are not chargeable with the liabilities of any other business that we conduct. Income, gains or losses of the separate account are credited to or charged against the assets of the separate account without regard to other income, gains or losses of the Company. All obligations arising under the contract are obligations of the Company. Contract Distribution We serve as the principal underwriter for the securities sold by this prospectus. We are registered as a broker-dealer with the SEC and a member of the National Association of Securities Dealers, Inc. (NASD). 46 As principal underwriter we will enter into arrangements with one or more registered broker-dealers, including at least one affiliate of the Company, to offer and sell the contract described in this prospectus. We may also enter into these arrangements with banks that may be acting as broker-dealers without separate registration under the Securities Exchange Act of 1934 pursuant to legal and regulatory exceptions. In this prospectus we refer to the registered broker-dealers and the banks described above as "distributors." We and one or more of our affiliates may also sell the contract directly. All individuals offering and selling the contract must be registered representatives of a broker-dealer, or employees of a bank exempt from registration under the Securities Exchange Act of 1934, and must be licensed as insurance agents to sell variable annuity contracts. Occasionally we may enter into arrangements with independent entities to help find broker-dealers or banks interested in distributing the contract or to provide training, marketing and other sales-related functions or administrative services. We will reimburse such entities for expenses related to and may pay fees to such entities in return for these services. We may offer customers of certain broker-dealers special guaranteed rates in connection with the Guaranteed Account offered through the contract and may negotiate different commissions for these broker-dealers. We may also contract with independent third party broker-dealers who will act as wholesalers by assisting us in selecting broker-dealers or banks interested in acting as distributors. These wholesalers may also provide training, marketing and other sales related functions for the company and the distributors and may provide certain administrative services in connection with the contract. We may pay such wholesalers compensation based on purchase payments to contracts purchased through distributors that they select. We may also designate third parties to provide services in connection with the contracts such as reviewing applications for completeness and compliance with insurance requirements and providing the distributors with approved marketing material, prospectuses or other supplies. These parties will also receive payments for their services based on purchase payments, to the extent such payments are allowed by applicable securities laws. We will pay all costs and expenses related to these services. Payment of Commissions We pay distributors and their registered representatives who sell the contract commissions and service fees. Distributors will be paid commissions up to an amount currently equal to 7% of purchase payments or as a combination of a certain percentage of purchase payments at time of sale and a trail commission as a percentage of assets. Under the latter arrangement commission payments may exceed 7% of purchase payments over the life of the contract. Some sales personnel may receive various types of non-cash compensation as special sales incentives, including trips and educational and/or business seminars. However, any such compensation will be paid in accordance with NASD rules. In addition, we may provide additional compensation to the Company's supervisory and other management personnel if the overall amount of investments in funds advised by the Company or its affiliates increases over time. 47 We pay these commissions, fees and related distribution expenses out of any early withdrawal charges assessed or out of our general assets, including investment income and any profit from investment advisory fees and mortality and expense risk charges. No additional deductions or charges are imposed for commissions and related expenses. Payment Delay or Suspension We reserve the right to suspend or postpone the date of any payment of benefits or values under any one of the following circumstances: > On any valuation date when the New York Stock Exchange is closed (except customary weekend and holiday closings) or when trading on the New York Stock Exchange is restricted; > When an emergency exists as determined by the SEC so that disposal of the securities held in the subaccounts is not reasonably practicable or it is not reasonably practicable to fairly determine the value of the subaccount's assets; or > During any other periods 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. Performance Reporting We may advertise different types of historical performance for the subaccounts including: > Standardized average annual total returns; and > Non-standardized average annual total returns. Standardized Average Annual Total Returns. We calculate standardized average annual total returns according to a formula prescribed by the SEC. This shows the percentage return applicable to $1,000 invested in the subaccounts over the most recent one, five and ten-year periods. If the investment option was not available for the full period, we give a history from the date money was first received in that option under the separate account. Standardized average annual total returns reflect deduction of all recurring charges during each period (i.e., mortality and expense risk charges, annual maintenance fees, administrative expense charges, if any, and any applicable early withdrawal charges) and currently do not include any premium bonus. To the extent permitted by applicable law, we may include the premium bonus in standardized average annual total returns in the future. Non-Standardized Average Annual Total Returns. We calculate non-standardized average annual total returns in a similar manner as that stated above, except we will not include the deduction of any applicable early withdrawal charge. Some non-standardized returns may also exclude the effect of a maintenance fee. If we reflected these charges in the calculation, they would decrease the level of performance reflected by the calculation. Non-standardized returns may also include performance from the fund's inception date, if that date is earlier than the one we use for standardized returns. Non-standardized calculations do not include the premium bonus. We may also advertise certain ratings, rankings or other information related to the Company, the subaccounts or the funds. For further details regarding 48 performance reporting and advertising, you may request a Statement of Additional Information (SAI) by calling us at the number listed in "Contract Overview--Questions: Contacting the Company." Voting Rights Each of the subaccounts holds shares in a fund and each is entitled to vote at regular and special meetings of that fund. Under our current view of applicable law, we will vote the shares for each subaccount as instructed by persons having a voting interest in the subaccount. If you are a contract holder under a group contract, you have a fully vested interest in the contract and may instruct the group contract holder how to direct the Company to cast a certain number of votes. We will vote shares for which instructions have not been received in the same proportion as those for which we received instructions. Each person who has a voting interest in the separate account will receive periodic reports relating to the funds in which he or she has an interest, as well as any proxy materials and a form on which to give voting instructions. Voting instructions will be solicited by a written communication at least 14 days before the meeting. The number of votes (including fractional votes) you are entitled to direct will be determined as of the record date set by any fund you invest in through the subaccounts. > During the accumulation phase the number of votes is equal to the portion of your account value invested in the fund, divided by the net asset value of one share of that fund. > During the income phase the number of votes is equal to the portion of reserves set aside for the contract's share of the fund, divided by the net asset value of one share of that fund. Contract Modifications We may change the contract as required by federal or state law or as otherwise permitted in the contract. In addition, we may, upon 30 days' written notice to the group contract holder, make other changes to a group contract that would apply only to individuals who become participants under that contract after the effective date of such changes. If a group contract holder does not agree to a change, we reserve the right to refuse to establish new accounts under the contract. Certain changes will require the approval of appropriate state or federal regulatory authorities. Transfer of Ownership: Assignment We will accept assignments or transfers of ownership of a nonqualified contract or a qualified contract where such assignments or transfers are not prohibited, with proper notification. The date of any assignment or transfer of ownership will be the date we receive the notification at our Home Office. An assignment or transfer of ownership may have tax consequences and you should consult with a tax adviser before assigning or transferring ownership of the contract. An assignment of a contract will only be binding on the Company if it is made in writing and sent to the Company at our Home Office. We will use reasonable procedures to confirm that the assignment is authentic, including verification of signature. If we fail to follow our own procedures, we will be liable for any losses to you directly resulting from such failure. Otherwise, we 49 are not responsible for the validity of any assignment. The rights of the contract holder and the interest of the annuitant and any beneficiary will be subject to the rights of any assignee we have on our records. Involuntary Terminations We reserve the right to terminate any account with a value of $2,500 or less immediately following a partial withdrawal. However, an IRA may only be closed out when purchase payments to the contract have not been received for a 24-month period and the paid-up annuity benefit at maturity would be less than $20 per month. If such right is exercised, you will be given 90 days' advance written notice. No early withdrawal charge will be deducted for involuntary terminations. We do not intend to exercise this right in cases where the account value is reduced to $2,500 or less solely due to investment performance. Legal Matters and Proceedings We are aware of no material legal proceedings pending which involve the separate account as a party or which would materially affect the separate account. The validity of the securities offered by this prospectus has been passed upon by Counsel to the Company. In recent years, several life insurance and annuity companies have been named as defendants in lawsuits, including class action lawsuits, relating to life insurance and annuity pricing and sales practices. A purported class action complaint was filed in the Circuit Court of Lauderdale County, Alabama on March 28, 2000, by Loretta Shaner against the Company (the "Shaner Complaint"). The Shaner Complaint seeks unspecified compensatory damages from the Company and unnamed affiliates of the Company. The Shaner Complaint claims that the Company's sale of deferred annuity products for use as investments in tax-deferred contributory retirement plans (e.g., IRAs) is improper. This litigation is in the preliminary stages. The Company intends to defend the action vigorously. The Company also is a party to other litigation and arbitration proceedings in the ordinary course of its business, none of which is expected to have a material adverse effect on the Company. 50 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. The following is a list of the contents of the SAI. General Information and History .................................... 2 Variable Annuity Account B ......................................... 2 Offering and Purchase of Contracts ................................. 3 Performance Data ................................................... 3 General .......................................................... 3 Average Annual Total Return Quotations ........................... 4 Income Phase Payments .............................................. 7 Sales Material and Advertising ..................................... 8 Independent Auditors ............................................... 9 Financial Statements of the Separate Account ....................... S-1 Financial Statements of Aetna Life Insurance and Annuity Company and Subsidiaries ...................................................... F-1
You may request an SAI by calling the Company at the number listed in "Contract Overview--Questions: Contacting the Company." 51 Appendix I ALIAC Guaranteed Account - -------------------------------------------------------------------------------- The ALIAC Guaranteed Account (the Guaranteed Account) is a fixed interest option available during the accumulation phase under the contract. This appendix is only a summary of certain facts about the Guaranteed Account. Please read the Guaranteed Account prospectus carefully before investing in this option. In General. Amounts invested in the Guaranteed Account earn specified interest rates if left in the Guaranteed Account for specified periods of time. If you withdraw or transfer those amounts before the specified periods elapse, we may apply a market value adjustment (described below) which may be positive or negative. When deciding to invest in the Guaranteed Account, contact your sales representative or the Company to learn: > The interest rate(s) we will apply to amounts invested in the Guaranteed Account. We change the rate(s) periodically. Be certain you know the rate we guarantee on the day your account dollars are invested in the Guaranteed Account. Guaranteed interest rates will never be less than an annual effective rate of 3%. > The period of time your account dollars need to remain in the Guaranteed Account in order to earn the rate(s). You are required to leave your account dollars in the Guaranteed Account for a specified period of time in order to earn the guaranteed interest rate(s). Deposit Period. During a deposit period, we offer a specific interest rate for dollars invested for a certain guaranteed term. For a specific interest rate and guaranteed term to apply, account dollars must be invested in the Guaranteed Account during the deposit period for which that rate and term are offered. Interest Rates. We guarantee different interest rates, depending upon when account dollars are invested in the Guaranteed Account. For guaranteed terms one year or longer, we may apply more than one specified interest rate. The interest rate we guarantee is an annual effective yield. That means the rate reflects a full year's interest. We credit interest daily at a rate that will provide the guaranteed annual effective yield over one year. Guaranteed interest rates will never be less than an annual effective rate of 3%. The interest rate guarantees are based on the Company's claim-paying ability. Guaranteed Terms. The guaranteed term is the period of time account dollars must be left in the Guaranteed Account in order to earn the guaranteed interest rate. For guaranteed terms one year or longer, we may offer different rates for specified time periods within a guaranteed term. We offer different guaranteed terms at different times. We also may offer more than one guaranteed term of the same duration with different interest rates. Check with your sales representative or the Company to learn what terms are being offered. The Company also reserves the right to limit the number of guaranteed terms or the availability of certain guaranteed terms. Fees and Other Deductions. If all or a portion of your account value in the Guaranteed Account is withdrawn or transferred, you may incur one or more of the following: > Market Value Adjustment (MVA)--as described in this appendix and in the Guaranteed Account prospectus; > Tax penalties and/or tax withholding--see "Taxation"; > Early withdrawal charge--see "Fees"; or > Maintenance fee--see "Fees." We do not make deductions from amounts in the Guaranteed Account to cover mortality and expense risks. Rather, we consider these risks when determining the interest rate to be credited. Market Value Adjustment (MVA). If your account value is withdrawn or transferred from the Guaranteed Account before the guaranteed term is completed, an MVA may apply. The MVA reflects investment value changes caused by changes in interest rates occurring since the date of deposit. The MVA may be positive or negative. If interest rates at the time of withdrawal or transfer have increased since the date of deposit, the value of the investment decreases and the MVA will be negative. This could result in your receiving less than the amount you 52 paid into the Guaranteed Account. If interest rates at the time of withdrawal or transfer have decreased since the date of deposit, the value of the investment increases and the MVA will be positive. MVA Waiver. For withdrawals or transfers from a guaranteed term before the guaranteed term matures, the MVA may be waived for: > Transfers due to participation in the dollar cost averaging program; > Withdrawals taken due to your election of SWO or ECO (described in "Systematic Distribution Options"), if available; > Withdrawals for minimum distributions required by the Tax Code and for which the early withdrawal charge is waived; and > Withdrawals due to your exercise of the right to cancel your contract (described in "Right to Cancel"). Death Benefit. When a death benefit is paid under the contract within six months of the date of death, only a positive aggregate MVA amount, if any, is applied to the account value attributable to amounts withdrawn from the Guaranteed Account. This provision does not apply upon the death of a spousal beneficiary or joint contract holder who continued the account after the first death. If a death benefit is paid more than six months from the date of death, a positive or negative aggregate MVA amount, as applicable, will be applied. Partial Withdrawals. For partial withdrawals during the accumulation phase, amounts to be withdrawn from the Guaranteed Account will be withdrawn proportionally from each group of deposits having the same length of time until the maturity date ("Guaranteed Term Group"). Within a guaranteed term group, the amount will be withdrawn first from the oldest deposit period, then from the next oldest and so on until the amount requested is satisfied. Guaranteed Terms Maturity. As a guaranteed term matures, assets accumulating under the Guaranteed Account may be (a) transferred to a new guaranteed term, (b) transferred to other available investment options, or (c) withdrawn. Amounts withdrawn may be subject to an early withdrawal charge, taxation and, if you are under age 59 1/2, tax penalties may apply. If no direction is received from you at our Home Office by the maturity date of a guaranteed term, the amount from the maturing guaranteed term will be transferred to a new guaranteed term of a similar length. If the same guaranteed term is no longer available, the next shortest guaranteed term available in the current deposit period will be used. If no shorter guaranteed term is available, the next longer guaranteed term will be used. If you do not provide instructions concerning the maturity value of a maturing guaranteed term, the maturity value transfer provision applies. This provision allows transfers or withdrawals without an MVA if the transfer or withdrawal occurs during the calendar month immediately following a guaranteed term maturity date. This waiver of the MVA only applies to the first transaction regardless of the amount involved in the transaction. Under the Guaranteed Account each guaranteed term is counted as one funding option. If a guaranteed term matures and is renewed for the same term, it will not count as an additional investment option for purposes of any limitation on the number of investment options. Subsequent Purchase Payments. Purchase payments received after your initial purchase payment to the Guaranteed Account will be allocated in the same proportions as the last allocation, unless you properly instruct us to do otherwise. If the same guaranteed term(s) are not available, the next shortest term will be used. If no shorter guaranteed term is available, the next longer guaranteed term will be used. Dollar Cost Averaging. The Company may offer more than one guaranteed term of the same duration and credit one with a higher rate contingent upon use only with the dollar cost averaging program. If amounts are applied to a guaranteed term which is credited with a higher rate using dollar cost averaging and the dollar cost averaging is discontinued, the amounts will be transferred to another guaranteed term of the same duration and an MVA will apply. Transfer of Account Dollars. Generally, account dollars invested in the Guaranteed Account may be transferred among guaranteed terms offered through the Guaranteed Account and/or to other investment options offered through the contract. However, transfers may not be made during the deposit period in which your account 53 dollars are invested in the Guaranteed Account or for 90 days after the close of that deposit period. We will apply an MVA to transfers made before the end of a guaranteed term. The 90-day wait does not apply to (1) amounts transferred on the maturity date or under the maturity value transfer provision; (2) amounts transferred from the Guaranteed Account before the maturity date due to the election of an income phase payment option; (3) amounts distributed under the ECO or SWO (See "Systematic Distribution Options"); and (4) amounts transferred from an available guaranteed term in connection with the dollar cost averaging program. Transfers after the 90-day period are permitted from guaranteed term(s) to other guaranteed term(s) available during a deposit period or to other available investment options. Transfers of the Guaranteed Account values on or within one calendar month of a term's maturity date are not counted as one of the 12 free transfers of accumulated values in the account. Reinvesting Amounts Withdrawn from the Guaranteed Account. If amounts are withdrawn and then reinvested in the Guaranteed Account, we apply the reinvested amount to the current deposit period. This means the guaranteed annual interest rate and guaranteed terms available on the date of reinvestment will apply. We reinvest amounts proportionately in the same way as they were allocated before withdrawal. Your account value will not be credited for any negative MVA that was deducted at the time of withdrawal. The Income Phase. The Guaranteed Account cannot be used as an investment option during the income phase. However, you may notify us at least 30 days in advance to elect a fixed or variable income phase payment option and to transfer your Guaranteed Account dollars to the general account or any of the subaccounts available during the income phase. Transfers made due to the election of a lifetime income phase payment option will be subject to only a positive aggregate MVA. Distribution. The Company is the principal underwriter of the contract. The Company is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. From time to time the Company may offer customers of certain broker-dealers special guaranteed rates in connection with the Guaranteed Account offered through the contract and may negotiate different commissions for these broker-dealers. 54 Appendix II Fixed Account - -------------------------------------------------------------------------------- General Disclosure. The Fixed Account is an investment option available during the accumulation phase under the contract. > Amounts allocated to the Fixed Account are held in the Company's general account which supports 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 this prospectus regarding the Fixed Account may 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 Account has not been reviewed by the SEC. > Additional information about this option may be found in the contract. Interest Rates. > The Fixed Account guarantees that amounts allocated to this option will earn the minimum interest rate specified in the contract. We may credit a higher interest rate from time to time, but the rate we credit will never fall below the guaranteed minimum specified in the contract. Amounts applied to the Fixed Account will earn the interest rate in effect at the time money is applied. Amounts in the Fixed Account will reflect a compound interest rate as credited by us. The rate we quote is an annual effective yield. Interest rate guarantees are based on the Company's claim-paying ability. > Our determination of credited interest rates reflects a number of factors, including mortality and expense risks, interest rate guarantees, 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 the amounts you allocate to this option and promising a minimum interest rate and income phase payment. Dollar Cost Averaging. Amounts you invest in the Fixed Account must be transferred into the other investment options available under the contract over a period not to exceed 12 months. If you discontinue dollar cost averaging, the remaining balance amounts in the Fixed Account will be transferred into the money market subaccount available under the contract, unless you direct us to transfer the balance into other available options. Withdrawals. Under certain emergency conditions we may defer payment of any withdrawal for a period of up to 6 months or as provided by federal law. Charges. We do not make deductions from amounts in the Fixed Account to cover mortality and expense risks. We consider these risks when determining the credited rate. If you make a withdrawal from amounts in the Fixed Account, an early withdrawal charge may apply. See "Fees." Transfers. During the accumulation phase, you may transfer account dollars from the Fixed Account to any other available investment option. We may vary the dollar amount that you are allowed to transfer, but it will never be less than 10% of your account value held in the Fixed Account. By notifying the Home Office at least 30 days before income phase payments begin, you may elect to have amounts transferred to one or more of the subaccounts available during the income phase to provide variable payments. 55 Appendix III Description of Underling Funds - -------------------------------------------------------------------------------- The investment results of the mutual funds (funds) are likely to differ significantly and there is no assurance that any of the funds will achieve their respective investment objectives. Shares of the funds will rise and fall in value and you could lose money by investing in the funds. Investments in the funds are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Except as noted, all funds are diversified, as defined under the Investment Company Act of 1940. Aetna Balanced VP, Inc. Investment Objective Seeks to maximize investment return, consistent with reasonable safety of principal by investing in a diversified portfolio of one or more of the following asset classes: stocks, bonds, and cash equivalents, based on the investment adviser's judgment of which of those sectors or mix thereof offers the best investment prospects. Policies Under normal market conditions, allocates assets among the following asset classes: equities such as common and preferred stocks; and debt, such as bonds, mortgage-related and other asset-backed securities, U.S. Government securities, and money market instruments. Typically maintains approximately 60% of total assets in equities and 40% of total assets in debt (including money market instruments), although those percentages may vary from time to time. Risks Principal risks are those generally attributable to stock and bond investing. The success of the fund's strategy depends on the investment adviser's skill in allocating fund assets between equities and debt and in choosing investments within those categories. Risks attributable to stock investing include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Stocks of smaller companies tend to be less liquid and more volatile than stocks of larger companies and can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings. Fixed-income investments are subject to the risk that interest rates will rise, which generally causes bond prices to fall. Also, economic and market conditions may cause issuers to default or go bankrupt. Values of high-yield bonds are even more sensitive to economic and market conditions than other bonds. Prices of mortgage-related securities, in addition to being sensitive to changes in interest rates, also are sensitive to changes in the prepayment patterns on the underlying instruments. Investment Adviser: Aeltus Investment Management, Inc. Aetna Income Shares d/b/a Aetna Bond VP Investment Objective Seeks to maximize total return, consistent with reasonable risk, through investments in a diversified portfolio consisting primarily of debt securities. It is anticipated that capital appreciation and investment income will both be major factors in achieving total return. Policies Under normal market conditions, invests at least 65% of total assets in high-grade corporate bonds, mortgage-related and other asset-backed securities, and securities issued or guaranteed by the U.S. government, its agencies or instrumentalities. High-grade securities are rated at least A by Standard & Poor's Corporation (S&P) or Moody's Investors Service, Inc. (Moody's), or if unrated, considered by the investment adviser to be of comparable quality. May also invest up to 15% of total assets in high-yield bonds, and up to 25% of total assets in foreign debt securities. Risks Principal risks are those generally attributable to debt investing, including increases in interest rates and loss of principal. Generally, when interest rates rise, bond prices fall. Bonds with longer maturities tend to be more sensitive to changes in interest rates. For all bonds there is a risk that the issuer will default. High-yield bonds 56 generally are more susceptible to the risk of default than higher rated bonds. Prices of mortgage-related securities, in addition to being sensitive to changes in interest rates, also are sensitive to changes in the prepayment patterns on the underlying instruments. Foreign securities have additional risks. Some foreign securities tend to be less liquid and more volatile than their U.S. counterparts. In addition, accounting standards and market regulations tend to be less standardized in certain foreign countries. These risks are usually higher for securities of companies in emerging markets. Securities of foreign companies may be denominated in foreign currency. Exchange rate fluctuations may reduce or eliminate gains or create losses. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Fund d/b/a Aetna Growth and Income VP Investment Objective Seeks to maximize total return through investments in a diversified portfolio of common stocks and securities convertible into common stock. It is anticipated that capital appreciation and investment income will both be major factors in achieving total return. Policies Under normal market conditions, invests at least 65% of total assets in common stocks that the investment adviser believes have significant potential for capital appreciation or income growth. Tends to emphasize stocks of larger companies. Also invests assets across other asset classes (including stocks of small and medium-sized companies, international stock, real estate securities and fixed income securities). May invest principally in common stocks having significant potential for capital appreciation, or may purchase common stocks principally for their income potential through dividends and option writing, or may acquire securities having a mix of these characteristics. Risks Principal risks are those generally attributable to stock investing. These risks include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Although the investment adviser emphasizes large cap stocks, to the extent the Fund is diversified across asset classes, it may not perform as well as less diversified funds when large cap stocks are in favor. Additionally, stocks of medium-sized and smaller companies tend to be more volatile and less liquid than stocks of larger companies. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Encore Fund d/b/a Aetna Money Market VP Investment Objective Seeks to provide high current return, consistent with preservation of capital and liquidity, through investment in high-quality money market instruments. Policies Invests only in a diversified portfolio of high-quality fixed income securities denominated in U.S. dollars, with short remaining maturities. These securities include U.S. Government securities, such as U.S. Treasury bills and securities issued or sponsored by U.S. government agencies. They also may include corporate debt securities, commercial paper, asset-backed securities and certain obligations of U.S. and foreign banks, each of which must be highly rated by independent rating agencies or, if unrated, considered by the investment adviser to be of comparable quality. Maintains a dollar-weighted average portfolio maturity of 90 days or less. Risks It is possible to lose money by investing in the fund. There is no guaranty the fund will achieve its investment objective. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. A weak economy, strong equity markets and changes by the Federal Reserve in its monetary policies all could affect short-term interest rates and therefore the value and yield of the fund's shares. 57 Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Portfolios, Inc.--Aetna Growth VP Investment Objective Seeks growth of capital through investment in a diversified portfolio consisting primarily of common stocks and securities convertible into common stocks believed to offer growth potential. Policies Under normal market conditions, invests at least 65% of total assets in common stocks and securities convertible into common stock. Tends to emphasize stocks of larger companies, although may invest in companies of any size. Uses internally developed quantitative computer models to evaluate the financial characteristics of approximately 1,000 companies. The investment adviser analyzes these characteristics in an attempt to identify companies it believes have strong growth characteristics or demonstrate a positive trend in earnings estimates, but whose full value is not reflected in the stock price. Focuses on companies that the investment adviser believes have strong, sustainable and improving earnings growth, and established market positions in a particular industry. Risks Principal risks are those generally attributable to stock investing. They include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Growth-oriented stocks typically sell at relatively high valuations as compared to other types of stocks. If a growth stock does not exhibit the consistent level of growth expected, its price may drop sharply. Historically, growth-oriented stocks have been more volatile than value-oriented stocks. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP Investment Objective Seeks to outperform the total return performance of the Standard & Poor's 500 Composite Index (S&P 500), while maintaining a market level of risk. Policies Invests at least 80% of net assets in stocks included in the S&P 500 (other than Aetna Inc. common stock). The investment adviser attempts to achieve the objective by overweighting those stocks in the S&P 500 that the investment adviser believes will outperform the index, and underweighting (or avoiding altogether) those stocks that the investment adviser believes will underperform the index. In determining stock weightings, uses internally developed quantitative computer models to evaluate various criteria, such as the financial strength of each company and its potential for strong, sustained earnings growth. At any one time, the fund's portfolio generally includes approximately 400 of the stocks included in the S&P 500. Although the fund will not hold all the stocks in the S&P 500, the investment adviser expects that there will be a close correlation between the performance of the fund and that of the S&P 500 in both rising and falling markets. Risks Principal risks are those generally attributable to stock investing. These risks include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. The success of the fund's strategy depends significantly on the investment adviser's skill in determining which securities to overweight, underweight or avoid altogether. Investment Adviser: Aeltus Investment Management, Inc. 58 Aetna Variable Portfolios, Inc.--Aetna International VP Investment Objective Seeks long-term capital growth primarily though investment in a diversified portfolio of common stocks principally traded in countries outside of the United States. The fund will not target any given level of current income. Policies Under normal market conditions, invests at least 65% of total assets in securities principally traded in three or more countries outside of the United States. These securities may include common stocks as well as securities convertible into common stock. Diversifies the fund by investing in a mix of stocks that the investment adviser believes have the potential for long-term growth, as well as stocks that appear to be trading below their perceived value. Allocates assets among several geographic regions and individual countries, investing primarily in those areas that the investment adviser believes have the greatest potential for growth as well as stable exchange rates. Invests primarily in established foreign securities markets, although may invest in emerging markets as well. Uses internally developed quantitative computer models to evaluate the financial characteristics of over 2,000 companies in an attempt to select companies with long-term sustainable growth characteristics. Employs currency hedging strategies to protect from adverse effects on the U.S. dollar. Risks Principal risks are those generally attributable to stock investing which include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Stocks of foreign companies tend to be less liquid and more volatile than their U.S. counterparts. Accounting standards and market regulations tend to be less standardized in certain foreign countries, and economic and political climates tend to be less stable. Stocks of foreign companies may be denominated in foreign currency. Exchange rate fluctuations may reduce or eliminate gains or create losses. Hedging strategies intended to reduce this risk may not perform as expected. Investments in emerging markets are subject to the same risks applicable to foreign investments generally, although those risks may be increased due to conditions in such countries. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Portfolios, Inc.--Aetna Small Company VP Investment Objective Seeks growth of capital primarily through investment in a diversified portfolio of common stocks and securities convertible into common stocks of companies with smaller market capitalizations. Policies Under normal market conditions, invests at least 65% of total assets in common stocks and securities convertible into common stock of small-capitalization companies, defined as: the 2,000 smallest of the 3,000 largest U.S. companies (as measured by market capitalization); all companies not included above that are included in the Standard & Poor's SmallCap 600 Index or the Russell 2000 Index; and companies with market capitalizations lower than any companies included in the first two categories. For purposes of the 65% policy, the largest company in this group in which the fund intends to invest currently has a market capitalization of approximately $1.5 billion. Invests in stocks that the investment adviser believes have the potential for long-term growth, as well as those that appear to be trading below their perceived value. Uses internally developed quantitative computer models to evaluate financial characteristics of over 2,000 companies in an attempt to identify companies whose perceived value is not reflected in the stock price. Considers the potential of each company to create or take advantage of unique product opportunities, its potential to achieve long-term sustainable growth and the quality of its management. Risks Principal risks are those generally attributable to stock investing which include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Stocks of smaller companies carry higher risks than stocks of larger companies. This is because smaller companies may lack the management experience, financial resources, product diversification, and competitive strengths of larger 59 companies. In many instances, the frequency and volume of trading in small cap stocks are substantially less than of stocks of larger companies. As a result, the stocks of smaller companies may be subject to wider price fluctuations and/or may be less liquid. When selling a large quantity of a particular stock, the fund may have to sell at a discount from quoted prices or may have to make a series of small sales over an extended period of time due to the more limited trading volume of smaller company stocks. Stocks of smaller companies can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings. Investment Adviser: Aeltus Investment Management, Inc. Aetna Variable Portfolios, Inc.--Aetna Technology VP Investment Objective Seeks long-term capital appreciation. Policies Primarily invests in common stocks and securities convertible into common stock of companies in the information technology industry sector. These companies include companies that the subadviser considers to be principally engaged in the development, production, or distribution of products or services related to the processing, storage, transmission, or presentation of information or data. A particular company will be considered to be principally engaged in the information technology industries if, at the time of investment, the investment adviser determines that at least 50% of the company's assets, gross income, or net profits are committed to, or derived from, those industries. A company will also be considered to be principally engaged if the subadviser considers that the company has the potential for capital appreciation primarily as a result of particular products, technology, patents, or other market advantages in those industries. In selecting stocks, the subadviser looks at a company's valuation relative to its potential long-term growth rate. May look to see whether a company offers a new or improved product, service or business operation; whether it has experienced a positive change in its financial or business condition; whether the market for its goods or services has expanded or experienced a positive change; and whether there is a potential catalyst for positive change in the company's business or stock price. May sell a security if the subadviser determines that the company has become overvalued due to price appreciation or has experienced a change in its business fundamentals, if the company's growth rate slows substantially, or if the subadviser believes that another investment offers a better opportunity. Risks Principal risks are those generally attributable to stock investing which include sudden and unpredictable drops in the value of the market as a whole and periods of lackluster or negative performance. Stocks of smaller companies tend to be less liquid and more volatile than stocks of larger companies. Further, stocks of smaller companies also can be particularly sensitive to expected changes in interest rates, borrowing costs and earnings. Because the fund's investments are concentrated in the information technology industries, the Fund may be subject to more abrupt swings in value than a fund which invests in a broader range of industries. Investments in information technology companies may be highly volatile. The fund may experience difficulty in establishing or closing out positions in these securities at prevailing market prices. Also, there may be less publicly available information about small companies or less market interest in their securities as compared to larger companies, and it may take longer for the prices of the securities to reflect the full value of their issuers' earnings potential or assets. Investment Adviser: Aeltus Investment Management, Inc. Subadviser: Elijah Asset Management, LLC AIM V.I. Capital Appreciation Fund Investment Objective Seeks growth of capital through investment in common stocks, with emphasis on medium- and small-sized growth companies. 60 Policies The portfolio managers focus on companies they believe are likely to benefit from new or innovative products, services or processes as well as those that have experienced above-average, long-term growth in earnings and have excellent prospects for future growth. The portfolio managers consider whether to sell a particular security when any of those factors materially changes. The fund may also invest up to 20% of its total assets in foreign securities. In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, the fund may temporarily hold all or a portion of its assets in cash, money market instruments, shares of affiliated money market funds, bonds or other debt securities. As a result, the fund may not achieve its investment objective. Risks The prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. This is especially true with respect to common stocks of smaller companies, whose prices may go up and down more than common stocks of larger, more-established companies. Also, since common stocks of smaller companies may not be traded as often as common stocks of larger, more-established companies, it may be difficult or impossible for the fund to sell securities at a desirable price. Investment Adviser: AIM Advisors, Inc. AIM V.I. Government Securities Fund Investment Objective Seeks to achieve a high level of current income consistent with reasonable concern for safety of principal by investing in debt securities issued, guaranteed or otherwise backed by the United States Government. Policies The portfolio managers focus on securities that they believe have favorable prospects for current income, consistent with their concern for safety of principal. The portfolio managers consider whether to sell a particular security when any of those factors materially changes. In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, the fund may temporarily hold all or a portion of its assets in cash, money market instruments, shares of affiliated money market funds, bonds or other debt securities. As a result, the fund may not achieve its investment objective. The prices of foreign securities may be affected by other factors, including, currency exchange rate, political and economic conditions, regulations and foreign markets. These factors may affect the prices of securities issued by foreign companies located in developing countries more than those in countries with mature economies. Risks The prices of debt securities change in response to many factors. Debt securities are particularly vulnerable to credit risk and interest rate fluctuations. Interest rate increases can cause the price of a debt security to decrease. The longer a debt security's duration, the more sensitive it is to this risk. The prices of high-coupon U.S. Government agency mortgage-backed securities fall more slowly when interest rates rise than do prices of other fixed-rate securities. Some of the securities purchased by the fund are not guaranteed by the U.S. Government. The agency or instrumentality issuing such security may default or otherwise be unable to honor a financial obligation. Investment Adviser: AIM Advisors, Inc. AIM V.I. Growth Fund Investment Objective Seeks growth of capital primarily by investing in seasoned and better capitalized companies considered to have strong earnings momentum. 61 Policies The portfolio managers focus on companies that have experienced above-average growth in earnings and have excellent prospects for future growth. The portfolio managers consider whether to sell a particular security when any of those factors materially changes. The fund may also invest up to 20% of its total assets in foreign securities. In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, the fund may temporarily hold all or a portion of its assets in cash, money market instruments, shares of affiliated money market funds, bonds or other debt securities. As a result, the fund may not achieve its investment objective. Risks The prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. The fund may participate in the initial public offering (IPO) market. Because of the fund's small asset base any investment the fund may make in IPOs may significantly increase the fund's total returns. As the fund's assets grow, the impact of IPO investments will decline, which may reduce the fund's total returns. Investment Adviser: AIM Advisors, Inc. AIM V.I. Growth and Income Fund Investment Objective Seeks growth of capital with a secondary objective of current income. Policies The fund seeks to meet these objectives by investing at least 65% of its net assets in income-producing securities, including dividend-paying common stocks and convertible securities. The portfolio managers purchase securities of established companies that have long-term above-average growth in earnings and dividends, and growth companies that they believe have the potential for above-average growth in earnings and dividends. The portfolio managers consider whether to sell a particular security when they believe the security no longer has that potential or the capacity to generate income. The fund may also invest up to 20% of its total assets in foreign securities. The fund may engage in active and frequent trading of portfolio securities to achieve its investment objectives. If the fund does trade in this way, it may incur increased transaction costs and brokerage commissions, both of which can lower the actual return on your investment. In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, the fund may temporarily hold all or a portion of its assets in cash, money market instruments, shares of affiliated money market funds, bonds or other debt securities. As a result, the fund may not achieve its investment objective. Risks The prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. The values of the convertible securities in which the fund may invest also will be affected by market interest rates, the risk that the issuer may default on interest or principal payments and the value of the underlying common stock into which these securities may be converted. Specifically, since these types of convertible securities pay fixed interest and dividends, their values may fall if market interest rates rise and rise if market interest rates fall. Additionally, an issuer may have the right to buy back certain of the convertible securities at a time and at a price that is unfavorable to the fund. Investment Adviser: AIM Advisors, Inc. 62 AIM V.I. Value Fund Investment Objective Seeks to achieve long-term growth of capital by investing primarily in equity securities judged by the fund's investment adviser to be undervalued relative to the investment adviser's appraisal of the current or projected earnings of the companies issuing the securities, or relative to current market values of assets owned by the companies issuing the securities or relative to the equity market generally. Income is a secondary objective. Policies The fund also may invest in preferred stocks and debt instruments that have prospects for growth of capital. The fund may also invest up to 25% of its total assets in foreign securities. The portfolio managers focus on undervalued equity securities of (1) out-of-favor cyclical growth companies; (2) established growth companies that are undervalued compared to historical relative valuation parameters; (3) companies where there is early but tangible evidence of improving prospects that are not yet reflected in the price of the company's equity securities; and (4) companies whose equity securities are selling at prices that do not reflect the current market value of their assets and where there is reason to expect realization of this potential in the form of increased equity values. The portfolio managers consider whether to sell a particular security when they believe the company no longer fits into any of the above categories. In anticipation of or in response to adverse market conditions, for cash management purposes, or for defensive purposes, the fund may temporarily hold all or a portion of its assets in cash, money market instruments, shares of affiliated money market funds, bonds or other debt securities. As a result, the fund may not achieve its investment objective. Risks The prices of equity securities change in response to many factors, including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. If the seller of a repurchase agreement in which the fund invests defaults on its obligation or declares bankruptcy, the fund may experience delays in selling the securities underlying the repurchase agreement. As a result, the fund may incur losses arising from decline in the value of those securities, reduced levels of income and expenses of enforcing its rights. Investment Adviser: AIM Advisors, Inc. Alliance Variable Products--Growth and Income Portfolio Investment Objective Seeks reasonable current income and reasonable opportunity for appreciation through investments primarily in dividend-paying common stocks of good quality. Policies Invests primarily in dividend-paying common stocks of large, well-established "blue-chip" companies. May invest in fixed-income and convertible securities and in securities of foreign issuers. Restricts its investments in foreign securities to issues of high quality. Risks Principal risks include market risk, interest rate risk, and credit risk. Market risk is the risk that the value of the Portfolio's investments will fluctuate as the stock or bond markets fluctuate and that prices overall will decline over shorter or longer-term periods. Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio's investments in debt securities, such as bonds, notes, and asset-backed securities, or other income-producing securities. Increases in interest rates may cause the value of a Portfolio's investments to decline. Credit risk is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivatives contract, will be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. Investment in foreign securities are subject to increased credit risk because of the difficulties of 63 requiring foreign entities to honor their contractual commitments, and because a number of foreign governments and other issuers are already in default. Investments in foreign securities have foreign risk and currency risk. Foreign risk includes the risk that investments in foreign securities may experience more rapid and extreme changes in value than if they invested solely in securities of U.S. companies; foreign companies usually are not subject to the same degree of regulation as U.S. companies; differing reporting, accounting, and auditing standards; and the risk that political changes or diplomatic developments could adversely affect the Portfolio's investments in a foreign country. Currency risk is the risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect the value of the Portfolio's investments. Investment Adviser: Alliance Capital Management L.P. Alliance Variable Products--Premier Growth Portfolio Investment Objective Seeks growth of capital by pursuing aggressive investment policies. Policies Invests primarily in equity securities of U.S. companies. Focuses on a relatively small number of intensively researched companies selected from a research universe of more than 600 companies that have strong management, superior industry positions, excellent balance sheets, and superior earnings growth prospects. Normally, invests in about 40-50 companies, with the 25 most highly regarded of these companies usually constituting approximately 70% of the Portfolio's net assets. During market declines, while adding to positions in favored stocks, the Portfolio becomes somewhat more aggressive, gradually reducing the number of companies represented in its portfolio. Conversely, in rising markets, while reducing or eliminating fully-valued positions, the Portfolio becomes somewhat more conservative, gradually increasing the number of companies represented in its portfolio. Through this approach, the investment adviser seeks to gain positive returns in good markets while providing some measure of protection in poor markets. May also invest up to 20% of its net assets in convertible securities. Risks Among the principal risks is market risk. This is the risk that the value of the Portfolio's investments will fluctuate as the stock or bond markets fluctuate and that prices overall will decline over shorter or longer-term periods. Because the Portfolio invests in a smaller number of securities than many other equity funds, you investment has the risk that changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio's net asset value. Investment Adviser: Alliance Capital Management L.P. Alliance Variable Products--Quasar Portfolio Investment Objective Seeks growth of capital by pursuing aggressive investment policies. Current income is incidental to the Portfolio's objective. Policies Generally invests in a widely diversified portfolio of equity securities spread among many industries that offer the possibility of above-average earnings growth. Currently emphasizes investment in small-cap companies. Invests in well-known and established companies and in new and unseasoned companies. Can invest in the equity securities of any company and industry and in any type of security with potential for capital appreciation. When selecting securities, the investment adviser considers the economic and political outlook, the values of specific securities relative to other investments, trends in the determinants of corporate profits, and management capabilities and practices. May also invest in non-convertible bonds, preferred stocks, and foreign securities. Risks Among the principal risks is market risk. This is the risk that the value of the Portfolio's investments will fluctuate as the stock or bond markets fluctuate and that prices overall will decline over shorter or longer-term periods. 64 Investments in smaller companies tend to be more volatile than investments in large-cap or mid-cap companies. To the extent the Portfolio invests in non-convertible bonds, preferred stocks, and foreign stocks, the investment has interest rate risk, credit risk, foreign risk, and currency risk. Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio's investments in debt securities, such as bonds, notes, and asset-backed securities, or other income-producing securities. Increases in interest rates may cause the value of a Portfolio's investments to decline. Credit risk is the risk that the issuer or the guarantor of a debt security, or the counterparty to a derivatives contract, will be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. Investment in foreign securities are subject to increased credit risk because of the difficulties of requiring foreign entities to honor their contractual commitments, and because a number of foreign governments and other issuers are already in default. Investments in foreign securities have foreign risk and currency risk. Foreign risk includes the risk that investments in foreign securities may experience more rapid and extreme changes in value than if they invested solely in securities of U.S. companies; foreign companies usually are not subject to the same degree of regulation as U.S. companies; differing reporting, accounting, and auditing standards; and the risk that political changes or diplomatic developments could adversely affect the Portfolio's investments in a foreign country. Currency risk is the risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect the value of the Portfolio's investments Investment Adviser: Alliance Capital Management L.P. Fidelity Variable Insurance Products Fund--Equity Income Portfolio Investment Objective Seeks reasonable income. Also considers the potential for capital appreciation. Seeks a yield which exceeds the composite yield on the securities comprising the S&P 500. Policies Normally invests at least 65% of total assets in income-producing equity securities. May also invest in other types of equity securities and debt securities, including lower-quality debt securities. May invest in securities of both foreign and domestic issuers. Emphasis on above-average income-producing equity securities tends to lead to investments in large cap "value" stocks. In making investment decisions, the investment adviser relies on fundamental analysis of each issuer and its potential for success in light of its current financial condition, its industry position, and economic and market conditions. May use various techniques, such as buying and selling futures contracts, to increase or decrease exposure to changing security prices, or other factors that affect security values. Risks The value of equity securities fluctuates in response to issuer, political, market and economic developments. In the short term, equity prices can fluctuate dramatically in response to these developments. Debt securities have varying levels of sensitivity to changes in interest rates. In general, the price of a debt security can fall when interest rates rise. Securities with longer maturities and mortgage securities can be more sensitive to interest rate changes. Foreign investments, especially those in emerging markets, can be more volatile and potentially less liquid than U.S. investments due to increased risks of adverse issuer, political, regulatory, market or economic developments. Lower-quality debt securities (those of less than investment-grade quality) can be more volatile due to increased sensitivity to adverse issuer, political, regulatory, market or economic developments. Lower-quality debt securities involve greater risk of default or price changes due to changes in the credit quality of the issuer. "Value" stocks can react differently to issuer, political, market and economic developments than the market as a whole and other types of stocks. "Value" stocks may not ever realize their full value. Investment Adviser: Fidelity Management & Research Company Fidelity Variable Insurance Products Fund--Growth Portfolio Investment Objective Seeks capital appreciation. 65 Policies Normally invests primarily in common stocks of companies the investment adviser believes have above-average growth potential. Companies with high growth potential tend to be companies with higher than average price/earning (P/E) ratios and are often called "growth" stocks. May invest in securities of both foreign and domestic issuers. In making investment decisions, the investment adviser relies on fundamental analysis of each issuer and its potential for success in light of its current financial condition, its industry position, and economic and market conditions. May use various techniques, such as buying and selling futures contracts, to increase or decrease exposure to changing security prices, or other factors that affect security values. Risks The value of equity securities fluctuates in response to issuer, political, market and economic developments. In the short term, equity prices can fluctuate dramatically in response to these developments. Foreign investments, especially those in emerging markets, can be more volatile and potentially less liquid than U.S. investments due to increased risks of adverse issuer, political, regulatory, market or economic developments. "Growth" stocks tend to be sensitive to changes in their earnings and more volatile than other types of stocks. Investment Adviser: Fidelity Management & Research Company Fidelity Variable Insurance Products Fund--High Income Portfolio Investment Objective Seeks a high level of current income while also considering growth of capital. Policies Normally invests at least 65% of total assets in income-producing debt securities, preferred stocks and convertible securities, with an emphasis on lower-quality debt securities. May also invest in non-income producing securities, including defaulted securities and common stocks. Currently intends to limit common stocks to 10% of total assets. May invest in securities of both foreign and domestic issuers. In making investment decisions, the investment adviser relies on fundamental analysis of each issuer and its potential for success in light of its current financial condition, its industry position, and economic and market conditions. May use various techniques, such as buying and selling futures contracts, to increase or decrease exposure to changing security prices, interest rates or other factors that affect security values. Risks Debt securities have varying levels of sensitivity to changes in interest rates. In general, the price of a debt security can fall when interest rates rise. Securities with longer maturities and mortgage securities can be more sensitive to interest rate changes. The value of equity securities fluctuates in response to issuer, political, market and economic developments. In the short term, equity prices can fluctuate dramatically in response to these developments. Foreign investments, especially those in emerging markets, can be more volatile and potentially less liquid than U.S. investments due to increased risks of adverse issuer, political, regulatory, market or economic developments. Lower-quality debt securities (those of less than investment-grade quality) can be more volatile due to increased sensitivity to adverse issuer, political, regulatory, market or economic developments. Lower-quality debt securities involve greater risk of default or price changes due to changes in the credit quality of the issuer. Investment Adviser: Fidelity Management & Research Company Subadvisers: Fidelity Management & Research (U.K.) Inc.; Fidelity Management & Research Far East Inc.; Fidelity Investments Japan Limited Fidelity Variable Insurance Products Fund II--Contrafund[RegTM] Portfolio Investment Objective Seeks long-term capital appreciation. 66 Policies Normally invests primarily in common stocks of companies whose value the investment adviser believes is not fully recognized by the public. May invest in securities of both foreign and domestic issuers. May tend to buy "growth" stocks or "value" stocks, or a combination of both types. In making investment decisions, the investment adviser relies on fundamental analysis of each issuer and its potential for success in light of its current financial condition, its industry position, and economic and market conditions. May use various techniques, such as buying and selling futures contracts, to increase or decrease exposure to changing security prices, interest rates or other factors that affect security values. Risks The value of equity securities fluctuates in response to issuer, political, market and economic developments. In the short term, equity prices can fluctuate dramatically in response to these developments. Debt securities have varying levels of sensitivity to changes in interest rates. In general, the price of a debt security can fall when interest rates rise. Securities with longer maturities and mortgage securities can be more sensitive to interest rate changes. Foreign investments, especially those in emerging markets, can be more volatile and potentially less liquid than U.S. investments due to increased risks of adverse issuer, political, regulatory, market or economic developments. "Growth" stocks tend to be sensitive to changes in their earnings and more volatile than other types of stocks. "Value" stocks can react differently to issuer, political, market and economic developments than the market as a whole and other types of stocks. "Value" stocks may not ever realize their full value. Investment Adviser: Fidelity Management & Research Company Subadvisers: Fidelity Management & Research (U.K.) Inc.; Fidelity Management & Research Far East Inc.; Fidelity Investments Japan Limited Janus Aspen Series--Aggressive Growth Portfolio Investment Objective Seeks long-term growth of capital. Policies A nondiversified portfolio that invests primarily in common stocks selected for their growth potential and normally invests at least 50% of its equity assets in medium-sized companies. Medium-sized companies are those whose market capitalizations at the time of investment fall within the range of companies in the Standard and Poor's (S&P) MidCap 400 Index. The market capitalizations within the Index will vary, but as of December 31, 1999, they ranged from approximately $170 million to $37 billion. May at times hold substantial positions in cash or similar investments. Risks Because the Portfolio may invest substantially all of its assets in common stocks, the main risk is that the value of the stocks it holds might decrease in response to the activities of an individual company or in response to general market and/or economic conditions. In addition, a nondiversified portfolio has the ability to take larger positions in a smaller number of issuers. Because the appreciation or depreciation of a single stock may have a greater impact on the net asset value of a nondiversified portfolio, its share price can be expected to fluctuate more than a diversified portfolio. Performance may also be affected by risks specific to certain types of investments, such as foreign securities, derivative investments, non-investment grade debt securities (high-yield/high-risk securities or "junk" bonds) or companies with relatively small market capitalizations. Smaller or newer companies may suffer more significant losses as well as realize more substantial growth than larger or more established issuers. Investments in such companies tend to be more volatile and somewhat more speculative. Issues associated with investing in foreign securities include currency risk, political and economic risk, regulatory risk, market risk and transaction costs. High-yield/high-risk securities are generally more dependent on the ability of the issuer to meet interest and principal payments (i.e., credit risk). They are more vulnerable to real or perceived economic changes, political changes or other adverse developments specific to the issuer. Investment Adviser: Janus Capital Corporation 67 Janus Aspen Series--Balanced Portfolio Investment Objective Seeks long-term capital growth, consistent with preservation of capital and balanced by current income. Policies Normally invests 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. Will normally invest at least 25% of its assets in fixed-income securities. Assets may shift between the growth and income components of the Portfolio based on the portfolio manager's analysis of relevant market, financial and economic conditions. May at times hold substantial positions in cash or similar investments. Risks Because the Portfolio may invest a significant portion of its assets in common stocks, the main risk is that the value of the stocks it holds might decrease in response to the activities of an individual company or in response to general market and/or economic conditions. The income component of the Portfolio's holdings includes fixed-income securities which generally will decrease in value when interest rates rise. Another risk associated with fixed-income securities is the risk that an issuer of a bond will be unable to make principal and interest payments when due (i.e. credit risk). Performance may also be affected by risks specific to certain types of investments, such as foreign securities, derivative investments, non-investment grade debt securities (high-yield/high-risk securities or "junk" bonds) or companies with relatively small market capitalizations. Smaller or newer companies may suffer more significant losses as well as realize more substantial growth than larger or more established issuers. Investments in such companies tend to be more volatile and somewhat more speculative. Issues associated with investing in foreign securities include currency risk, political and economic risk, regulatory risk, market risk and transaction costs. High-yield/high-risk securities are generally more susceptible to credit risk. They are more vulnerable to real or perceived economic changes, political changes or other adverse developments specific to the issuer. Investment Adviser: Janus Capital Corporation Janus Aspen Series--Growth Portfolio Investment Objective Seeks long-term growth of capital in a manner consistent with the preservation of capital. Policies Generally invests primarily in common stocks of larger, more established companies selected for their growth potential, although it can invest in companies of any size. May at times hold substantial positions in cash or similar investments. Risks Because the Portfolio may invest substantially all of its assets in common stocks, the main risk is that the value of the stocks it holds might decrease in response to the activities of an individual company or in response to general market and/or economic conditions. Performance may also be affected by risks specific to certain types of investments, such as foreign securities, derivative investments, non-investment grade debt securities (high-yield/ high-risk securities or "junk" bonds) or companies with relatively small market capitalizations. Smaller or newer companies may suffer more significant losses as well as realize more substantial growth than larger or more established issuers. Investments in such companies tend to be more volatile and somewhat more speculative. Issues associated with investing in foreign securities include currency risk, political and economic risk, regulatory risk, market risk and transaction costs. High-yield/high-risk securities are generally more dependent on the ability of the issuer to meet interest and principal payments (i.e., credit risk). They are more vulnerable to real or perceived economic changes, political changes or other adverse developments specific to the issuer. Investment Adviser: Janus Capital Corporation 68 Janus Aspen Series--Worldwide Growth Portfolio Investment Objective Seeks long-term growth of capital in a manner consistent with the preservation of capital. Policies Invests primarily in common stocks of companies of any size throughout the world. Normally invests in issuers from at least five different countries, including the United States. May at times invest in fewer than five countries or even in a single country. May hold substantial positions in cash or similar investments. Risks Because the Portfolio may invest substantially all of its assets in common stocks, the main risk is that the value of the stocks it holds might decrease in response to the activities of an individual company or in response to general market and/or economic conditions. Performance may also be affected by risks specific to certain types of investments, such as foreign securities, derivative investments, non-investment grade debt securities (high-yield/ high-risk securities or "junk" bonds) or companies with relatively small market capitalizations. Smaller or newer companies may suffer more significant losses as well as realize more substantial growth than larger or more established issuers. Investments in such companies tend to be more volatile and somewhat more speculative. Issues associated with investing in foreign securities include currency risk, political and economic risk, regulatory risk, market risk and transaction costs. High-yield/high-risk securities are generally more dependent on the ability of the issuer to meet interest and principal payments (i.e., credit risk). They are more vulnerable to real or perceived economic changes, political changes or other adverse developments specific to the issuer. Investment Adviser: Janus Capital Corporation MFS Total Return Series Investment Objective Seeks primarily to provide above-average income (compared to a portfolio invested entirely in equity securities) consistent with the prudent employment of capital. Its secondary objective is to provide a reasonable opportunity for growth of capital and income. Policies Under normal market conditions, invests at least 40%, but no more than 75%, of net assets in common stocks and related securities (referred to as equity securities); bonds, warrants or rights convertible into stock; and depositary receipts for those securities. Invests at least 25% of net assets in non-convertible fixed income securities. May vary the percentage of assets invested in any one type of security (within the limits described above). May invest in foreign securities and may have exposure to foreign currencies through its investment in these securities. Generally, seeks to purchase equity securities that the investment adviser believes are undervalued in the market relative to their long-term potential focusing on companies with relatively large market capitalization (i.e., market capitalizations of $5 billion or more). Fixed income securities include U.S. government securities, mortgage-backed and asset-backed securities, and corporate bonds. The series has engaged and may engage in active and frequent trading to achieve its principal investment strategies. Risks In allocating investments, the series could miss attractive investment opportunities by underweighting markets where there are significant returns, and could lose value by overweighting markets where there are significant declines. The value of securities held by the series may decline due to changing economic, political or market conditions, or disappointing earnings results. If anticipated events do not occur or are delayed, or if investor perceptions about undervalued securities do not improve, the market price of these securities may not rise or may fall. Fixed income securities are subject to interest rate risk (the risk that when interest rates rise, the prices of fixed income securities will generally fall) and credit risk (the risk that the issuer of a fixed income security will not be able to pay principal and interest when due). Securities with longer maturities are affected more by interest rate risk. Investing in foreign securities involves risks relating to political social and economic 69 developments abroad, as well as risks resulting from the differences between the regulations to which U.S. and foreign issuers are subject. Fixed income securities traded in the over-the-counter market may be harder to purchase or sell at a fair price. The inability to purchase or sell these fixed income securities at a fair price could have a negative impact on the series' performance. Frequent trading may result in the realization and distribution to shareholders of higher capital gains as compared to a series with less active trading policies. Frequent trading also increases transaction costs, which could detract from the series' performance. Investment Adviser: Massachusetts Financial Services Company [Mitchell Hutchins Series Trust Growth and Income Portfolio (Class I shares) Investment Objective Has an investment objective of current income and capital growth. Policies Invests primarily in dividend-paying stocks of companies that its investment adviser believes have potential for rapid earnings growth. Also invests, to a lesser extent, in bonds when the investment adviser believes those investments offer opportunities for capital appreciation because interest rates may fall or credit factors or ratings affecting particular issuers may improve. May invest in securities of foreign issuers that are denominated in U.S. dollars and traded in U.S. markets. In selecting stocks for the fund, the adviser uses its own Factor Valuation Model to identify companies that appear undervalued. The model ranks companies based on "value" factors such as dividends, cash flows, earnings and book values, as well as on "growth" factors, such as earnings momentum and industry performance forecasts. The adviser then applies fundamental analysis to select specific stocks from among those in the top 20% identified by the model. Risks The prices of common stocks and other equity securities generally fluctuate more than those of other investments. They reflect changes in the issuing company's financial condition and changes in the overall market. The fund could lose all of its investment in a company's stock. The Fund is subject, to a lesser extent, to interest rate risk, which means that the value of the fund's bond investments generally will fall when interest rates rise. Because interest rate risk is the primary risk presented by U.S. government and other very high quality bonds, changes in interest rates may actually have a greater effect on the value of those bonds than on lower quality bonds. An investment in the fund also presents credit risk. Credit risk is the risk that the issuer of a bond will not make principal or interest payments when they are due. Even if an issuer does not default on a payment, a bond's value may decline if the market believes that the issuer has become less able, or less willing, to make payments on time. Foreign securities involve risks that normally are not associated with securities of U.S. issuers. These include risks relating to political, social and economic developments abroad and differences between U.S. and foreign regulatory requirements and market practices. When securities are denominated in foreign currencies, they also are subject to currency risk. (i.e., the risk that the value of a foreign currency in which one or more of a fund's investments are denominated will fall in relation to the U.S. dollar). Investment Adviser: Mitchell Hutchins Asset Management Inc.] [Mitchell Hutchins Series Trust Small Cap Portfolio (Class I shares) Investment Objective Has an investment objective of long-term capital appreciation. Policies Invests primarily in stocks of small capitalization ("small cap") companies, which are defined as companies that have market capitalizations of up to $1 billion at the time of purchase. May invest, to a lesser extent, in stocks of larger companies, preferred stocks, and bonds, including convertible securities. Invests in bonds when its investment adviser believes those investments offer opportunities for capital appreciation because interest rates may fall or credit factors or ratings affecting particular issuers may improve. May invest in securities of foreign issuers that are denominated in U.S. dollars and traded in U.S. markets. In selecting stocks for the fund, the 70 adviser uses its own Factor Valuation Model to identify companies that appear undervalued. The model ranks companies based on "value" factors such as dividends, cash flows, earnings and book values, as well as on "growth" factors, such as earnings momentum and industry performance forecasts. The adviser then applies fundamental analysis to select specific stocks from among those of small cap companies identified by the model. Risks The prices of common stocks and other equity securities generally fluctuate more than those of other investments. They reflect changes in the issuing company's financial condition and changes in the overall market. The fund may lose a substantial part, or even all, of its investment in a company's stock. Securities of small cap companies generally involve greater risk than securities of larger companies because small cap companies may be more vulnerable to adverse business or economic developments. Small cap companies also may have limited product lines, markets or financial resources, and may be dependent on a relatively small management group. Securities of small cap companies may be less liquid and more volatile than securities of larger companies or the market averages in general. In addition, small cap companies may not be well-known to the investing public, may not have institutional ownership and may have only cyclical, static or moderate growth prospects. The value of bonds can be expected to fall when interest rates rise and to rise when interest rates fall. Interest rate risk is the risk that interest rates will rise, so that the value of the fund's investments in bonds will fall. Because interest rate risk is the primary risk presented by U.S. government and other very high quality bonds, changes in interest rates may actually have a greater effect on the value of those bonds than on lower quality bonds. An investment in the fund also presents credit risk. Credit risk is the risk that the issuer of a bond will not make principal or interest payments when they are due. Even if an issuer does not default on a payment, a bond's value may decline if the market believes that the issuer has become less able, or less willing, to make payments on time. Foreign securities involve risks that normally are not associated with securities of U.S. issuers. These include risks relating to political, social and economic developments abroad and differences between U.S. and foreign regulatory requirements and market practices. When securities are denominated in foreign currencies, they also are subject to currency risk. (i.e., the risk that the value of a foreign currency in which one or more of a fund's investments are denominated will fall in relation to the U.S. dollar). Investment Adviser: Mitchell Hutchins Asset Management Inc.] [Mitchell Hutchins Series Trust Tactical Allocation Portfolio (Class I shares) Investment Objective Has an investment objective of total return, consisting of long-term capital appreciation and current income. Policies Allocates its assets between a stock portion that is designed to track the performance of the S&P 500 Composite Stock Price Index and a fixed income portion that consists of either five-year U.S. Treasury notes or U.S. Treasury bills with remaining maturities of 30 days. The investment adviser reallocates assets in accordance with the recommendations of its own Tactical Allocation Model on the first business day of each month. The Model attempts to track the performance of the S&P 500 Index in periods of strong market performance. The Model attempts to take a more defensive posture by reallocating assets to bonds or cash when the Model signals a potential bear market, prolonged downturn in stock prices or significant loss in value. The Model can recommend stock allocations of 100%, 75%, 50%, 25% or 0%. If the Model recommends a stock allocation of less than 100%, it also recommends a fixed income allocation for the remainder of the fund's assets. The Model uses a bond risk premium determination to decide whether to recommend five-year U.S. Treasury notes or 30-day U.S. Treasury bills. When the Model recommends a more than 50% fixed income allocation, the fund must invest in other high quality bonds or money market instruments to the extent needed to limit the fund's investments in U.S. Treasury obligations to no more than 55% of its assets. This limit is imposed by Internal Revenue Code diversification requirements for segregated asset accounts used to fund variable annuity or variable life contracts. Risks The prices of common stocks and other equity securities generally fluctuate more than those of other investments. They reflect changes in the issuing company's financial condition and changes in the overall market. 71 The fund may lose a substantial part, or even all, of its investment in a company's stock. The value of bonds can be expected to fall when interest rates rise and to rise when interest rates fall. Interest rate risk is the risk that interest rates will rise, so that the value of the fund's investments in bonds will fall. Because interest rate risk is the primary risk presented by U.S. government and other very high quality bonds, changes in interest rates may actually have a greater effect on the value of those bonds than on lower quality bonds. In addition, the adviser may not be successful in choosing the best allocation among market sectors. A fund that allocates its assets among market sectors is more dependent on the adviser's ability to successfully assess the relative values in each sector than are funds that do not do so. The adviser's Tactical Allocation Model may not correctly predict the times to shift the fund's assets from one type of investment to another. Investment Adviser: Mitchell Hutchins Asset Management Inc.] Oppenheimer Aggressive Growth Fund/VA Investment Objective Seeks to achieve long-term capital appreciation by investing in "growth-type" companies. Policies The Fund invests mainly in equity securities, such as common stocks, and can invest in other securities, such as preferred stocks and convertible securities. The Fund emphasizes investments in companies that the Manager believes have significant growth potential. Growth companies can include established companies entering a growth cycle in their business, as well as newer companies. The Fund can invest in securities of issuers of all market capitalizations, but currently focuses on companies with market capitalizations of "mid-cap" issuers (currently those issuers between $2.5 and $11.5 billion). The Fund can invest in domestic and foreign companies, although most of its investments are in stocks of U.S. companies. Risks The fund's investments in stocks are subject to changes in their value from a number of factors. They include stock market movements and events affecting particular industries. Stocks of growth companies may provide greater opportunities for capital appreciation, but may be more volatile than other stocks. The Fund invests mainly in small and medium-size companies, which tend to have more volatile stock prices than large companies. Investment Adviser: OppenheimerFunds, Inc. Oppenheimer Main Street Growth & Income Fund/VA Investment Objective Seeks a high total return (which includes growth in the value of its shares as well as current income) from equity and debt securities. Policies Invests mainly in common stocks of U.S. companies, and can also invest in other equity securities such as preferred stocks and convertible securities. Although the fund can invest in securities of issuers of all market capitalization ranges, it currently focuses on companies with large capitalizations. While the fund can buy foreign securities and debt securities such as bonds and notes, currently it does not emphasize those investments. The fund can also use hedging instruments and certain derivative investments to try to manage investment risks. Risks The fund's investments in stocks and bonds are subject to changes in their value from a number of factors. They include changes in general stock and bond market movements, or the change in value of particular stocks or bonds because of an event affecting the issuer. Changes in interest rates can also affect stock and bond prices. Because the Fund currently focuses its investments in stocks of U.S. issuers, it will be affected primarily by changes in the U.S. Stock Market. Investment Adviser: OppenheimerFunds, Inc. 72 Oppenheimer Strategic Bond Fund/VA Investment Objective Seeks a high level of current income principally derived from interest on debt securities and seeks to enhance such income by writing covered call options on debt securities. Policies Invests mainly in debt securities of issuers in three market sectors: foreign governments and companies, U.S. government securities, and lower-rated high-yield securities of U.S. and foreign companies. Under normal market conditions, the fund invests in each of those three market sectors. However, the fund is not obligated to do so, and the amount of its assets in each of the three sectors will vary over time. The fund can invest up to 100% of its assets in any one sector at any time, if the manager believes that in doing so the fund can achieve its objective without undue risk. The fund can invest in securities having short, medium or long-term maturities and may invest without limit in lower-grade high-yield debt obligations also called "junk bonds." The fund's foreign investments can include debt securities of issuers in developed markets as well as emerging markets, which have special risks. The fund can also use hedging instruments and certain derivative investments to try to enhance income or try to manage investment risks. Risks The fund's investments in debt securities are subject to changes in their value from a number of factors. They include changes in general bond market movements in the U.S. and abroad, or the change in value of particular bonds because of an event affecting the issuer. The fund can focus significant amounts of its investments in foreign debt securities. Therefore, it will be subject to the risks that economic, political or other events can have on the values of securities of issuers in particular foreign countries. These risks are heightened in the case of emerging market debt securities. Changes in interest rates can also affect securities prices. Investment Adviser: OppenheimerFunds, Inc. Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (formerly known as PPI MFS Value Equity Portfolio) Investment Objective Seeks capital appreciation. Policies Invests primarily (at least 65% of total assets) in common stocks and related securities, such as preferred stock, convertible securities and depositary receipts. Focuses on companies believed to have favorable growth prospects and attractive valuations based on current and expected earnings or cash flow. Investments may include securities listed on a securities exchange or traded in the over-the-counter markets. May invest in foreign securities (including emerging market securities) and may have exposure to foreign currencies through its investment in these securities, its direct holdings of foreign currencies or through its use of foreign currency exchange contracts for the purchase or sale of a fixed quantity of a foreign currency at a future date. May engage in active and frequent trading to achieve its principal investment strategies. Risks Investment in the portfolio is subject to the following risks: o Market and Company Risk: The value of the securities in which the portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. In addition, securities of growth companies may be more volatile because such companies usually invest a high portion of their earnings in their businesses and may lack the dividends of value companies, which can cushion the security prices in a declining market. o Over the Counter Risk: Equity securities that are traded over the counter may be more volatile than exchange listed securities, and the portfolio may experience difficulty in purchasing or selling these securities at a fair price. 73 o Foreign Markets Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks from these investments result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. o Emerging Markets Risk: Emerging markets are generally defined as countries in the initial stages of their industrialization cycles with low per capita income. Investments in emerging markets securities involve all of the risks of investment in foreign securities, and also have additional risks. o Currency Risk: Exposure to foreign currencies may cause the value of the portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. o Active or Frequent Trading Risk: The portfolio may engage in active and frequent trading. This may result in higher capital gains as compared to portfolios with less active trading policies. Frequent trading also increases transaction costs, which can detract from fund performance. Investment Adviser: Aetna Life Insurance and Annuity Company Subadviser: Massachusetts Financial Services Company Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio Investment Objective Seeks long-term growth of capital. Policies Invests primarily (at least 65% of total assets) in common stocks and related securities, such as preferred stock, convertible securities and depositary receipts, of emerging growth companies. Emerging growth companies are companies believed to be early in their life cycle and that have the potential to become major enterprises, or major enterprises whose rates of earnings growth are expected to accelerate. Investments may include securities listed on a securities exchange or traded in the over-the-counter markets. May also invest in foreign securities (including emerging market securities) and may have exposure to foreign currencies through its investment in these securities, its direct holdings of foreign currencies or through its use of foreign currency exchange contracts for the purchase or sale of a fixed quantity of foreign currency at a future date. May engage in active and frequent trading to achieve its principal investment strategies. Risks Investment in the portfolio is subject to the following risks: o Market and Company Risk: The value of the securities in which the portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. o Emerging Growth Risk: The portfolio's performance is particularly sensitive to changes in the value of emerging growth companies. Investments in emerging growth companies may be subject to more abrupt or erratic market movements and may involve greater risks than investments in other companies. o Over the Counter Risk: Equity securities that are traded over the counter may be more volatile than exchange listed securities, and the portfolio may experience difficulty in purchasing or selling these securities at a fair price. o Foreign Markets Risk: Investment in foreign securities involves risks related to political, social and economic developments abroad. These risks result from differences between the regulations to which U.S. and foreign issuers and Markets are subject. o Currency Risk: Exposure to foreign currencies may cause the value of the portfolio to decline if the U.S. dollar strengthens against these currencies or if foreign governments intervene in the currency markets. o Emerging Markets Risk: Investments in emerging market securities involve all the risks of investment in foreign markets. Additionally, markets of emerging market countries have been more volatile, and involve greater risks, than the markets of developed countries with more mature economies. o Active or Frequent Trading Risk: The portfolio may engage in active and frequent trading. This may result in higher capital gains as compared to portfolios with less active trading policies. Frequent trading also increases transaction costs, which can detract from fund performance. 74 Investment Adviser: Aetna Life Insurance and Annuity Company Subadviser: Massachusetts Financial Services Company Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio Investment Objective Seeks long-term growth of capital and future income. Policies Invests primarily (at least 80% of total assets) in common stocks and related securities, such as preferred stock, convertible securities and depositary receipts. Focuses on companies believed to have favorable prospects for long-term growth, attractive valuations based on current and expected earnings or cash flow, dominant or growing market share and superior management. May invest in companies of any size. Investments may also include securities traded on securities exchanges or in the over-the-counter markets. May invest in foreign securities (including emerging market securities) and may have exposure to foreign currencies through its investment in these securities, its direct holdings of foreign currencies or through its use of foreign currency exchange contracts for the purchase or sale of a fixed quantity of foreign currency at a future date. Risks Investment in the portfolio is subject to the following risks: o Market and Company Risk: The value of the securities in which the portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. In addition, securities of growth companies may be more volatile because such companies usually invest a high portion of their earnings in their businesses and may lack the dividends of value companies, which can cushion the security prices in a declining market. o Over-the-Counter Risk: Equity securities that are traded over-the-counter may be more volatile than exchange-listed securities, and the portfolio may experience difficulty in purchasing or selling these securities at a fair price. o Foreign Markets Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks from these investments result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. o Currency Risk: Exposure to foreign currencies may cause the value of the portfolio to decline if the U.S. dollar strengthens against these currencies or if foreign governments intervene in the currency markets. Investment Adviser: Aetna Life Insurance and Annuity Company Subadviser: Massachusetts Financial Services Company Portfolio Partners, Inc. (PPI) Scudder International Growth Portfolio Investment Objective Seeks long-term growth of capital. Policies Invests primarily (at least 65% of total assets) in the equity securities of foreign companies believed to have high growth potential. Normally invests in securities of at least three different countries other than the U.S. Will invest in securities in both developed and developing markets. Seeks to invest in those companies believed to be best able to capitalize on the growth and changes taking place within and between various regions of the world. Typically, these are companies with leading or rapidly developing business franchises, strong financial positions, and high quality management capable of defining and implementing strategies to take advantage of local, regional or global markets. Also may invest in debt securities issued by both U.S. and foreign companies, including non-investment grade debt securities. 75 Risks Investment in the portfolio is subject to the following risks: o Market and Company Risk: The value of the securities in which the portfolio invests may decline due to changing economic, political or market conditions, or due to the financial condition of the company which issued the security. o Foreign Markets Risk: Investment in foreign securities involves additional risks relating to political, social and economic developments abroad. Other risks from these investments result from the differences between the regulations to which U.S. and foreign issuers and markets are subject. o Currency Risk: Exposure to foreign currencies may cause the value of the portfolio to decline in the event that the U.S. dollar strengthens against these currencies, or in the event that foreign governments intervene in the currency markets. o Emerging Growth Risk: The portfolio's performance is particularly sensitive to changes in the value of emerging growth companies. Investments in emerging growth companies may be subject to more abrupt or erratic market movements and may involve greater risks than investments in other companies. o Interest Rate Risk: Investment in debt securities involves risks relating to interest rate movement. If interest rates go up, the value of debt securities held by the portfolio will decline. o Credit Risk: Investment in non-investment grade debt securities involves credit risk because issuers of non-investment grade securities are more likely to have difficulty making timely payments of interest or principal. Investment Adviser: Aetna Life Insurance and Annuity Company Subadviser: Scudder Kemper Investments, Inc. 76 - -------------------------------------------------------------------------------- VARIABLE ANNUITY ACCOUNT B OF AETNA LIFE INSURANCE AND ANNUITY COMPANY - -------------------------------------------------------------------------------- Statement of Additional Information dated May 1, 2000 AETNA PREMIUM BONUS ANNUITY This Statement of Additional Information is not a prospectus and should be read in conjunction with the current prospectus for Variable Annuity Account B (the "separate account") dated May 1, 2000. A free prospectus is available upon request from the local Aetna Life Insurance and Annuity Company office or by writing to or calling: Aetna Financial Services Annuity Services 151 Farmington Avenue Hartford, Connecticut 06156-1258 1-800-238-6219 Read the prospectus before you invest. Unless otherwise indicated, terms used in this Statement of Additional Information shall have the same meaning as in the prospectus. TABLE OF CONTENTS Page ---- General Information and History......................................... 2 Variable Annuity Account B.............................................. 2 Offering and Purchase of Contracts...................................... 3 Performance Data........................................................ 3 General.............................................................. 3 Average Annual Total Return Quotations............................... 4 Income Phase Payments................................................... 7 Sales Material and Advertising.......................................... 8 Independent Auditors.................................................... 9 Financial Statements of the Separate Account............................ S-1 Financial Statements of Aetna Life Insurance and Annuity Company and Subsidiaries ..................................................... F-1 GENERAL INFORMATION AND HISTORY Aetna Life Insurance and Annuity Company (the Company, we, us, our) issues the contract described in the prospectus and is responsible for providing each contract's insurance and annuity benefits. We are a stock life insurance company organized under the insurance laws of the State of Connecticut in 1976 and an indirect wholly-owned subsidiary of Aetna Inc. Through a merger, our assets include the business of Aetna Variable Annuity Life Insurance Company (formerly Participating Annuity Life Insurance Company organized in 1954). Our Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. As of December 31, 1999, the Company and its subsidiary life company had $53 billion invested through their products, including $39 billion in their separate accounts (of which the Company, or its subsidiary Aeltus Investment Management, Inc., oversees the management of $24 billion). The Company is ranked among the top 2% of all U.S. life insurance companies rated by A.M. Best Company based on assets as of December 31, 1998. In addition to serving as the principal underwriter and the depositor for the separate account, the Company is a registered investment adviser under the Investment Advisers Act of 1940 and a registered broker-dealer under the Securities Exchange Act of 1934. We provide investment advice to several of the registered management investment companies offered as variable investment options under the contracts funded by the separate account (see "Variable Annuity Account B" below). Other than the mortality and expense risk charge and administrative expense charge described in the prospectus, all expenses incurred in the operations of the separate account are borne by the Company. See "Fees" in the prospectus. We receive reimbursement for certain administrative costs from some advisers of the funds used as funding options under the contract. These fees generally range up to 0.425%. The assets of the separate account are held by the Company. The separate account has no custodian. However, the funds in whose shares the assets of the separate account are invested each have custodians, as discussed in their respective prospectuses. From this point forward, the term "contract" refers only to those offered through the prospectus. VARIABLE ANNUITY ACCOUNT B Variable Annuity Account B is a separate account established by the Company for the purpose of funding variable annuity contracts issued by the Company. The separate account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940, as amended. Purchase payments to accounts under the contract may be allocated to one or more of the subaccounts. Each subaccount invests in the shares of only one of the funds listed below. We may make additions to, deletions from or substitutions of available investment options as permitted by law and subject to the conditions of the contract. The availability of the funds is subject to applicable regulatory authorization. Not all funds are available in all jurisdictions. 2 The funds currently available under the contract are as follows: Aetna Balanced VP, Inc. Aetna Income Shares d/b/a Aetna Bond VP Aetna Growth VP Aetna Variable Fund d/b/a Aetna Growth and Income VP Aetna Index Plus Large Cap VP Aetna International VP Aetna Variable Encore Fund d/b/a Aetna Money Market VP Aetna Small Company VP Aetna Technology VP AIM V.I. Capital Appreciation Fund AIM V.I. Government Securities Fund AIM V.I. Growth Fund AIM V.I. Growth and Income Fund AIM V.I. Value Fund Alliance Variable Products -- Growth and Income Portfolio Alliance Variable Products -- Premier Growth Portfolio Alliance Variable Products -- Quasar Portfolio Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio Fidelity Variable Insurance Products Fund (VIP ) High Income Portfolio Fidelity Variable Insurance Products Fund II (VIP II) Contrafund[RegTM] Portfolio Janus Aspen Aggressive Growth Portfolio Janus Aspen Balanced Portfolio Janus Aspen Growth Portfolio Janus Aspen Worldwide Growth Portfolio MFS Total Return Series Mitchell Hutchins Series Trust Growth & Income Portfolio Mitchell Hutchins Series Trust Small Cap Portfolio Mitchell Hutchins Series Trust Tactical Allocation Portfolio Oppenheimer Aggressive Growth Fund/VA Oppenheimer Main Street Growth & Income Fund/VA Oppenheimer Strategic Bond Fund/VA Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (formerly PPI MFS Value Equity Portfolio) Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio Portfolio Partners , Inc. (PPI) Scudder International Growth Portfolio 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 under the prospectus. We offer the contracts through life insurance agents licensed to sell variable annuities who are registered representatives of the Company or of other registered broker-dealers who have sales agreements with the Company. The offering of the contracts is continuous. A description of the manner in which the contracts are purchased can be found in the prospectus under the sections entitled "Purchase and Rights" and "Your Account Value." PERFORMANCE DATA GENERAL From time to time we may advertise different types of historical performance for the subaccounts of the separate account available under the contract. We may advertise the "standardized average annual total returns," calculated in a manner prescribed by the Securities and Exchange Commission (the "standardized 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, adjusted to reflect the deduction of the maximum recurring charges under the contract during each 3 period (i.e., 1.45% mortality and expense risk charge for Death Benefit Option II, $30 annual maintenance fee, 0.15% administrative charge, and early withdrawal charge of 8% of purchase payments grading down to 0% after 8 years) and do not include any premium bonus. 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 contract described in the prospectus. The non-standardized figures will be calculated in a similar manner, except that they will not reflect the deduction of any applicable early withdrawal charge and, in some advertisements, will also exclude the effect of the annual maintenance fee. The deduction of the early withdrawal charge and the annual maintenance fee would decrease the level of performance shown if reflected in these calculations. The non-standardized figures may also include monthly, quarterly, year-to-date and three-year periods, and may include returns calculated from the fund's inception date and/or the date contributions were first received in the fund under the separate account. The non-standardized returns shown in the tables below reflect the deduction of the maximum recurring charges under the contract except the early withdrawal charge. Standardized and non-standardized calculations do not currently include the premium bonus, but to the extent permitted by applicable law, we may include the premium bonus in the standardized and non-standardized average annual total returns in the future. Investment results of the funds will fluctuate over time, and any presentation of the subaccounts' total return quotations for any prior period should not be considered as a representation of how the subaccounts will perform in any future period. Additionally, the account value upon redemption may be more or less than your original cost. AVERAGE ANNUAL TOTAL RETURN QUOTATIONS Standardized and Non-Standardized The tables below reflect the average annual standardized and non-standardized total return quotation figures for the periods ended December 31, 1999 for the subaccounts under the contract. The standardized returns assume the maximum charges under the contract as described under "General" above. The non-standardized returns assume the same charges but do not include the early withdrawal charge. We may also advertise returns based on lower charges that apply to contracts under Death Benefit Option I. For the subaccounts funded by the Portfolio Partners portfolios, two sets of performance returns are shown for each subaccount: one showing performance based solely on the performance of the Portfolio Partners portfolio from November 28, 1997, the date the portfolio commenced operations, and one quotation based on (a) performance through November 26, 1997 of the fund it replaced under many contracts and (b) after November 26, 1997 based on the performance of the Portfolio Partners portfolio. For those subaccounts where results are not available for the full calendar period indicated, performance for such partial periods is shown in the column labeled "Since Inception." For standardized performance, the "Since Inception" column shows the average annual return since the date contributions were first received in the fund under the separate account. For non-standardized performance, the "Since Inception" column shows the average annual total return since the fund's inception date. 4
----------------------------------------------------------------------- Date Contributions STANDARDIZED First Received Under the Separate Account - --------------------------------------------------------------------------------------------------------------------------------- Since SUBACCOUNT 1 Year 5 Year 10 Year Inception* - --------------------------------------------------------------------------------------------------------------------------------- Aetna Balanced VP, Inc.(1) 2.84% 16.66% 11.46% - --------------------------------------------------------------------------------------------------------------------------------- Aetna Bond VP(1) (10.15%) 4.90% 5.99% - --------------------------------------------------------------------------------------------------------------------------------- Aetna Growth VP 22.19% 32.54% 05/30/1997 - --------------------------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP(1) 6.30% 21.20% 13.67% - --------------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP 12.52% 26.91% 10/31/1996 - --------------------------------------------------------------------------------------------------------------------------------- Aetna International VP 37.00% 20.42% 05/05/1998 - --------------------------------------------------------------------------------------------------------------------------------- Aetna Money Market VP(1)(2) (4.88%) 3.02% 3.64% - --------------------------------------------------------------------------------------------------------------------------------- Aetna Small Company VP 18.45% 16.18% 05/30/1997 - --------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 30.92% 58.30% 10/02/1998 - --------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth Fund 22.43% 52.83% 10/02/1998 - --------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth and Income Fund 21.53% 49.59% 10/02/1998 - --------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 17.59% 46.26% 10/02/1998 - --------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio (3.75%) 16.29% 16.28% 12/30/1994 - --------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio 24.42% 27.42% 27.40% 12/30/1994 - --------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP High Income Portfolio (2.09%) 6.69% 06/30/1995 - --------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP II Contrafund[RegTM] Portfolio 12.48% 22.38% 06/30/1995 - --------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Aggressive Growth Portfolio 104.08% 33.88% 32.21% 10/31/1994 - --------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Balanced Portfolio 14.75% 22.32% 01/31/1995 - --------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Growth Portfolio 30.35% 27.56% 25.31% 07/29/1994 - --------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Worldwide Growth Portfolio 48.88% 33.22% 04/28/1995 - --------------------------------------------------------------------------------------------------------------------------------- MFS Total Return Series (6.69%) 9.67% 05/31/1996 - --------------------------------------------------------------------------------------------------------------------------------- Mitchell Hutchins Growth & Income Portfolio (0.19%) 05/05/1999 - --------------------------------------------------------------------------------------------------------------------------------- Mitchell Hutchins Small Cap Portfolio (1.86%) 07/02/1999 - --------------------------------------------------------------------------------------------------------------------------------- Mitchell Hutchins Tactical Allocation Portfolio (0.98%) 05/17/1999 - --------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Aggressive Growth Fund/VA 66.23% 33.84% 05/30/1997 - --------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Main Street Growth & Income Fund/VA 10.18% 13.66% 05/30/1997 - --------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund/VA (6.92%) 0.24% 05/30/1997 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- PPI MFS Capital Opportunities Portfolio 34.70% 32.00% 11/28/1997 - --------------------------------------------------------------------------------------------------------------------------------- Neuberger Berman AMT Growth/PPI MFS Capital Opportunities(3) 34.70% 25.60% 17.51% 11/30/1992 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- PPI MFS Emerging Equities Portfolio 36.59% 32.65% 11/28/1997 - --------------------------------------------------------------------------------------------------------------------------------- Alger American Small Cap/PPI MFS Emerging Equities(3) 36.59% 23.97% 17.99% 09/30/1993 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- PPI MFS Research Growth Portfolio 12.29% 16.65% 11/28/1997 - --------------------------------------------------------------------------------------------------------------------------------- American Century VP Capital Appreciation/PPI MFS Research Growth(3) 12.29% 10.82% 9.61% 08/31/1992 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- PPI Scudder International Growth Portfolio 43.41% 31.90% 11/28/1997 - --------------------------------------------------------------------------------------------------------------------------------- Scudder International Portfolio Class A/PPI Scudder International Growth(3) 43.41% 18.95% 16.22% 08/31/1992 - ---------------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in calculating the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of future performance. * Reflects performance from the date contributions were first received in the fund under the separate account. (1) These funds have been available through the separate account for more than ten years. (2) The current yield for the subaccount for the seven-day period ended December 31, 1999 (on an annualized basis) was 4.18%. Current yield more closely reflects current earnings than does total return. The current yield reflects the deduction of all charges under the contract that are deducted from the total return quotations shown above except the maximum 8% early withdrawal charge. (3) The fund first listed was replaced with the applicable Portfolio Partners portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced fund until November 26, 1997 and the performance of the applicable Portfolio Partners portfolio after that date. The replaced fund may not have been available under all contracts. The "Date Contributions First Received Under the Separate Account" refers to the applicable date for the replaced fund. If no date is shown, contributions were first received in the replaced fund under the separate account more than ten years ago. 5
------------------------------------------------------------------------- Fund NON-STANDARDIZED Inception Date - ----------------------------------------------------------------------------------------------------------------------------------- Since SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception** - ----------------------------------------------------------------------------------------------------------------------------------- Aetna Balanced VP, Inc.(1) 11.79% 15.73% 17.08% 11.46% - ----------------------------------------------------------------------------------------------------------------------------------- Aetna Bond VP(1) (2.33%) 3.46% 5.60% 5.99% - ----------------------------------------------------------------------------------------------------------------------------------- Aetna Growth VP 32.81% 33.04% 33.08% 12/13/1996 - ----------------------------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP(1) 15.54% 18.49% 21.53% 13.67% - ----------------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP 22.31% 27.79% 28.42% 09/16/1996 - ----------------------------------------------------------------------------------------------------------------------------------- Aetna International VP 48.92% 33.28% 12/22/1997 - ----------------------------------------------------------------------------------------------------------------------------------- Aetna Money Market VP(1)(2) 3.39% 3.65% 3.79% 3.64% - ----------------------------------------------------------------------------------------------------------------------------------- Aetna Small Company VP 28.76% 19.23% 19.63% 12/27/1996 - ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 42.31% 23.12% 23.60% 20.39% 05/05/1993 - ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Government Securities Fund (2.90%) 3.08% 4.62% 2.99% 05/05/1993 - ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth Fund 33.07% 29.93% 27.59% 20.98% 05/05/1993 - ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth and Income Fund 32.10% 27.12% 26.15% 22.52% 05/02/1994 - ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 27.82% 26.57% 25.22% 21.12% 05/05/1993 - ----------------------------------------------------------------------------------------------------------------------------------- Alliance Growth and Income Portfolio 9.58% 18.22% 21.94% 13.64% 01/14/1991 - ----------------------------------------------------------------------------------------------------------------------------------- Alliance Premier Growth Portfolio 30.20% 35.67% 33.87% 24.33% 06/26/1992 - ----------------------------------------------------------------------------------------------------------------------------------- Alliance Quasar Portfolio 15.21% 8.11% 8.87% 08/05/1996 - ----------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio(1) 4.62% 13.15% 16.71% 12.66% - ----------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio(1) 35.24% 31.15% 27.67% 18.02% - ----------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP High Income Portfolio(1) 6.42% 5.07% 9.10% 10.64% - ----------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP II Contrafund[RegTM] Portfolio 22.27% 24.08% 25.71% 01/03/1995 - ----------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Aggressive Growth Portfolio 121.82% 48.11% 34.05% 32.27% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Balanced Portfolio 24.73% 25.58% 22.69% 18.69% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Growth Portfolio 41.69% 31.70% 27.81% 22.29% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------------------- Janus Aspen Worldwide Growth Portfolio 61.83% 35.13% 31.47% 27.64% 09/13/1993 - ----------------------------------------------------------------------------------------------------------------------------------- MFS Total Return Series 1.43% 10.20% 13.57% 01/03/1995 - ----------------------------------------------------------------------------------------------------------------------------------- Mitchell Hutchins Growth & Income Portfolio 9.46% 01/04/1999 - ----------------------------------------------------------------------------------------------------------------------------------- Mitchell Hutchins Small Cap Portfolio 15.34% 05/03/1999 - ----------------------------------------------------------------------------------------------------------------------------------- Mitchell Hutchins Tactical Allocation Portfolio 16.66% 01/04/1999 - ----------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Aggressive Growth Fund/VA 80.68% 29.96% 27.63% 18.37% - ----------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Main Street Growth & Income Fund/VA 19.76% 17.16% 23.78% 07/05/1995 - ----------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund/VA 1.18% 3.09% 6.52% 4.48% 05/03/1993 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- PPI MFS Capital Opportunities Portfolio 46.42% 34.19% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------------------- Neuberger Berman AMT Growth/PPI MFS Capital Opportunities(3) 46.42% 31.43% 25.87% 14.46% - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- PPI MFS Emerging Equities Portfolio 48.47% 34.91% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------------------- Alger American Small Cap/PPI MFS Emerging Equities(3) 48.47% 26.74% 24.27% 18.05% - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- PPI MFS Research Growth Portfolio 22.05% 19.38% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------------------- American Century VP Capital Appreciation/PPI MFS Research Growth(3) 22.05% 12.15% 11.36% 9.06% - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- PPI Scudder International Growth Portfolio 55.89% 34.32% 11/28/1997 - ----------------------------------------------------------------------------------------------------------------------------------- Scudder International Portfolio Class A/PPI Scudder International Growth(3) 55.89% 25.13% 19.32% 11.77% - -----------------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the tables for an explanation of the charges included and methodology used in calculating the standardized and non-standardized figures. These figures represent historical performance and should not be considered a projection of future performance. ** Reflects performance from the fund's inception date. (1) These funds have been in operation for more than ten years. (2) The current yield for the subaccount for the seven-day period ended December 31, 1999 (on an annualized basis) was 4.18%. Current yield more closely reflects current earnings than does total return. The current yield reflects the deduction of all charges under the contract that are deducted from the total return quotations shown above. As in the table above, the maximum 8% early withdrawal charge is not reflected. (3) The fund first listed was replaced with the applicable Portfolio Partners portfolio after the close of business on November 26, 1997. The performance shown is based on the performance of the replaced fund until November 26, 1997 and the performance of the applicable Portfolio Partners portfolio after that date. The replaced fund may not have been available under all contracts. The "Fund Inception Date" refers to the applicable date for the replaced fund. If no date is shown, the replaced fund has been in operation for more than ten years. 6 INCOME PHASE PAYMENTS When you begin receiving payments under the contract during the income phase (see "The Income Phase" in the prospectus), the value of your account is determined using accumulation unit values as of the tenth valuation before the first income phase payment is due. Such value (less any applicable premium tax) is applied to provide income phase payments to you in accordance with the income phase payment option and investment options elected. The annuity option tables found in the contract show, for each option, the amount of the first income phase payment for each $1,000 of value applied. Thereafter, variable income phase payments fluctuate as the annuity unit value(s) fluctuates with the investment experience of the selected investment option(s). The first income phase payment and subsequent income phase payments also vary depending upon the assumed net investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a higher first income phase payment, but payments will increase thereafter only to the extent that the investment performance of the subaccounts you selected is greater than 5% annually, after deduction of fees. Income phase payments would decline if the performance was less than 5%. Use of the 3.5% assumed rate causes a lower first income phase payment, but subsequent payments would increase more rapidly or decline more slowly as changes occur in the performance of the subaccounts selected. When the income phase 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 income phase 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 to the next (see "Your Account Value" in the prospectus); such fluctuations reflect changes in the net investment factor for the appropriate subaccount(s) (with a ten valuation lag which gives the Company time to process income phase 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 income phase. EXAMPLE: Assume that, at the date income phase payments are to begin, there are 3,000 accumulation units credited under a particular contract and that the value of an accumulation unit for the tenth valuation 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 income phase payment option elected, a first monthly variable payment of $6.68 per $1000 of value applied; the annuitant's first monthly income phase payment would thus be $40.950 multiplied by $6.68, or $273.55. 7 Assume then that the value of an annuity unit upon the valuation on which the first income phase 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 preceding the due date of the second monthly income phase payment, multiplying this factor by .9999058* (to take into account 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 (assume such value to be $13.504376) to produce an annuity unit value of $13.523359 for the valuation occurring when the second payment is due. 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 take into account such assumed rate would be .9998663. SALES MATERIAL AND ADVERTISING We may include hypothetical illustrations in our sales literature that explain the mathematical principles of dollar cost averaging, compounded interest, tax deferred accumulation, and the mechanics of variable annuity contracts. We may also discuss the difference between variable annuity contracts and other types of savings or investment products such as 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 Service, Inc. The purpose of the ratings is to reflect our financial strength and/or claims-paying ability. We may also quote ranking services such as Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable Insurance Products Performance Analysis Service (VIPPAS), which rank variable annuity or life subaccounts or their underlying funds by performance and/or investment objective. We may categorize the underlying funds in terms of the asset classes they represent and use such categories in marketing materials for the contract. 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 such as The Wall Street Journal, Money magazine, USA Today and The VARDS Report. 8 We may provide in advertising, sales literature, periodic publications or other materials information on various topics of interest to current and prospective contract holders. These topics may include the relationship between sectors of the economy and the economy as a whole and its effect on various securities markets, investment strategies and techniques (such as value investing, market timing, 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 contract and the characteristics of and market for such financial instruments. INDEPENDENT AUDITORS KPMG LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the independent auditors for the separate account and for the Company. The services provided to the separate account include primarily the examination of the separate account's financial statements and the review of filings made with the SEC. 9 FINANCIAL STATEMENTS VARIABLE ANNUITY ACCOUNT B Index
Page Statement of Assets and Liabilities........................................S-2 Statement of Operations....................................................S-8 Statements of Changes in Net Assets........................................S-8 Condensed Financial Information............................................S-9 Notes to Financial Statements..............................................S-19 Independent Auditors' Report...............................................S-33
S-1 Variable Annuity Account B Statement of Assets and Liabilities - December 31, 1999 ASSETS: Investments, at net asset value: (Note 1)
Net Shares Cost Assets ------ ---- ------ Aetna Ascent VP: 1,339,218 $ 19,497,391 $ 19,981,127 Aetna Balanced VP, Inc.: 13,294,723 200,294,733 206,998,843 Aetna Bond VP: 8,139,100 105,951,065 99,052,842 Aetna Crossroads VP: 1,811,648 24,397,709 24,946,398 Aetna Get Fund, Series C: 557,907 6,337,611 7,124,468 Aetna Get Fund, Series D: 16,585,252 167,045,093 176,632,929 Aetna Get Fund, Series E: 35,440,889 358,288,306 381,698,376 Aetna Get Fund, Series G: 20,429,610 205,920,149 211,855,059 Aetna Get Fund, Series H: 172,261 1,724,516 1,726,955 Aetna Growth and Income VP: 38,230,584 1,242,232,773 1,173,296,609 Aetna Growth VP: 4,099,459 62,421,793 71,002,637 Aetna High Yield VP: 27,918 261,762 245,682 Aetna Index Plus Large Cap VP: 11,455,392 215,316,778 239,074,027 Aetna Index Plus Mid Cap VP: 69,900 908,995 866,762 Aetna Index Plus Small Cap VP: 83,607 815,021 911,313 Aetna International VP: 285,162 4,209,331 4,539,776 Aetna Legacy VP: 2,367,470 29,607,908 29,569,704 Aetna Money Market VP: 16,084,329 214,007,331 215,772,879 Aetna Real Estate Securities VP: 250,934 2,121,243 1,939,720 Aetna Small Company VP: 1,549,015 19,347,626 25,589,722 Aetna Value Opportunity VP: 1,030,379 14,096,136 16,918,826 AIM V.I. Funds: Capital Appreciation Fund: 280,246 7,859,362 9,971,139 Growth and Income Fund: 743,596 19,743,238 23,490,185 Growth Fund: 587,010 16,219,102 18,931,063 Value Fund: 1,248,557 37,154,670 41,826,668 Alger American Funds: Balanced Portfolio: 399,088 4,045,034 6,213,801 Income & Growth Portfolio: 1,085,760 10,917,112 19,087,670 Leveraged AllCap Portfolio: 433,195 10,067,916 25,112,341 American Century VP Funds: Balanced Fund: 443,179 3,338,472 3,452,367 International Fund: 599,923 4,078,203 7,499,031 Calvert Social Balanced Portfolio: 1,193,697 2,580,920 2,589,130 Federated Insurance Series: American Leaders Fund II: 6,011,859 101,875,749 125,166,912 Equity Income Fund II: 1,866,873 23,409,796 30,392,700 Growth Strategies Fund II: 1,511,581 23,895,134 46,677,628 High Income Bond Fund II: 4,082,647 42,574,388 41,806,306 International Equity Fund II: 1,046,515 13,236,657 28,925,669 Prime Money Fund II: 8,657,471 8,657,471 8,657,471 U.S. Government Securities Fund II: 1,213,486 12,886,100 12,814,411 Utility Fund II: 1,850,767 22,657,976 26,558,505 Fidelity Variable Insurance Products Fund: Equity-Income Portfolio: 7,458,378 173,930,775 191,754,908 Growth Portfolio: 3,804,524 141,323,786 208,982,521 High Income Portfolio: 5,543,291 65,301,314 62,694,624 Overseas Portfolio: 732,104 15,274,074 20,088,940
S-2 Variable Annuity Account B Statement of Assets and Liabilities - December 31, 1999 (continued):
Net Shares Cost Assets ------ ---- ------ Fidelity Variable Insurance Products Fund II: Asset Manager Portfolio: 1,152,622 $ 19,622,237 $ 21,519,462 Contrafund Portfolio: 8,061,682 178,179,619 234,998,024 Index 500 Portfolio: 1,018,264 137,567,179 170,467,635 Investment Grade Bond Portfolio: 338,820 4,044,947 4,120,050 Janus Aspen Series: Aggressive Growth Portfolio: 4,601,525 174,527,385 274,665,000 Balanced Portfolio: 6,637,676 145,141,742 185,323,915 Flexible Income Portfolio: 1,714,747 20,581,641 19,582,411 Growth Portfolio: 6,624,687 166,042,220 222,920,706 Worldwide Growth Portfolio: 10,088,356 298,223,051 481,718,979 Lexington Emerging Markets Fund, Inc.: 200,939 1,994,956 2,574,027 Lexington Natural Resources Trust Fund: 253,314 3,663,108 3,168,963 MFS Funds: Global Government Series: 163,850 1,695,439 1,643,414 Total Return Series: 2,861,377 48,938,636 50,789,444 Mitchell Hutchins Series Trust: Growth & Income Portfolio: 49,539 735,854 809,956 Small Cap Portfolio: 11,313 163,053 172,522 Tactical Allocation Portfolio: 446,856 7,328,726 7,364,195 Oppenheimer Funds: Aggressive Growth Fund/VA: 375,791 22,642,573 30,931,348 Global Securities Fund/VA: 284,758 7,200,987 9,513,748 Main Street Growth & Income Fund/VA: 2,288,522 48,877,782 56,366,293 Strategic Bond Fund/VA: 3,983,514 19,810,756 19,798,066 Portfolio Partners, Inc. (PPI): PPI MFS Emerging Equities Portfolio: 2,212,287 118,884,638 183,243,707 PPI MFS Research Growth Portfolio: 6,937,544 76,162,887 102,536,898 PPI MFS Value Equity Portfolio: 1,003,064 37,923,777 54,937,791 PPI Scudder International Growth Portfolio: 1,390,831 31,810,842 35,452,273 PPI T. Rowe Price Growth Equity Portfolio: 1,921,115 85,993,480 126,793,561 -------------- ---------------- NET ASSETS $5,313,588,034 $ 6,173,851,032 ============== ================
S-3 Variable Annuity Account B Statement of Assets and Liabilities - December 31, 1999 (continued): Net assets represented by: Reserves for annuity contracts in accumulation and payment period: (Notes 1 and 6) Aetna Ascent VP: Annuity contracts in accumulation .............................................. $ 19,981,127 Aetna Balanced VP, Inc.: Annuity contracts in accumulation .............................................. 180,920,898 Annuity contracts in payment period ............................................ 26,077,945 Aetna Bond VP: Annuity contracts in accumulation .............................................. 93,390,139 Annuity contracts in payment period ............................................ 5,662,703 Aetna Crossroads VP: Annuity contracts in accumulation .............................................. 23,405,948 Annuity contracts in payment period ............................................ 1,540,450 Aetna Get Fund, Series C: Annuity contracts in accumulation .............................................. 7,124,468 Aetna Get Fund, Series D: Annuity contracts in accumulation .............................................. 176,632,929 Aetna Get Fund, Series E: Annuity contracts in accumulation .............................................. 381,698,376 Aetna Get Fund, Series G: Annuity contracts in accumulation .............................................. 211,855,059 Aetna Get Fund, Series H: Annuity contracts in accumulation .............................................. 1,726,955 Aetna Growth and Income VP: Annuity contracts in accumulation .............................................. 980,638,280 Annuity contracts in payment period ............................................ 192,658,329 Aetna Growth VP: Annuity contracts in accumulation .............................................. 66,260,594 Annuity contracts in payment period ............................................ 4,742,043 Aetna High Yield VP: Annuity contracts in accumulation .............................................. 245,682 Aetna Index Plus Large Cap VP: Annuity contracts in accumulation .............................................. 198,210,089 Annuity contracts in payment period ............................................ 40,863,938 Aetna Index Plus Mid Cap VP: Annuity contracts in accumulation .............................................. 866,762 Aetna Index Plus Small Cap VP: Annuity contracts in accumulation .............................................. 911,313 Aetna International VP: Annuity contracts in accumulation .............................................. 4,434,269 Annuity contracts in payment period ............................................ 105,507 Aetna Legacy VP: Annuity contracts in accumulation .............................................. 26,597,646 Annuity contracts in payment period ............................................ 2,972,058 Aetna Money Market VP: Annuity contracts in accumulation .............................................. 214,710,443 Annuity contracts in payment period ............................................ 1,062,436 Aetna Real Estate Securities VP: Annuity contracts in accumulation .............................................. 1,925,817 Annuity contracts in payment period ............................................ 13,903
S-4 Variable Annuity Account B Statement of Assets and Liabilities - December 31, 1999 (continued): Aetna Small Company VP: Annuity contracts in accumulation ........... $ 25,125,952 Annuity contracts in payment period ......... 463,770 Aetna Value Opportunity VP: Annuity contracts in accumulation ........... 16,918,826 AIM V.I. Funds: Capital Appreciation Fund: Annuity contracts in accumulation ........... 9,923,942 Annuity contracts in payment period ......... 47,197 Growth and Income Fund: Annuity contracts in accumulation ........... 789,296 Annuity contracts in payment period ......... 22,700,889 Growth Fund: Annuity contracts in accumulation ........... 18,608,980 Annuity contracts in payment period ......... 322,083 Value Fund: Annuity contracts in accumulation ........... 40,884,392 Annuity contracts in payment period ......... 942,276 Alger American Funds: Balanced Portfolio: Annuity contracts in accumulation ........... 6,213,801 Income & Growth Portfolio: Annuity contracts in accumulation ........... 19,087,670 Leveraged AllCap Portfolio: Annuity contracts in accumulation ........... 25,112,341 American Century VP Funds: Balanced Fund: Annuity contracts in accumulation ........... 3,452,367 International Fund: Annuity contracts in accumulation ........... 7,499,031 Calvert Social Balanced Portfolio: Annuity contracts in accumulation ........... 2,589,130 Federated Insurance Series: American Leaders Fund II: Annuity contracts in accumulation ........... 61,038 Annuity contracts in payment period ......... 125,105,874 Equity Income Fund II: Annuity contracts in accumulation ........... 30,384,515 Annuity contracts in payment period ......... 8,185 Growth Strategies Fund II: Annuity contracts in accumulation ........... 46,677,628 High Income Bond Fund II: Annuity contracts in accumulation ........... 41,788,490 Annuity contracts in payment period ......... 17,816 International Equity Fund II: Annuity contracts in accumulation ........... 28,925,669 Prime Money Fund II: Annuity contracts in accumulation ........... 8,657,471 U.S. Government Securities Fund II: Annuity contracts in accumulation ........... 12,814,411
S-5 Variable Annuity Account B Statement of Assets and Liabilities - December 31, 1999 (continued): Utility Fund II: Annuity contracts in accumulation ........... $ 26,498,835 Annuity contracts in payment period ......... 59,670 Fidelity Variable Insurance Products Fund: Equity-Income Portfolio: Annuity contracts in accumulation ........... 191,754,908 Growth Portfolio: Annuity contracts in accumulation ........... 208,982,521 High Income Portfolio: Annuity contracts in accumulation ........... 61,938,947 Annuity contracts in payment period ......... 755,677 Overseas Portfolio: Annuity contracts in accumulation ........... 20,088,940 Fidelity Variable Insurance Products Fund II: Asset Manager Portfolio: Annuity contracts in accumulation ........... 21,519,462 Contrafund Portfolio: Annuity contracts in accumulation ........... 234,998,024 Index 500 Portfolio: Annuity contracts in accumulation ........... 170,467,635 Investment Grade Bond Portfolio: Annuity contracts in accumulation ........... 4,120,050 Janus Aspen Series: Aggressive Growth Portfolio: Annuity contracts in accumulation ........... 274,665,000 Balanced Portfolio: Annuity contracts in accumulation ........... 185,323,915 Flexible Income Portfolio: Annuity contracts in accumulation ........... 19,582,411 Growth Portfolio: Annuity contracts in accumulation ........... 9,348,397 Annuity contracts in payment period ......... 213,572,309 Worldwide Growth Portfolio: Annuity contracts in accumulation ........... 11,305,698 Annuity contracts in payment period ......... 470,413,281 Lexington Emerging Markets Fund, Inc.: Annuity contracts in accumulation ........... 2,574,027 Lexington Natural Resources Trust Fund: Annuity contracts in accumulation ........... 3,168,963 MFS Funds: Global Government Series: Annuity contracts in accumulation ........... 1,643,414 Total Return Series: Annuity contracts in accumulation ........... 50,789,444 Mitchell Hutchins Series Trust: Growth & Income Portfolio: Annuity contracts in accumulation ........... 809,956 Small Cap Portfolio: Annuity contracts in accumulation ........... 172,522 Tactical Allocation Portfolio: Annuity contracts in accumulation ........... 7,364,195
S-6 Variable Annuity Account B Statement of Assets and Liabilities - December 31, 1999 (continued): Oppenheimer Funds: Aggressive Growth Fund/VA: Annuity contracts in accumulation ........... $ 29,291,524 Annuity contracts in payment period ......... 1,639,824 Global Securities Fund/VA: Annuity contracts in accumulation ........... 9,513,748 Main Street Growth & Income Fund/VA: Annuity contracts in accumulation ........... 56,214,303 Annuity contracts in payment period ......... 151,990 Strategic Bond Fund/VA: Annuity contracts in accumulation ........... 19,569,256 Annuity contracts in payment period ......... 228,810 Portfolio Partners, Inc. (PPI): PPI MFS Emerging Equities Portfolio: Annuity contracts in accumulation ........... 181,712,440 Annuity contracts in payment period ......... 1,531,267 PPI MFS Research Growth Portfolio: Annuity contracts in accumulation ........... 102,536,898 PPI MFS Value Equity Portfolio: Annuity contracts in accumulation ........... 53,173,898 Annuity contracts in payment period ......... 1,763,893 PPI Scudder International Growth Portfolio: Annuity contracts in accumulation ........... 35,328,550 Annuity contracts in payment period ......... 123,723 PPI T. Rowe Price Growth Equity Portfolio: Annuity contracts in accumulation ........... 723,814 Annuity contracts in payment period ......... 126,069,747 -------------- $6,173,851,032 ==============
See Notes to Financial Statements S-7 Variable Annuity Account B STATEMENT OF OPERATIONS
Year Ended December 31, 1999 ----------------- INVESTMENT INCOME: Income: (Notes 1, 3 and 5) Dividends ................................................... $ 372,453,223 Expenses: (Notes 2 and 5) Valuation period deductions ................................. (59,498,930) -------------- Net investment income ........................................ $ 312,954,293 -------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on sales of investments: (Notes 1, 4 and 5) Proceeds from sales ......................................... $1,971,718,606 Cost of investments sold .................................... 1,728,629,845 -------------- Net realized gain on investments ........................... 243,088,761 -------------- Net unrealized gain on investments: (Note 5) Beginning of year ........................................... 349,806,583 End of year ................................................. 860,262,998 -------------- Net change in unrealized gain on investments ............... 510,456,415 -------------- Net realized and unrealized gain on investments .............. 753,545,176 -------------- Net increase in net assets resulting from operations ......... $1,066,499,469 ==============
See Notes to Financial Statements - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1999 1998 ---- ---- FROM OPERATIONS: Net investment income .................................................. $ 312,954,293 $ 283,508,891 Net realized gain on investments ....................................... 243,088,761 143,410,533 Net change in unrealized gain on investments ........................... 510,456,415 94,282,077 -------------- -------------- Net increase in net assets resulting from operations ................... 1,066,499,469 521,201,501 -------------- -------------- FROM UNIT TRANSACTIONS: Variable annuity contract purchase payments ............................ 659,312,376 489,286,251 Transfers from the Company for mortality guarantee adjustments ......... 2,250,831 (906,373) Transfers from the Company's fixed account options ..................... 818,802,585 212,914,994 Transfer to the Company's other variable annuity accounts .............. 644,115 0 Redemptions by contract holders ........................................ (300,870,502) (167,845,102) Annuity payments ....................................................... (30,374,265) (22,421,712) Other .................................................................. 1,018,001 1,896,006 -------------- -------------- Net increase in net assets from unit transactions (Note 6) ............ 1,150,783,141 512,924,064 -------------- -------------- Change in net assets ................................................... 2,217,282,610 1,034,125,565 NET ASSETS: Beginning of year ...................................................... 3,956,568,422 2,922,442,857 -------------- -------------- End of year ............................................................ $6,173,851,032 $3,956,568,422 ============== ==============
See Notes to Financial Statements S-8 Variable Annuity Account B Condensed Financial Information - Year Ended December 31, 1999
- ----------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units -------- in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ----------------------------------------------------------------------------------------------------------------------- Aetna Ascent VP: Non-Qualified V $15.855 $17.905 12.93% 96,550.7 $ 1,728,713 Non-Qualified V (0.75) 16.082 18.253 13.50% 129,604.8 2,365,645 Non-Qualified VII 15.769 17.779 12.75% 742,494.1 13,200,807 Non-Qualified VIII 14.012 15.822 12.92% 143,277.9 2,266,982 Non-Qualified IX 15.786 17.783 12.65% 1,438.0 25,572 Non-Qualified X 15.942 18.066 13.32% 21,775.7 393,408 - -------------------------------------------------------------------------------------------------------------------- Aetna Balanced VP, Inc.: Non-Qualified V 21.929 24.603 12.19% 2,278,135.6 56,049,439 Non-Qualified V (0.75) 22.244 25.081 12.75% 1,579,287.7 39,610,851 Non-Qualified VI 18.445 20.706 12.26% 37,676.9 780,148 Non-Qualified VII 21.507 24.091 12.01% 2,243,589.9 54,049,730 Non-Qualified VIII 15.212 17.066 12.19% 456,096.7 7,783,834 Non-Qualified IX 21.834 24.436 11.92% 28,079.2 686,140 Non-Qualified X 22.015 24.762 12.48% 383,141.3 9,487,227 Non-Qualified XI 18.517 20.840 12.55% 5,143.3 107,184 Non-Qualified XII 10.548 11.902 12.84% (2) 7,910.4 94,148 Non-Qualified XIII 10.337 11.632 12.53% 417,961.2 4,861,556 Non-Qualified XIV 10.323 11.581 12.19% 403,186.5 4,669,198 Non-Qualified XV 10.316 11.555 12.01% 237,245.60 2,741,443 Annuity contracts in payment period 26,077,945 - -------------------------------------------------------------------------------------------------------------------- Aetna Bond VP: Non-Qualified V 14.270 13.988 (1.98%) 887,370.7 12,412,832 Non-Qualified V (0.75) 14.475 14.260 (1.49%) 1,654,932.3 23,599,990 Non-Qualified VI 13.041 12.792 (1.91%) 43,965.0 562,381 Non-Qualified VII 13.998 13.700 (2.13%) 1,967,951.2 26,960,637 Non-Qualified VIII 11.910 11.674 (1.98%) 487,813.6 5,694,656 Non-Qualified IX 14.208 13.893 (2.22%) 22,155.4 307,807 Non-Qualified X 14.304 14.042 (1.83%) 387,135.1 5,436,287 Non-Qualified XI 13.072 12.841 (1.77%) 4,285.2 55,026 Non-Qualified XIII 10.319 10.145 (1.69%) 708,744.3 7,190,136 Non-Qualified XIV 10.305 10.101 (1.98%) 806,342.7 8,144,472 Non-Qualified XV 10.298 10.078 (2.14%) 300,240.3 3,025,915 Annuity contracts in payment period 5,662,703 - -------------------------------------------------------------------------------------------------------------------- Aetna Crossroads VP: Non-Qualified V 15.095 16.431 8.85% 115,323.8 1,894,869 Non-Qualified V (0.75) 15.312 16.750 9.39% 124,068.8 2,078,187 Non-Qualified VII 15.013 16.316 8.68% 947,775.8 15,463,446 Non-Qualified VIII 13.588 14.789 8.84% 254,767.3 3,767,710 Non-Qualified IX 15.030 16.319 8.58% 469.8 7,667 Non-Qualified X 15.179 16.579 9.22% 9,938.7 164,777 Non-Qualified XVII 15.521 16.474 6.14% (8) 1,778.00 29,292 Annuity contracts in payment period 1,540,450 - -------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series C: Non-Qualified V 15.904 19.358 21.72% 51,240.5 991,932 Non-Qualified V (0.75) 16.087 19.679 22.33% 302,695.5 5,956,780 Non-Qualified IX 15.835 19.227 21.42% 9,141.2 175,756 - -------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series D: Non-Qualified V 10.062 10.726 6.60% 2,241,700.8 24,043,761 Non-Qualified V (0.75) 10.073 10.792 7.14% 1,808,945.0 19,521,878 Non-Qualified VII 10.058 10.704 6.42% 5,471,517.0 58,567,813 Non-Qualified VIII 10.136 10.739 5.95% (3) 2,431,960.4 26,117,416 Non-Qualified IX 10.063 10.693 6.26% (1) 309.5 3,309 Non-Qualified X 10.062 10.726 6.60% 183,152.7 1,964,436 Non-Qualified XII 9.997 10.785 7.88% (2) 3,713.7 40,053 Non-Qualified XIII 10.072 10.769 6.92% 1,700,909.8 18,316,499
S-9 Variable Annuity Account B Condensed Financial Information - Year Ended December 31, 1999 (continued):
- ----------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units -------- in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ----------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series D (continued): Non-Qualified XIV $ 10.066 $ 10.730 6.60% 1,875,931.5 $ 20,127,863 Non-Qualified XV 10.063 10.710 6.43% 740,420.7 7,929,901 - ----------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series E: Non-Qualified V 10.001 10.760 7.59% (5) 1,905,050.2 20,498,554 Non-Qualified V (0.75) 10.015 10.789 7.73% (5) 220,007.1 2,373,760 Non-Qualified VII 10.012 10.743 7.30% (5) 4,068,992.1 43,712,319 Non-Qualified VIII 10.012 10.752 7.39% (5) 534,700.9 5,748,947 Non-Qualified X 10.013 10.766 7.52% (5) 146,177.0 1,573,775 Non-Qualified XIII 10.012 10.770 7.57% (5) 10,224,328.7 110,111,245 Non-Qualified XIV 10.012 10.752 7.39% (5) 9,636,860.3 103,612,689 Non-Qualified XV 10.012 10.743 7.30% (5) 8,756,301.1 94,067,087 - ----------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series G: Non-Qualified V 9.999 10.370 3.71% (8) 278,908.9 2,892,221 Non-Qualified V (0.75) 10.006 10.386 3.80% (8) 176,701.3 1,835,189 Non-Qualified VII 9.998 10.363 3.65% (8) 2,759,663.2 28,599,474 Non-Qualified VIII 10.003 10.368 3.65% (8) 456,778.0 4,735,998 Non-Qualified X 10.071 10.377 3.04% 10) 12,410.4 128,778 Non-Qualified XIII 9.998 10.378 3.80% (8) 5,406,495.6 56,108,725 Non-Qualified XIV 9.998 10.368 3.70% (8) 7,314,314.2 75,836,777 Non-Qualified XV 9.998 10.363 3.65% (8) 4,025,505.7 41,717,897 - ----------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series H: Non-Qualified V 10.005 10.020 0.15% (11) 2,530.3 25,352 Non-Qualified VII 10.001 10.019 0.18% (11) 25,606.9 256,555 Non-Qualified VIII 10.005 10.020 0.15% (11) 15,022.0 150,515 Non-Qualified XIII 10.001 10.021 0.20% (11) 30,915.2 309,801 Non-Qualified XIV 10.000 10.020 0.20% (11) 60,328.2 604,471 Non-Qualified XV 10.001 10.019 0.18% (11) 37,954.0 380,261 - ----------------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP: Non-Qualified 1964 267.347 310.020 15.96% 958.7 297,208 Non-Qualified V 24.907 28.883 15.96% 7,212,849.3 208,327,406 Non-Qualified V (0.75) 25.265 29.444 16.54% 11,813,415.6 347,835,862 Non-Qualified VI 23.322 27.061 16.03% 1,662,948.1 45,001,830 Non-Qualified VII 24.839 28.758 15.78% 7,621,660.3 219,185,741 Non-Qualified VIII 16.604 19.253 15.95% 1,372,571.6 26,426,472 Non-Qualified IX 24.800 28.686 15.67% 134,360.2 3,854,314 Non-Qualified X 25.005 29.069 16.25% 3,297,663.1 95,859,271 Non-Qualified XI 23.414 27.236 16.32% 41,567.6 1,132,126 Non-Qualified XII 10.246 11.882 15.97% (2) 25,734.1 305,763 Non-Qualified XIII 9.886 11.498 16.31% 1,093,629.5 12,574,135 Non-Qualified XIV 9.872 11.447 15.95% 1,317,641.6 15,083,505 Non-Qualified XV 9.866 11.422 15.77% 407,605.2 4,655,755 Non-Qualified XVII 263.583 285.280 8.23% (8) 346.6 98,892 Annuity contracts in payment period 192,658,329 - ----------------------------------------------------------------------------------------------------------------------- Aetna Growth VP: Non-Qualified V 17.912 23.875 33.29% 172,425.2 4,116,687 Non-Qualified V (0.75) 18.067 24.203 33.96% 626,397.2 15,160,779 Non-Qualified VII 17.862 23.771 33.08% 947,365.7 22,520,149 Non-Qualified VIII 17.909 23.870 33.28% 367,226.0 8,765,776 Non-Qualified IX 17.834 23.713 32.97% 5,532.0 131,179 Non-Qualified XII 11.536 15.094 30.84% (2) 4,940.4 74,572 Non-Qualified XIII 10.489 14.022 33.68% 453,569.6 6,360,064 Non-Qualified XIV 10.475 13.961 33.28% 536,726.5 7,493,206 Non-Qualified XV 10.468 13.930 33.07% 114,035.50 1,588,550 Non-Qualified XVII 15.198 18.142 19.37% (8) 2,735.70 49,632 Annuity contracts in payment period 4,742,043 - -----------------------------------------------------------------------------------------------------------------------
S-10 Variable Annuity Account B Condensed Financial Information - Year Ended December 31, 1999 (continued):
- ----------------------------------------------------------------------------------------------------------------------- Value Per Unit Increase (Decrease) Units -------- in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ----------------------------------------------------------------------------------------------------------------------- Aetna High Yield VP: Non-Qualified V $ 9.212 $ 9.739 5.72% 2,827.4 $ 27,537 Non-Qualified V (0.75) 9.244 9.822 6.25% 21,597.9 212,138 Non-Qualified IX 9.677 9.698 0.22% (3) 619.4 6,007 - ----------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP: Non-Qualified V 18.772 23.044 22.76% 347,853.6 8,015,945 Non-Qualified V (0.75) 18.989 23.427 23.37% 1,552,901.9 36,379,360 Non-Qualified VII 18.704 22.923 22.56% 2,708,364.6 62,083,723 Non-Qualified VIII 18.449 22.646 22.75% 838,357.2 18,985,392 Non-Qualified IX 18.691 22.887 22.45% 31,248.1 715,186 Non-Qualified XII 11.411 13.677 19.86% (2) 18,623.1 254,700 Non-Qualified XIII 10.716 13.193 23.11% 2,135,758.9 28,177,968 Non-Qualified XIV 10.702 13.136 22.74% 2,394,660.9 31,455,670 Non-Qualified XV 10.694 13.107 22.56% 926,392.60 12,142,145 Annuity contracts in payment period 40,863,938 - ----------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Mid Cap VP: Non-Qualified V 10.891 12.455 14.36% 6,906.5 86,024 Non-Qualified V (0.75) 10.928 12.561 14.94% 60,811.0 763,858 Non-Qualified IX 10.872 12.403 14.08% 1,361.0 16,880 - ----------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Small Cap VP: Non-Qualified V 8.815 9.645 9.42% 15,815.5 152,537 Non-Qualified V (0.75) 8.846 9.727 9.96% 76,971.1 748,670 Non-Qualified IX 8.800 9.604 9.14% 1,041.3 10,001 Non-Qualified XII 8.325 10.485 25.95% (2) 10.0 105 - ----------------------------------------------------------------------------------------------------------------------- Aetna International VP: Non-Qualified V 9.765 14.594 49.45% 10,655.3 155,502 Non-Qualified V (0.75) 9.798 14.718 50.21% 44,537.5 655,483 Non-Qualified VII 9.754 14.554 49.21% 44,241.2 643,908 Non-Qualified VIII 9.764 14.592 49.45% 33,244.7 485,106 Non-Qualified XIII 9.149 13.715 49.91% 75,017.3 1,028,838 Non-Qualified XIV 9.137 13.655 49.45% 79,291.0 1,082,697 Non-Qualified XV 9.131 13.625 49.22% 28,091.1 382,735 Annuity contracts in payment period 105,507 - ----------------------------------------------------------------------------------------------------------------------- Aetna Legacy VP: Non-Qualified V 14.064 14.875 5.77% 111,343.3 1,656,206 Non-Qualified V (0.75) 14.266 15.164 6.29% 77,496.0 1,175,149 Non-Qualified VII 13.989 14.772 5.60% 1,203,703.1 17,781,290 Non-Qualified VIII 13.037 13.787 5.75% 430,581.6 5,936,585 Non-Qualified IX 14.003 14.774 5.51% 502.1 7,418 Non-Qualified XII 9.846 10.713 8.81% (2) 3,826.9 40,998 Annuity contracts in payment period 2,972,058 - ----------------------------------------------------------------------------------------------------------------------- Aetna Money Market VP: Non-Qualified V 12.425 12.894 3.77% 1,034,153.6 13,334,505 Non-Qualified V (0.75) 12.604 13.145 4.29% 2,521,960.2 33,150,869 Non-Qualified VI 12.132 12.597 3.83% 57,059.8 718,807 Non-Qualified VII 12.322 12.766 3.60% 7,902,383.9 100,885,317 Non-Qualified VIII 11.141 11.561 3.77% 1,373,014.2 15,872,994 Non-Qualified IX 12.372 12.806 3.51% 28,273.9 362,086 Non-Qualified X 12.425 12.894 3.77% 457,618.5 5,900,590 Non-Qualified XI 12.132 12.597 3.83% 4,835.1 60,910 Non-Qualified XIII 10.199 10.615 4.08% 2,174,382.7 23,082,032 Non-Qualified XIV 10.186 10.569 3.76% 1,313,322.2 13,880,480 Non-Qualified XV 10.179 10.546 3.61% 707,569.2 7,461,853 Annuity contracts in payment period 1,062,436 - -----------------------------------------------------------------------------------------------------------------------
S-11 Variable Annuity Account B Condensed Financial Information - Year Ended December 31, 1999 (continued):
Value Per Unit Increase (Decrease) Units -------- in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ------------------------------------------------------------------------------------------------------------------------ Aetna Real Estate Securities VP: Non-Qualified V $ 8.873 $ 8.393 (5.41%) 6,001.7 $ 50,372 Non-Qualified V (0.75) 8.903 8.464 (4.93%) 60,992.9 516,260 Non-Qualified VII 8.863 8.370 (5.56%) 59,453.8 497,647 Non-Qualified VIII 8.872 8.392 (5.41%) 25,152 211,073 Non-Qualified XIII 8.903 8.446 (5.13%) 36,876 311,466 Non-Qualified XIV 8.891 8.409 (5.42%) 34,137 287,073 Non-Qualified XV 8.885 8.391 (5.56%) 6,188 51,926 Annuity contracts in payment period 13,903 - ------------------------------------------------------------------------------------------------------------------------ Aetna Small Company VP: Non-Qualified V 13.633 17.617 29.22% 19,165.4 337,633 Non-Qualified V (0.75) 13.751 17.859 29.87% 177,816.5 3,175,601 Non-Qualified VII 13.595 17.540 29.02% 715,581.7 12,551,330 Non-Qualified VIII 13.631 17.613 29.21% 276,385.7 4,868,001 Non-Qualified IX 13.574 17.497 28.90% 1,732.5 30,314 Non-Qualified XII 8.741 12.352 41.31% (2) 25,983.5 320,941 Non-Qualified XIII 9.357 12.128 29.61% 163,679.4 1,985,026 Non-Qualified XIV 9.345 12.074 29.20% 114,137.8 1,378,154 Non-Qualified XV 9.338 12.048 29.02% 39,753.80 478,952 Annuity contracts in payment period 463,770 - ------------------------------------------------------------------------------------------------------------------------ Aetna Value Opportunity VP: Non-Qualified V 16.030 18.930 18.09% 23,354.3 442,092 Non-Qualified V (0.75) 16.169 19.190 18.68% 93,802.4 1,800,053 Non-Qualified VII 15.985 18.847 17.90% 609,861.9 11,494,317 Non-Qualified VIII 16.028 18.926 18.08% 160,009.9 3,028,321 Non-Qualified IX 15.960 18.801 17.80% 298.5 5,613 Non-Qualified XII 10.626 13.007 22.41% (2) 11,411.6 148,430 - ------------------------------------------------------------------------------------------------------------------------ AIM V.I. Funds: Capital Appreciation Fund: Non-Qualified V 10.008 13.753 37.42% (5) 2,630.0 36,171 Non-Qualified V (0.75) 9.979 13.801 38.30% (7) 11,914.5 164,426 Non-Qualified XIII 10.245 14.675 43.24% 190,830.9 2,800,502 Non-Qualified XIV 10.231 14.611 42.81% 317,266.2 4,635,623 Non-Qualified XV 10.224 14.579 42.60% 156,883.8 2,287,220 Annuity contracts in payment period 47,197 - ------------------------------------------------------------------------------------------------------------------------ Growth and Income Fund: Non-Qualified V 9.568 11.716 22.45% (5) 10,586.7 124,029 Non-Qualified V (0.75) 10.215 11.756 15.09% (6) 36,163.4 425,147 Non-Qualified XIII 10.663 14.179 32.97% 370,289.3 5,250,354 Non-Qualified XIV 10.649 14.117 32.57% 938,411.4 13,247,617 Non-Qualified XV 10.641 14.086 32.37% 259,386.9 3,653,742 Annuity contracts in payment period 789,296 - ------------------------------------------------------------------------------------------------------------------------ Growth Fund: Non-Qualified V 9.663 12.069 24.90% (5) 1,842.7 22,238 Non-Qualified V (0.75) 9.722 12.111 24.57% (7) 47,998.6 581,287 Non-Qualified XIII 10.779 14.438 33.95% 300,326.8 4,336,151 Non-Qualified XIV 10.764 14.375 33.55% 722,832.0 10,390,712 Non-Qualified XV 10.757 14.343 33.34% 228,577.5 3,278,592 Annuity contracts in payment period 322,083 - ------------------------------------------------------------------------------------------------------------------------ Value Fund: Non-Qualified V 9.891 11.506 16.33% (4) 6,923.5 79,660 Non-Qualified V (0.75) 9.764 11.546 18.25% (4) 83,636.8 965,645 Non-Qualified XIII 10.616 13.659 28.66% 895,401.3 12,230,007 Non-Qualified XIV 10.601 13.599 28.28% 1,538,846.0 20,926,738 Non-Qualified XV 10.594 13.569 28.08% 492,467.0 6,682,342 Annuity contracts in payment period 942,276 - ------------------------------------------------------------------------------------------------------------------------
S-12 Variable Annuity Account B Condensed Financial Information - Year Ended December 31, 1999 (continued):
Value Per Unit -------- Beginning End of of Year Year - -------------------------------------------------------------- Alger American Funds: Balanced Portfolio: Non-Qualified VII $20.946 $26.687 - -------------------------------------------------------------- Income & Growth Portfolio: Non-Qualified VII 22.064 30.991 - -------------------------------------------------------------- Leveraged AllCap Portfolio: Non-Qualified VII 24.881 43.684 Non-Qualified VIII 18.206 32.013 - -------------------------------------------------------------- American Century VP Funds: Balanced Fund: Non-Qualified VII 17.479 18.968 - -------------------------------------------------------------- International Fund: Non-Qualified VII 16.139 26.105 Non-Qualified VIII 14.599 23.649 - -------------------------------------------------------------- Calvert Social Balanced Portfolio: Non-Qualified V 20.415 22.626 Non-Qualified V (0.75) 20.708 23.066 Non-Qualified VII 11.437 12.656 Non-Qualified VIII 11.456 12.696 - -------------------------------------------------------------- Federated Insurance Series: American Leaders Fund II: Non-Qualified VII 23.528 24.746 Non-Qualified VIII 16.869 17.769 Annuity contracts in payment period - -------------------------------------------------------------- Equity Income Fund II: Non-Qualified VII 14.022 16.369 Annuity contracts in payment period - -------------------------------------------------------------- Growth Strategies Fund II: Non-Qualified VII 18.269 31.060 - -------------------------------------------------------------- High Income Bond Fund II: Non-Qualified VII 14.910 15.040 Non-Qualified VIII 12.629 12.759 Annuity contracts in payment period - -------------------------------------------------------------- International Equity Fund II: Non-Qualified VII 14.719 26.832 Non-Qualified VIII 13.523 24.690 - -------------------------------------------------------------- Prime Money Fund II: Non-Qualified VII 11.503 11.868 - ------------------------------------------- ------- ------- U.S. Government Securities Fund II: Non-Qualified VII 12.614 12.363 - -------------------------------------------------------------- Utility Fund II: Non-Qualified VII 18.663 18.714 Non-Qualified VIII 15.472 15.537 Annuity contracts in payment period - -------------------------------------------------------------- Fidelity Variable Insurance Products Fund: Equity-Income Portfolio: Non-Qualified V 17.400 18.272 Non-Qualified V (0.75) 17.650 18.627 Non-Qualified VII 20.872 21.883 Non-Qualified VIII 14.942 15.689 Non-Qualified IX 17.325 18.147 Non-Qualified X 17.400 18.272 Non-Qualified XII 10.184 10.651 Increase (Decrease) Units in Value of Outstanding Reserves Accumulation at End at End Unit of Year of Year - --------------------------------------------------------------------------------------------------------- Alger American Funds: Balanced Portfolio: Non-Qualified VII 27.41% 232,842.7 $ 6,213,801 - --------------------------------------------------------------------------------------------------------- Income & Growth Portfolio: Non-Qualified VII 40.46% 615,919.4 19,087,670 - --------------------------------------------------------------------------------------------------------- Leveraged AllCap Portfolio: Non-Qualified VII 75.57% 574,744.6 25,106,952 Non-Qualified VIII 75.84% 168.3 5,389 - --------------------------------------------------------------------------------------------------------- American Century VP Funds: Balanced Fund: Non-Qualified VII 8.52% 182,012.0 3,452,367 - --------------------------------------------------------------------------------------------------------- International Fund: Non-Qualified VII 61.75% 287,102.7 7,494,706 Non-Qualified VIII 61.99% 182.9 4,325 - --------------------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio: Non-Qualified V 10.83% 8,235.7 186,344 Non-Qualified V (0.75) 11.39% 37,045.8 854,507 Non-Qualified VII 10.66% 63,517.0 803,879 Non-Qualified VIII 10.82% 58,632.1 744,400 - --------------------------------------------------------------------------------------------------------- Federated Insurance Series: American Leaders Fund II: Non-Qualified VII 5.18% 5,048,733.2 124,936,306 Non-Qualified VIII 5.34% 9,542.9 169,568 Annuity contracts in payment period 61,038 - --------------------------------------------------------------------------------------------------------- Equity Income Fund II: Non-Qualified VII 16.74% 1,856,257.2 30,384,515 Annuity contracts in payment period 8,185 - --------------------------------------------------------------------------------------------------------- Growth Strategies Fund II: Non-Qualified VII 70.01% 1,502,834.6 46,677,628 - --------------------------------------------------------------------------------------------------------- High Income Bond Fund II: Non-Qualified VII 0.87% 2,778,202.2 41,784,652 Non-Qualified VIII 1.03% 300.8 3,838 Annuity contracts in payment period 17,816 - --------------------------------------------------------------------------------------------------------- International Equity Fund II: Non-Qualified VII 82.29% 1,077,889.2 28,922,440 Non-Qualified VIII 82.58% 130.8 3,229 - --------------------------------------------------------------------------------------------------------- Prime Money Fund II: Non-Qualified VII 3.17% 729,506.2 8,657,471 - --------------------------------------------------------------------------------------------------------- U.S. Government Securities Fund II: Non-Qualified VII (1.99%) 1,036,547.5 12,814,411 - --------------------------------------------------------------------------------------------------------- Utility Fund II: Non-Qualified VII 0.27% 1,415,963.0 26,497,792 Non-Qualified VIII 0.42% 67.1 1,043 Annuity contracts in payment period 59,670 - --------------------------------------------------------------------------------------------------------- Fidelity Variable Insurance Products Fund: Equity-Income Portfolio: Non-Qualified V 5.01% 236,374.1 4,318,918 Non-Qualified V (0.75) 5.54% 519,884.7 9,683,767 Non-Qualified VII 4.84% 6,104,314.1 133,577,684 Non-Qualified VIII 5.00% 992,829.0 15,576,658 Non-Qualified IX 4.74% 8,863.0 160,839 Non-Qualified X 5.01% 11,369.5 207,738 Non-Qualified XII 4.59% (2) 653.9 6,965
S-13 Variable Annuity Account B Condensed Financial Information - Year Ended December 31, 1999 (continued):
Value Per Unit -------- Beginning End of of Year Year - ------------------------------------------------------------------ Equity-Income Portfolio (continued): Non-Qualified XIII $ 9.911 $10.438 Non-Qualified XIV 9.897 10.392 Non-Qualified XV 9.891 10.369 - ------------------------------------------------------------------ Growth Portfolio: Non-Qualified V 19.155 25.999 Non-Qualified V (0.75) 19.430 26.504 Non-Qualified VII 26.348 35.706 Non-Qualified VIII 17.420 23.643 Non-Qualified IX 19.072 25.822 Non-Qualified X 19.155 25.999 Non-Qualified XII 12.390 16.024 Non-Qualified XIII 10.265 12.649 Non-Qualified XIV 10.231 12.628 Non-Qualified XV 10.793 12.618 Non-Qualified XVII 22.058 26.366 - ------------------------------------------------------------------ High Income Portfolio: Non-Qualified VII 13.168 14.042 Non-Qualified VIII 11.798 12.601 Non-Qualified XIII 8.949 9.586 Non-Qualified XIV 8.936 9.544 Non-Qualified XV 8.930 9.523 Annuity contracts in payment period - ------------------------------------------------------------------ Overseas Portfolio: Non-Qualified V 13.786 19.419 Non-Qualified V (0.75) 13.984 19.796 Non-Qualified VII 15.210 21.391 Non-Qualified VIII 12.879 18.139 Non-Qualified IX 13.727 19.287 - ------------------------------------------------------------------ Fidelity Variable Insurance Products Fund II: Asset Manager Portfolio: Non-Qualified VII 17.786 19.482 Non-Qualified VIII 14.783 16.218 - ------------------------------------------------------------------ Contrafund Portfolio: Non-Qualified V 19.735 24.217 Non-Qualified V (0.75) 20.018 24.687 Non-Qualified VII 21.872 26.797 Non-Qualified VIII 17.492 21.463 Non-Qualified IX 19.649 24.052 Non-Qualified X 19.735 24.217 Non-Qualified XII 11.460 13.787 Non-Qualified XIII 10.535 12.966 Non-Qualified XIV 10.521 12.909 Non-Qualified XV 10.514 12.881 Non-Qualified XVII 23.549 27.241 - ------------------------------------------------------------------ Index 500 Portfolio: Non-Qualified VII 22.727 27.005 Non-Qualified VIII 18.925 22.522 - ------------------------------------------------------------------ Investment Grade Bond Portfolio: Non-Qualified VII 12.446 12.143 Non-Qualified VIII 11.918 11.834 - ------------------------------------------------------------------ Janus Aspen Series: Aggressive Growth Portfolio: Non-Qualified V 20.433 45.486 Non-Qualified V (0.75) 20.726 46.370 Non-Qualified VII 20.410 45.363 Increase (Decrease) Units in Value of Outstanding Reserves Accumulation at End at End Unit of Year of Year - ----------------------------------------------------------------------------------------------------------- Equity-Income Portfolio (continued): Non-Qualified XIII 5.32% 735,175.3 $ 7,673,717 Non-Qualified XIV 5.00% 1,507,319.6 15,664,494 Non-Qualified XV 4.83% 471,011.6 4,884,128 - ----------------------------------------------------------------------------------------------------------- Growth Portfolio: Non-Qualified V 35.73% 474,648.7 12,340,278 Non-Qualified V (0.75) 36.41% 874,557.2 23,179,283 Non-Qualified VII 35.52% 4,177,865.8 149,173,411 Non-Qualified VIII 35.72% 831,556.3 19,660,094 Non-Qualified IX 35.39% 23,653 610,766 Non-Qualified X 35.73% 32,858 854,269 Non-Qualified XII 29.33% (2) 4,299 68,894 Non-Qualified XIII 23.22% (8) 84,394.1 1,067,531 Non-Qualified XIV 23.43% (8) 124,948 1,577,908 Non-Qualified XV 16.91% (9) 35,352 446,070 Non-Qualified XVII 19.53% (8) 152 4,017 - ----------------------------------------------------------------------------------------------------------- High Income Portfolio: Non-Qualified VII 6.64% 2,739,738.4 38,471,925 Non-Qualified VIII 6.81% 688,515.9 8,675,998 Non-Qualified XIII 7.12% 590,620.8 5,661,907 Non-Qualified XIV 6.80% 712,099.4 6,796,569 Non-Qualified XV 6.64% 244,926.9 2,332,548 Annuity contracts in payment period 755,677 - ----------------------------------------------------------------------------------------------------------- Overseas Portfolio: Non-Qualified V 40.86% 37,274.5 723,834 Non-Qualified V (0.75) 41.56% 182,516.9 3,613,179 Non-Qualified VII 40.64% 685,323.4 14,659,617 Non-Qualified VIII 40.84% 58,815.1 1,066,865 Non-Qualified IX 40.50% 1,319.3 25,445 - ----------------------------------------------------------------------------------------------------------- Fidelity Variable Insurance Products Fund II: Asset Manager Portfolio: Non-Qualified VII 9.54% 951,972.5 18,546,594 Non-Qualified VIII 9.71% 183,310.4 2,972,868 - ----------------------------------------------------------------------------------------------------------- Contrafund Portfolio: Non-Qualified V 22.71% 449,134.2 10,876,529 Non-Qualified V (0.75) 23.32% 732,242.8 18,077,121 Non-Qualified VII 22.52% 5,373,380.6 143,990,372 Non-Qualified VIII 22.70% 787,797.1 16,908,448 Non-Qualified IX 22.41% 20,988.0 504,802 Non-Qualified X 22.71% 13,750.2 332,984 Non-Qualified XII 20.31% (2) 5,460.5 75,287 Non-Qualified XIII 23.08% 1,126,346.9 14,604,330 Non-Qualified XIV 22.70% 1,682,679.9 21,722,393 Non-Qualified XV 22.51% 604,941.5 7,792,281 Non-Qualified XVII 15.68% (8) 4,165.7 113,477 - ----------------------------------------------------------------------------------------------------------- Index 500 Portfolio: Non-Qualified VII 18.82% 5,394,050.7 145,664,290 Non-Qualified VIII 19.01% 1,101,288.9 24,803,345 - ----------------------------------------------------------------------------------------------------------- Investment Grade Bond Portfolio: Non-Qualified VII (2.43%) 339,030.3 4,116,714 Non-Qualified VIII (0.70%) (2) 282 3,336 - ----------------------------------------------------------------------------------------------------------- Janus Aspen Series: Aggressive Growth Portfolio: Non-Qualified V 122.61% 828,592.3 37,689,170 Non-Qualified V (0.75) 123.73% 1,056,343.2 48,982,313 Non-Qualified VII 122.26% 2,409,624.0 109,306,960
S-14 Variable Annuity Account B Condensed Financial Information - Year Ended December 31, 1999 (continued):
Value Per Unit Increase (Decrease) Units -------- in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - ---------------------------------------------------------------------------------------------------------------------------- Aggressive Growth Portfolio (continued): Non-Qualified VIII $14.162 $31.525 122.60% 532,220.6 $ 16,778,169 Non-Qualified IX 20.345 45.177 122.05% 29,489.6 1,332,245 Non-Qualified X 20.433 45.486 122.61% 34,550.4 1,571,554 Non-Qualified XII 12.588 26.089 107.25% (2) 11,071.3 288,842 Non-Qualified XIII 11.042 24.654 123.27% 1,018,786.6 25,116,929 Non-Qualified XIV 11.027 24.546 122.60% 994,779.9 24,418,006 Non-Qualified XV 11.020 24.492 122.25% 368,329.7 9,021,250 Non-Qualified XVII 32.641 53.698 64.51% (8) 2,971.5 159,562 - ---------------------------------------------------------------------------------------------------------------------------- Balanced Portfolio: Non-Qualified V 19.880 24.886 25.18% 527,201.1 13,120,149 Non-Qualified V (0.75) 20.165 25.370 25.81% 545,606.2 13,842,073 Non-Qualified VII 22.101 27.623 24.99% 2,773,991.6 76,624,788 Non-Qualified VIII 17.569 21.992 25.18% 807,835.2 17,766,013 Non-Qualified IX 19.794 24.717 24.87% 6,162.6 152,321 Non-Qualified X 19.880 24.886 25.18% 12,100.9 301,148 Non-Qualified XII 12.137 14.479 19.30% (2) 435.6 6,307 Non-Qualified XIII 10.945 13.742 25.56% 1,721,021.8 23,649,433 Non-Qualified XIV 10.930 13.681 25.17% 2,130,089.6 29,142,690 Non-Qualified XV 10.923 13.651 24.97% 778,170.3 10,623,120 Non-Qualified XVII 21.430 24.954 16.44% (8) 3,842.0 95,873 - ---------------------------------------------------------------------------------------------------------------------------- Flexible Income Portfolio: Non-Qualified V 15.509 15.562 0.34% 73,596.4 1,145,287 Non-Qualified V (0.75) 15.731 15.864 0.85% 190,660.1 3,024,702 Non-Qualified VII 15.405 15.433 0.18% 783,971.0 12,099,259 Non-Qualified VIII 12.873 12.916 0.33% 249,484.1 3,222,452 Non-Qualified IX 15.442 15.456 0.09% 2,079.7 32,143 Non-Qualified X 15.509 15.562 0.34% 3,109.8 48,393 Non-Qualified XII 10.355 10.404 0.47% (2) 977.9 10,175 - ---------------------------------------------------------------------------------------------------------------------------- Growth Portfolio: Non-Qualified V 20.651 29.366 42.20% 432,037.4 12,687,006 Non-Qualified V (0.75) 20.948 29.936 42.91% 668,408.8 20,009,591 Non-Qualified VII 24.532 34.828 41.97% 2,701,099.3 94,073,291 Non-Qualified VIII 17.461 24.827 42.19% 521,852.0 12,956,249 Non-Qualified IX 20.562 29.166 41.84% 11,840.3 345,332 Non-Qualified X 20.651 29.366 42.20% 29,283.9 859,939 Non-Qualified XII 12.040 16.313 35.49% (2) 4,195.4 68,441 Non-Qualified XIII 10.938 15.599 42.61% 1,611,326.8 25,135,000 Non-Qualified XIV 10.923 15.531 42.19% 2,407,009.9 37,382,714 Non-Qualified XV 10.915 15.497 41.98% 647,595.6 10,035,592 Non-Qualified XVII 25.578 32.068 25.37% (8) 597.3 19,154 Annuity contracts in payment period 9,348,397 - ---------------------------------------------------------------------------------------------------------------------------- Worldwide Growth Portfolio: Non-Qualified V 21.320 34.626 62.41% 902,510.1 31,250,007 Non-Qualified V (0.75) 21.626 35.298 63.22% 1,601,735.3 56,538,428 Non-Qualified VII 24.039 38.979 62.15% 7,044,821.4 274,600,411 Non-Qualified VIII 17.358 28.189 62.40% 1,226,255.8 34,566,580 Non-Qualified IX 21.228 34.390 62.00% 31,114.7 1,070,046 Non-Qualified X 21.320 34.626 62.41% 44,861.0 1,553,341 Non-Qualified XII 10.532 16.613 57.74% (2) 17,701.2 294,069 Non-Qualified XIII 9.576 15.599 62.90% 1,828,182.5 28,517,271 Non-Qualified XIV 9.563 15.531 62.41% 2,118,679.7 32,904,339 Non-Qualified XV 9.557 15.497 62.15% 583,969.4 9,049,494 Non-Qualified XVII 26.861 38.687 44.03% (8) 1,791 69,295 Annuity contracts in payment period 11,305,698 - ----------------------------------------------------------------------------------------------------------------------------
S-15 Variable Annuity Account B Condensed Financial Information - Year Ended December 31, 1999 (continued):
Value Per Unit Increase (Decrease) Units -------- in Value of Outstanding Reserves Beginning End of Accumulation at End at End of Year Year Unit of Year of Year - --------------------------------------------------------------------------------------------------------------------------- Lexington Emerging Markets Fund, Inc.: Non-Qualified VII $ 6.090 $13.640 123.97% 188,713.2 $ 2,574,027 - --------------------------------------------------------------------------------------------------------------------------- Lexington Natural Resources Trust Fund: Non-Qualified V 11.030 12.428 12.67% 57,915.6 719,794 Non-Qualified V (0.75) 11.189 12.670 13.24% 65,369.7 828,244 Non-Qualified VII 10.932 12.298 12.50% 129,841.3 1,596,776 Non-Qualified IX 10.982 12.344 12.40% 191.3 2,361 Non-Qualified X 11.030 12.428 12.67% 1,753.1 21,788 - --------------------------------------------------------------------------------------------------------------------------- MFS Funds: Global Government Series: Non-Qualified VII 10.860 10.440 (3.87%) 138,331.0 1,444,158 Non-Qualified VIII 10.904 10.498 (3.72%) 18,979.9 199,256 - --------------------------------------------------------------------------------------------------------------------------- Total Return Series: Non-Qualified VII 14.432 14.669 1.64% 2,056,862.5 30,172,256 Non-Qualified VIII 14.491 14.751 1.79% 483,032.7 7,125,264 Non-Qualified XIII 10.171 10.385 2.10% 321,447.1 3,338,204 Non-Qualified XIV 10.157 10.339 1.79% 675,245.9 6,981,698 Non-Qualified XV 10.150 10.317 1.65% 307,462.6 3,172,022 - --------------------------------------------------------------------------------------------------------------------------- Mitchell Hutchins Series Trust: Growth & Income Portfolio: Non-Qualified XIII 9.816 10.960 11.65% (4) 10,140.8 111,141 Non-Qualified XIV 10.189 10.937 7.34% (4) 60,270.6 659,166 Non-Qualified XV 10.056 10.925 8.64% (4) 3,629.1 39,649 - --------------------------------------------------------------------------------------------------------------------------- Small Cap Portfolio: Non-Qualified XIV 11.067 11.828 6.88% (6) 14,182.0 167,748 Non-Qualified XV 9.764 11.816 21.02% (9) 404.1 4,774 - --------------------------------------------------------------------------------------------------------------------------- Tactical Allocation Portfolio: Non-Qualified XIII 9.451 10.651 12.70% (4) 101,507.5 1,081,178 Non-Qualified XIV 9.852 10.629 7.89% (4) 541,486.6 5,755,371 Non-Qualified XV 9.567 10.618 10.99% (5) 49,695.2 527,646 - --------------------------------------------------------------------------------------------------------------------------- Oppenheimer Funds: Aggressive Growth Fund/VA: Non-Qualified VII 13.520 24.477 81.04% 734,833.6 17,986,178 Non-Qualified VIII 13.556 24.578 81.31% 251,982.6 6,193,324 Non-Qualified XIII 9.362 17.027 81.87% 102,851.7 1,751,223 Non-Qualified XIV 9.350 16.952 81.30% 139,614.8 2,366,791 Non-Qualified XV 9.343 16.915 81.04% 58,764.5 994,008 Annuity contracts in payment period 1,639,824 - --------------------------------------------------------------------------------------------------------------------------- Global Securities Fund/VA: Non-Qualified V 10.018 15.681 56.53% 12,402.0 194,472 Non-Qualified V (0.75) 10.053 15.814 57.31% 38,363.3 606,665 Non-Qualified VII 12.982 20.287 56.27% 346,236.2 7,024,157 Non-Qualified VIII 13.016 20.372 56.52% 82,152.5 1,673,576 Non-Qualified IX 10.001 15.615 56.13% 952.8 14,878 - --------------------------------------------------------------------------------------------------------------------------- Main Street Growth & Income Fund/VA: Non-Qualified VII 13.199 15.839 20.00% 1,942,405.4 30,766,659 Non-Qualified VIII 13.234 15.905 20.18% 685,331.0 10,900,475 Non-Qualified XIII 9.080 10.946 20.55% 341,457.9 3,737,521 Non-Qualified XIV 9.067 10.898 20.19% 737,210.2 8,034,042 Non-Qualified XV 9.061 10.874 20.01% 255,252.7 2,775,606 Annuity contracts in payment period 151,990 - --------------------------------------------------------------------------------------------------------------------------- Strategic Bond Fund/VA: Non-Qualified V 9.895 10.048 1.55% 5,339.8 53,654 Non-Qualified V (0.75) 9.929 10.133 2.05% 3,553.3 36,007
S-16 Variable Annuity Account B Condensed Financial Information - Year Ended December 31, 1999 (continued):
Value Per Unit -------- Beginning End of of Year Year - ---------------------------------------------------------------- Strategic Bond Fund/VA (continued): Non-Qualified VII $ 10.921 $11.072 Non-Qualified VIII 10.950 11.118 Non-Qualified IX 9.878 10.006 Non-Qualified XIII 9.823 10.005 Non-Qualified XIV 9.810 9.961 Non-Qualified XV 9.803 9.939 Annuity contracts in payment period - ---------------------------------------------------------------- Portfolio Partners, Inc. (PPI): PPI MFS Emerging Equities Portfolio: Non-Qualified V 19.489 29.040 Non-Qualified V (0.75) 19.769 29.605 Non-Qualified VII 18.803 27.973 Non-Qualified VIII 12.761 19.012 Non-Qualified IX 19.405 28.843 Non-Qualified X 19.489 29.040 Non-Qualified XII 10.087 16.210 Non-Qualified XIII 10.371 15.499 Non-Qualified XIV 10.357 15.431 Non-Qualified XV 10.350 15.397 Non-Qualified XVII 21.207 28.739 Annuity contracts in payment period - ---------------------------------------------------------------- PPI MFS Research Growth Portfolio: Non-Qualified V 15.481 18.963 Non-Qualified V (0.75) 15.703 19.332 Non-Qualified VI 13.080 16.032 Non-Qualified VII 15.331 18.750 Non-Qualified VIII 10.532 12.901 Non-Qualified IX 15.414 18.834 Non-Qualified X 15.481 18.963 Non-Qualified XIII 10.113 12.424 Non-Qualified XIV 10.099 12.370 Non-Qualified XV 10.092 12.343 - ---------------------------------------------------------------- PPI MFS Value Equity Portfolio: Non-Qualified V 26.713 39.254 Non-Qualified V (0.75) 27.097 40.017 Non-Qualified VII 12.686 18.612 Non-Qualified VIII 12.708 18.672 Non-Qualified IX 26.598 38.987 Non-Qualified X 26.713 39.254 Non-Qualified XII 10.883 15.732 Non-Qualified XIII 10.193 15.023 Non-Qualified XIV 10.180 14.957 Non-Qualified XV 10.173 14.924 Non-Qualified XVII 33.592 43.155 Annuity contracts in payment period - ---------------------------------------------------------------- PPI Scudder International Growth Portfolio: Non-Qualified V 21.057 32.942 Non-Qualified V (0.75) 21.359 33.582 Non-Qualified VII 11.640 18.181 Non-Qualified VIII 11.659 18.238 Non-Qualified IX 20.966 32.718 Non-Qualified X 21.057 32.942 Non-Qualified XII 10.107 15.541 Non-Qualified XIII 9.248 14.511 Increase (Decrease) Units in Value of Outstanding Reserves Accumulation at End at End Unit of Year of Year - --------------------------------------------------------------------------------------------------------- Strategic Bond Fund/VA (continued): Non-Qualified VII 1.38% 831,202.9 $ 9,203,371 Non-Qualified VIII 1.53% 307,277.8 3,416,465 Non-Qualified IX 1.30% 114.2 1,143 Non-Qualified XIII 1.85% 247,094.9 2,472,154 Non-Qualified XIV 1.54% 321,796.7 3,205,447 Non-Qualified XV 1.39% 118,823.90 1,181,015 Annuity contracts in payment period 228,810 - --------------------------------------------------------------------------------------------------------- Portfolio Partners, Inc. (PPI): PPI MFS Emerging Equities Portfolio: Non-Qualified V 49.01% 485,026.4 14,085,159 Non-Qualified V (0.75) 49.75% 457,664.5 13,548,971 Non-Qualified VII 48.77% 4,571,239.7 127,872,111 Non-Qualified VIII 48.99% 554,655.3 10,545,302 Non-Qualified IX 48.64% 11,546.9 333,043 Non-Qualified X 49.01% 12,141.7 352,595 Non-Qualified XII 60.70% (2) 12,647.9 205,025 Non-Qualified XIII 49.45% 360,243.8 5,583,250 Non-Qualified XIV 48.99% 421,058.9 6,497,276 Non-Qualified XV 48.76% 173,670.9 2,673,998 Non-Qualified XVII 35.52% (8) 546.7 15,710 Annuity contracts in payment period 1,531,267 - --------------------------------------------------------------------------------------------------------- PPI MFS Research Growth Portfolio: Non-Qualified V 22.49% 408,869.5 7,753,575 Non-Qualified V (0.75) 23.11% 331,760.0 6,413,686 Non-Qualified VI 22.57% 9,318.3 149,388 Non-Qualified VII 22.30% 3,631,867.0 68,096,121 Non-Qualified VIII 22.49% 576,382.1 7,435,639 Non-Qualified IX 22.19% 18,743.4 353,021 Non-Qualified X 22.49% 135,419.7 2,568,024 Non-Qualified XIII 22.85% 208,889.0 2,595,276 Non-Qualified XIV 22.49% 434,220.7 5,371,244 Non-Qualified XV 22.30% 145,910.2 1,800,924 - --------------------------------------------------------------------------------------------------------- PPI MFS Value Equity Portfolio: Non-Qualified V 46.95% 278,561.6 10,934,611 Non-Qualified V (0.75) 47.68% 202,966.2 8,122,064 Non-Qualified VII 46.71% 975,016.1 18,147,137 Non-Qualified VIII 46.93% 289,619.5 5,407,687 Non-Qualified IX 46.58% 3,143.4 122,552 Non-Qualified X 46.95% 9,451.0 370,986 Non-Qualified XII 44.56% (2) 188.4 2,964 Non-Qualified XIII 47.39% 207,410.2 3,115,879 Non-Qualified XIV 46.93% 361,089.0 5,400,856 Non-Qualified XV 46.70% 99,417.2 1,483,731 Non-Qualified XVII 28.47% (8) 1,516.2 65,431 Annuity contracts in payment period 1,763,893 - --------------------------------------------------------------------------------------------------------- PPI Scudder International Growth Portfolio: Non-Qualified V 56.44% 316,726.40 10,433,693 Non-Qualified V (0.75) 57.23% 331,361.7 11,127,920 Non-Qualified VII 56.19% 183,802.0 3,341,658 Non-Qualified VIII 56.43% 80,485.4 1,467,904 Non-Qualified IX 56.05% 5,869.2 192,030 Non-Qualified X 56.44% 4,496.1 148,113 Non-Qualified XII 53.76% (2) 229.6 3,568 Non-Qualified XIII 56.91% 292,269.5 4,241,163
S-17 Variable Annuity Account B Condensed Financial Information - Year Ended December 31, 1999 (continued):
Value Per Unit -------- Beginning End of of Year Year - ---------------------------------------------------------------------------- PPI Scudder International Growth Portfolio (continued): Non-Qualified XIV $ 9.236 $14.448 Non-Qualified XV 9.229 14.416 Annuity contracts in payment period - ---------------------------------------------------------------------------- PPI T. Rowe Price Growth Equity Portfolio: Non-Qualified V 18.146 21.922 Non-Qualified V (0.75) 18.407 22.348 Non-Qualified VII 23.078 27.835 Non-Qualified VIII 16.682 20.151 Non-Qualified IX 18.068 21.773 Non-Qualified X 18.146 21.922 Non-Qualified XII 10.925 13.248 Non-Qualified XVII 21.843 25.309 Annuity contracts in payment period - ---------------------------------------------------------------------------- Total ============================================================================ Increase (Decrease) Units in Value of Outstanding Reserves Accumulation at End at End Unit of Year of Year - ------------------------------------------------------------------------------------------------------------------------ PPI Scudder International Growth Portfolio (continued): Non-Qualified XIV 56.43% 180,821.9 $ 2,612,466 Non-Qualified XV 56.20% 122,088.7 1,760,035 Annuity contracts in payment period 123,723 - ------------------------------------------------------------------------------------------------------------------------ PPI T. Rowe Price Growth Equity Portfolio: Non-Qualified V 20.81% 177,799 3,897,694 Non-Qualified V (0.75) 21.41% 314,992 7,039,487 Non-Qualified VII 20.61% 3,902,488.8 108,627,153 Non-Qualified VIII 20.79% 304,101.7 6,127,882 Non-Qualified IX 20.51% 10,243.8 223,037 Non-Qualified X 20.81% 4,490.9 98,450 Non-Qualified XII 21.26% (2) 1,255.7 16,635 Non-Qualified XVII 15.87% (8) 1,557.1 39,409 Annuity contracts in payment period 723,814 - ------------------------------------------------------------------------------------------------------------------------ Total $6,173,851,032 ========================================================================================================================
Non-Qualified 1964 Individual contracts issued from December 1, 1964 to March 14, 1967. Non-Qualified V Certain AetnaPlus contracts issued in connection with Deferred Compensation Plans issued since August 28, 1992, and certain individual non-qualified contracts. Non-Qualified VI Certain existing contracts that were converted to ACES, an administrative system (previously valued under Non-Qualified I). Non-Qualified VII Certain individual and group contracts issued as non-qualified deferred annuity contracts or Individual Retirement Annuity contracts issued since May 4, 1994. Non-Qualified VIII Certain individual Retirement Annuity contracts issued since May 1, 1998. Non-Qualified IX Group AetnaPlus contracts assessing an administrative expense charge effective April 7, 1997 issued in connection with Deferred Compensation Plans. Non-Qualified X Group AetnaPlus contracts containing contractual limits on fees, issued in connection with Deferred Compensation Plans and as individual non-qualified contracts, resulting in reduced daily charges for certain funding options effective May 29, 1997. Non-Qualified XI Certain contracts, previously valued under Non-Qualified VI, containing contractual limits limits on fees, resulting in reduced daily charges for certain funding options effective May 29, 1997. Non-Qualified XIII Certain individual Retirement Annuity contracts issued since October 1, 1998. Non-Qualified XIV Certain individual Retirement Annuity contracts issued since September 1, 1998. Non-Qualified XV Certain individual Retirement Annuity contracts issued since September 1, 1998. Non-Qualified XVII Group AetnaPlus contracts issued in connection with Deferred Compensation Plans having contract modifications effective May 29, 1997.
Notes to Condensed Financial Information: (1) -- Reflects less than a full year of performance activity. Funds were first received in this option during January 1999. (2) -- Reflects less than a full year of performance activity. Funds were first received in this option during March 1999. (3) -- Reflects less than a full year of performance activity. Funds were first received in this option during April 1999. (4) -- Reflects less than a full year of performance activity. Funds were first received in this option during May 1999. (5) -- Reflects less than a full year of performance activity. Funds were first received in this option during June 1999. (6) -- Reflects less than a full year of performance activity. Funds were first received in this option during July 1999. (7) -- Reflects less than a full year of performance activity. Funds were first received in this option during August 1999. (8) -- Reflects less than a full year of performance activity. Funds were first received in this option during September 1999. (9) -- Reflects less than a full year of performance activity. Funds were first received in this option during October 1999. (10) -- Reflects less than a full year of performance activity. Funds were first received in this option during November 1999. (11) -- Reflects less than a full year of performance activity. Funds were first received in this option during December 1999. See Notes to Financial Statements S-18 Variable Annuity Account B Notes to Financial Statements - December 31, 1999 1. Summary of Significant Accounting Policies Variable Annuity Account B (the "Account") is a separate account established by Aetna Life Insurance and Annuity Company (the "Company") registered under the Investment Company Act of 1940 as a unit investment trust. The Account is sold exclusively for use with variable annuity contracts that may be entitled to tax-deferred treatment under specific sections of the Internal Revenue Code of 1986, as amended. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Actual results could differ from these estimates. a. Valuation of Investments Investments in the following Funds are stated at the closing net asset value per share as determined by each Fund on December 31, 1999: Aetna Ascent VP Fidelity Variable Insurance Products Fund: Aetna Balanced VP, Inc. o Equity-Income Portfolio Aetna Bond VP o Growth Portfolio Aetna Crossroads VP o High Income Portfolio Aetna Get Fund, Series C o Overseas Portfolio Aetna Get Fund, Series D Fidelity Variable Insurance Products Fund II: Aetna Get Fund, Series E o Asset Manager Portfolio Aetna Get Fund, Series G o Contrafund Portfolio Aetna Get Fund, Series H o Index 500 Portfolio Aetna Growth and Income VP o Investment Grade Bond Portfolio Aetna Growth VP Janus Aspen Series: Aetna High Yield VP o Aggressive Growth Portfolio Aetna Index Plus Large Cap VP o Balanced Portfolio Aetna Index Plus Mid Cap VP o Flexible Income Portfolio Aetna Index Plus Small Cap VP o Growth Portfolio Aetna International VP o Worldwide Growth Portfolio Aetna Legacy VP Lexington Emerging Markets Fund, Inc. Aetna Money Market VP Lexington Natural Resources Trust Fund Aetna Real Estate Securities VP MFS Funds: Aetna Small Company VP o Global Government Series Aetna Value Opportunity VP o Total Return Series AIM V.I. Funds: Mitchell Hutchins Series Trust: o Capital Appreciation Fund o Growth & Income Portfolio o Growth and Income Fund o Small Cap portfolio o Growth Fund o Tactical Allocation Portfolio o Value Fund Oppenheimer Funds: Alger American Funds: o Aggressive Growth Fund/VA o Balanced Portfolio o Global Securities Fund/VA o Income & Growth Portfolio o Main Street Growth & Income Fund/VA o Leveraged AllCap Portfolio o Strategic Bond Fund/VA American Century VP Funds: Portfolio Partners, Inc. (PPI): o Balanced Fund o PPI MFS Emerging Equities Portfolio o International Fund o PPI MFS Research Growth Portfolio Calvert Social Balanced Portfolio o PPI MFS Value Equity Portfolio Federated Insurance Series: o PPI Scudder International Growth Portfolio o American Leaders Fund II o PPI T. Rowe Price Growth Equity Portfolio o Equity Income Fund II o Growth Strategies Fund II o High Income Bond Fund II o International Equity Fund II o Prime Money Fund II o U.S. Government Securities Fund II o Utility Fund II
S-19 Variable Annuity Account B Notes to Financial Statements - December 31, 1999 (continued): b. Other Investment transactions are accounted for on a trade date basis and dividend income is recorded on the ex-dividend date. The cost of investments sold is determined by specific identification. c. Federal Income Taxes The operations of the Account form a part of, and are taxed with, the total operations of the Company which is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended. d. Annuity Reserves Annuity reserves held in the Account are computed for currently payable contracts according to the Progressive Annuity, a49, 1971 Individual Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983 Group Annuity Mortality tables using various assumed interest rates not to exceed seven percent. Mortality experience is monitored by the Company. Charges to annuity reserves for mortality experience are reimbursed to the Company if the reserves required are less than originally estimated. If additional reserves are required, the Company reimburses the Account. 2. Valuation Period Deductions Deductions by the Account for mortality and expense risk charges are made in accordance with the terms of the contracts and are paid to the Company. 3. Dividend Income On an annual basis, the Funds distribute substantially all of their taxable income and realized capital gains to their shareholders. Distributions to the Account are automatically reinvested in shares of the Funds. The Account's proportionate share of each Fund's undistributed net investment income (distributions in excess of net investment income) and accumulated net realized gain (loss) on investments is included in net unrealized gain (loss) in the Statement of Operations. 4. Purchases and Sales of Investments The cost of purchases and proceeds from sales of investments other than short-term investments for the year ended December 31, 1999 aggregated $3,435,456,040 and $1,971,718,606. S-20 Variable Annuity Account B Notes to Financial Statements - December 31, 1999 (continued): 5. Supplemental Information to Statements of Operations
- ----------------------------------------------------------------------------------------------------------- Year Ended December 31, 1999 Valuation Proceeds Cost of Period from Investments Dividends Deductions Sales Sold - ----------------------------------------------------------------------------------------------------------- Aetna Ascent VP: Annuity contracts in accumulation $1,340,444 ($270,151) $9,313,006 $8,698,919 - ----------------------------------------------------------------------------------------------------------- Aetna Balanced VP, Inc.: Annuity contracts in accumulation 26,401,416 (2,291,480) 33,436,167 27,637,858 - ----------------------------------------------------------------------------------------------------------- Aetna Bond VP: Annuity contracts in accumulation 6,124,925 (1,115,110) 40,901,359 41,151,754 - ----------------------------------------------------------------------------------------------------------- Aetna Crossroads VP: Annuity contracts in accumulation 1,502,501 (342,919) 8,948,614 8,113,257 - ----------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series B: Annuity contracts in accumulation 7,848,121 (128,073) 19,750,183 23,962,269 - ----------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series C: Annuity contracts in accumulation 1,957,571 (74,044) 3,666,266 2,463,747 - ----------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series D: Annuity contracts in accumulation 3,756,117 (2,728,466) 32,922,228 32,044,756 - ----------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series E: Annuity contracts in accumulation 2,481,190 (1,968,291) 9,474,528 9,239,165 - ----------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series G: Annuity contracts in accumulation 102,974 (208,523) 522,773 511,829 - ----------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series H: Annuity contracts in accumulation 0 (535) 0 0 - ----------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP: Annuity contracts in accumulation 207,834,884 (12,198,695) 237,901,365 210,303,160 - ----------------------------------------------------------------------------------------------------------- Aetna Growth VP: Annuity contracts in accumulation 3,084,013 (580,261) 51,360,082 42,601,164 - ----------------------------------------------------------------------------------------------------------- Aetna High Yield VP: Annuity contracts in accumulation 23,128 (2,983) 278,712 305,621 - ----------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP: Annuity contracts in accumulation 9,509,103 (1,876,028) 67,290,981 54,385,900 - ----------------------------------------------------------------------------------------------------------- Aetna Index Plus Mid Cap VP: Annuity contracts in accumulation 158,723 (7,101) 5,181,529 5,178,353 - ----------------------------------------------------------------------------------------------------------- Aetna Index Plus Small Cap VP: Annuity contracts in accumulation 2,021 (8,247) 1,258,038 1,253,262 - ----------------------------------------------------------------------------------------------------------- Aetna International VP: Annuity contracts in accumulation 343,759 (29,531) 12,411,249 11,614,440 - ----------------------------------------------------------------------------------------------------------- Aetna Legacy VP: Annuity contracts in accumulation 1,676,882 (417,080) 10,198,632 9,520,795 - ----------------------------------------------------------------------------------------------------------- Aetna Money Market VP: Annuity contracts in accumulation 7,203,776 (2,397,398) 588,072,224 585,938,903 - ----------------------------------------------------------------------------------------------------------- Aetna Real Estate Securities VP: Annuity contracts in accumulation 98,540 (19,120) 1,488,862 1,583,368 - ----------------------------------------------------------------------------------------------------------- Aetna Small Company VP: Annuity contracts in accumulation 299,261 (252,577) 9,437,948 8,942,352 - ----------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1999 Net Unrealized Net Net Net Gain (Loss) Change in Increase (Decrease) Realized ----------- Unrealized in Net Assets Gain (Loss) Beginning End Gain (Loss) Resulting from on Investments of Year of Year on Investments Operations - ------------------------------------------------------------------------------------------------------------------------------- Aetna Ascent VP: Annuity contracts in accumulation $614,087 ($204,552) $483,736 $688,288 $2,372,668 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Balanced VP, Inc.: Annuity contracts in accumulation 5,798,309 13,657,518 6,704,110 (6,953,408) 22,954,837 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Bond VP: Annuity contracts in accumulation (250,395) (271,440) (6,898,223) (6,626,783) (1,867,363) - ------------------------------------------------------------------------------------------------------------------------------- Aetna Crossroads VP: Annuity contracts in accumulation 835,357 455,992 548,689 92,697 2,087,636 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series B: Annuity contracts in accumulation (4,212,086) 3,285,620 0 (3,285,620) 222,342 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series C: Annuity contracts in accumulation 1,202,519 2,432,614 786,857 (1,645,757) 1,440,289 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series D: Annuity contracts in accumulation 877,472 (64,824) 9,587,836 9,652,660 11,557,783 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series E: Annuity contracts in accumulation 235,363 0 23,410,070 23,410,070 24,158,332 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series G: Annuity contracts in accumulation 10,944 0 5,934,910 5,934,910 5,840,305 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Get Fund, Series H: Annuity contracts in accumulation 0 0 2,439 2,439 1,904 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Growth and Income VP: Annuity contracts in accumulation 27,598,205 (14,386,593) (68,936,164) (54,549,571) 168,684,823 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Growth VP: Annuity contracts in accumulation 8,758,918 4,054,739 8,580,844 4,526,105 15,788,775 - ------------------------------------------------------------------------------------------------------------------------------- Aetna High Yield VP: Annuity contracts in accumulation (26,909) (38,627) (16,080) 22,547 15,783 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP: Annuity contracts in accumulation 12,905,081 9,544,413 23,757,249 14,212,836 34,750,992 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Mid Cap VP: Annuity contracts in accumulation 3,176 25,068 (42,233) (67,301) 87,497 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Index Plus Small Cap VP: Annuity contracts in accumulation 4,776 8,264 96,292 88,028 86,578 - ------------------------------------------------------------------------------------------------------------------------------- Aetna International VP: Annuity contracts in accumulation 796,809 (4,447) 330,445 334,892 1,445,929 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Legacy VP: Annuity contracts in accumulation 677,837 230,393 (38,204) (268,597) 1,669,042 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Money Market VP: Annuity contracts in accumulation 2,133,321 1,434,703 1,765,548 330,845 7,270,544 - ------------------------------------------------------------------------------------------------------------------------------- Aetna Real Estate Securities VP: Annuity contracts in accumulation (94,506) (78,505) (181,523) (103,018) (118,104) - ------------------------------------------------------------------------------------------------------------------------------- Aetna Small Company VP: Annuity contracts in accumulation 495,596 1,188,423 6,242,096 5,053,673 5,595,953 - -------------------------------------------------------------------------------------------------------------------------------
S-21 Variable Annuity Account B Notes to Financial Statements - December 31, 1999 (continued): 5. Supplemental Information to Statements of Operations (continued):
- ------------------------------------------------------------------------------------------------------ Year Ended December 31, 1999 Valuation Proceeds Cost of Period from Investments Dividends Deductions Sales Sold - ------------------------------------------------------------------------------------------------------ Aetna Value Opportunity VP: Annuity contracts in accumulation $797,048 ($226,028) $7,969,978 $6,860,631 - ------------------------------------------------------------------------------------------------------ Capital Appreciation Fund: Annuity contracts in accumulation 199,178 (36,849) 1,961,367 1,742,638 - ------------------------------------------------------------------------------------------------------ Growth and Income Fund: Annuity contracts in accumulation 179,109 (106,709) 716,417 632,280 - ------------------------------------------------------------------------------------------------------ Growth Fund: Annuity contracts in accumulation 631,309 (62,029) 747,792 656,292 - ------------------------------------------------------------------------------------------------------ Value Fund: Annuity contracts in accumulation 629,443 (155,450) 2,307,793 2,034,925 - ------------------------------------------------------------------------------------------------------ Alger American Funds: Balanced Portfolio: Annuity contracts in accumulation 454,912 (85,354) 1,556,530 1,053,499 - ------------------------------------------------------------------------------------------------------ Income & Growth Portfolio: Annuity contracts in accumulation 914,221 (222,145) 2,270,282 1,259,702 - ------------------------------------------------------------------------------------------------------ Leveraged AllCap Portfolio: Annuity contracts in accumulation 1,249,119 (271,946) 3,592,783 1,650,828 - ------------------------------------------------------------------------------------------------------ American Century VP Funds: Balanced Fund: Annuity contracts in accumulation 683,536 (56,724) 1,675,116 1,632,360 - ------------------------------------------------------------------------------------------------------ International Fund: Annuity contracts in accumulation 0 (80,728) 1,365,915 995,445 - ------------------------------------------------------------------------------------------------------ Calvert Social Balanced Portfolio: Annuity contracts in accumulation 247,325 (26,165) 406,307 370,404 - ------------------------------------------------------------------------------------------------------ Federated Insurance Series: American Leaders Fund II: Annuity contracts in accumulation 13,552,341 (1,896,640) 21,302,731 12,295,752 - ------------------------------------------------------------------------------------------------------ Equity Income Fund II: Annuity contracts in accumulation 830,081 (412,745) 4,773,203 3,622,910 - ------------------------------------------------------------------------------------------------------ Growth Strategies Fund II: Annuity contracts in accumulation 0 (459,868) 4,243,118 2,328,173 - ------------------------------------------------------------------------------------------------------ High Income Bond Fund II: Annuity contracts in accumulation 4,081,257 (651,738) 10,263,690 9,738,521 - ------------------------------------------------------------------------------------------------------ International Equity Fund II: Annuity contracts in accumulation 503,745 (271,182) 3,123,504 1,926,381 - ------------------------------------------------------------------------------------------------------ Prime Money Fund II: Annuity contracts in accumulation 411,869 (127,832) 9,317,264 9,315,041 - ------------------------------------------------------------------------------------------------------ U.S. Government Securities Fund II: Annuity contracts in accumulation 733,040 (203,519) 4,193,043 3,940,186 - ------------------------------------------------------------------------------------------------------ Utility Fund II: Annuity contracts in accumulation 2,100,934 (397,724) 5,009,213 3,572,281 - ------------------------------------------------------------------------------------------------------ - ---------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1999 Net Unrealized Net Net Net Gain (Loss) Change in Increase (Decrease) Realized ----------- Unrealized in Net Assets Gain (Loss) Beginning End Gain (Loss) Resulting from on Investments of Year of Year on Investments Operations - ---------------------------------------------------------------------------------------------------------------------------- Aetna Value Opportunity VP: Annuity contracts in accumulation $1,109,347 $1,733,031 $2,822,690 $1,089,659 $2,770,026 - ---------------------------------------------------------------------------------------------------------------------------- Capital Appreciation Fund: Annuity contracts in accumulation 218,729 19,720 2,111,777 2,092,057 2,473,115 - ---------------------------------------------------------------------------------------------------------------------------- Growth and Income Fund: Annuity contracts in accumulation 84,137 17,765 3,746,947 3,729,182 3,885,719 - ---------------------------------------------------------------------------------------------------------------------------- Growth Fund: Annuity contracts in accumulation 91,500 12,342 2,711,961 2,699,619 3,360,399 - ---------------------------------------------------------------------------------------------------------------------------- Value Fund: Annuity contracts in accumulation 272,868 22,553 4,671,998 4,649,445 5,396,306 - ---------------------------------------------------------------------------------------------------------------------------- Alger American Funds: Balanced Portfolio: 503,031 1,582,996 2,168,767 585,771 1,458,360 - ---------------------------------------------------------------------------------------------------------------------------- Income & Growth Portfolio: Annuity contracts in accumulation 1,010,580 4,215,812 8,170,558 3,954,746 5,657,402 - ---------------------------------------------------------------------------------------------------------------------------- Leveraged AllCap Portfolio: Annuity contracts in accumulation 1,941,955 6,533,437 15,044,425 8,510,988 11,430,116 - ---------------------------------------------------------------------------------------------------------------------------- American Century VP Funds: Balanced Fund: Annuity contracts in accumulation 42,756 487,853 113,895 (373,958) 295,610 - ---------------------------------------------------------------------------------------------------------------------------- International Fund: Annuity contracts in accumulation 370,470 743,148 3,420,828 2,677,680 2,967,422 - ---------------------------------------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio: Annuity contracts in accumulation 35,903 14,930 8,210 (6,720) 250,343 - ---------------------------------------------------------------------------------------------------------------------------- Federated Insurance Series: American Leaders Fund II: Annuity contracts in accumulation 9,006,979 37,231,660 23,291,163 (13,940,497) 6,722,183 - ---------------------------------------------------------------------------------------------------------------------------- Equity Income Fund II: Annuity contracts in accumulation 1,150,293 3,973,133 6,982,904 3,009,771 4,577,400 - ---------------------------------------------------------------------------------------------------------------------------- Growth Strategies Fund II: Annuity contracts in accumulation 1,914,945 5,244,563 22,782,494 17,537,931 18,993,008 - ---------------------------------------------------------------------------------------------------------------------------- High Income Bond Fund II: Annuity contracts in accumulation 525,169 2,714,767 (768,082) (3,482,849) 471,839 - ---------------------------------------------------------------------------------------------------------------------------- International Equity Fund II: Annuity contracts in accumulation 1,197,123 3,819,534 15,689,012 11,869,478 13,299,164 - ---------------------------------------------------------------------------------------------------------------------------- Prime Money Fund II: Annuity contracts in accumulation 2,223 2,223 0 (2,223) 284,037 - ---------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities Fund II: Annuity contracts in accumulation 252,857 1,013,377 (71,689) (1,085,066) (302,688) - ---------------------------------------------------------------------------------------------------------------------------- Utility Fund II: Annuity contracts in accumulation 1,436,932 7,053,257 3,900,529 (3,152,728) (12,586) - ----------------------------------------------------------------------------------------------------------------------------
S-22 Variable Annuity Account B Notes to Financial Statements - December 31, 1999 (continued): 5. Supplemental Information to Statements of Operations (continued):
- ---------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1999 Valuation Proceeds Cost of Period from Investments Dividends Deductions Sales Sold - ---------------------------------------------------------------------------------------------------------------- Fidelity Variable Insurance Products Fund: Equity-Income Portfolio: Annuity contracts in accumulation $8,367,628 ($2,573,916) $30,786,251 $23,310,042 - ---------------------------------------------------------------------------------------------------------------- Growth Portfolio: Annuity contracts in accumulation 16,174,596 (2,218,187) 15,856,150 10,078,861 - ---------------------------------------------------------------------------------------------------------------- High Income Portfolio: Annuity contracts in accumulation 5,027,115 (781,519) 15,051,314 17,531,702 - ---------------------------------------------------------------------------------------------------------------- Overseas Portfolio: Annuity contracts in accumulation 639,927 (217,131) 17,051,576 15,470,272 - ---------------------------------------------------------------------------------------------------------------- Fidelity Variable Insurance Products Fund II: Asset Manager Portfolio: Annuity contracts in accumulation 1,521,294 (290,423) 3,958,472 3,549,278 - ---------------------------------------------------------------------------------------------------------------- Contrafund Portfolio: Annuity contracts in accumulation 6,677,923 (2,522,798) 42,148,010 26,560,684 - ---------------------------------------------------------------------------------------------------------------- Index 500 Portfolio: Annuity contracts in accumulation 2,351,381 (2,155,269) 61,376,663 41,833,912 - ---------------------------------------------------------------------------------------------------------------- Investment Grade Bond Portfolio: Annuity contracts in accumulation 278,742 (67,977) 1,529,299 1,459,169 - ---------------------------------------------------------------------------------------------------------------- Janus Aspen Series: Aggressive Growth Portfolio: Annuity contracts in accumulation 4,328,099 (1,464,290) 180,428,933 153,089,375 - ---------------------------------------------------------------------------------------------------------------- Balanced Portfolio: Annuity contracts in accumulation 3,289,917 (1,574,299) 7,838,806 4,594,554 - ---------------------------------------------------------------------------------------------------------------- Flexible Income Portfolio: Annuity contracts in accumulation 1,403,262 (265,146) 9,325,969 9,178,770 - ---------------------------------------------------------------------------------------------------------------- Growth Portfolio: Annuity contracts in accumulation 990,849 (1,633,385) 22,246,086 14,336,557 - ---------------------------------------------------------------------------------------------------------------- Worldwide Growth Portfolio: Annuity contracts in accumulation 538,521 (3,924,479) 85,749,085 54,113,435 - ---------------------------------------------------------------------------------------------------------------- Lexington Emerging Markets Fund, Inc.: Annuity contracts in accumulation 8,564 (22,933) 463,764 730,052 - ---------------------------------------------------------------------------------------------------------------- Lexington Natural Resources Trust Fund: Annuity contracts in accumulation 20,628 (42,793) 1,388,088 1,704,273 - ---------------------------------------------------------------------------------------------------------------- MFS Funds: Global Government Series: (1) Annuity contracts in accumulation 103,104 (25,617) 1,099,699 1,092,429 - ---------------------------------------------------------------------------------------------------------------- Total Return Series: Annuity contracts in accumulation 2,209,450 (612,684) 5,002,849 3,909,198 - ---------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1999 Net Unrealized Net Net Gain (Loss) Change in Realized ----------- Unrealized Gain (Loss) Beginning End Gain (Loss) on Investments of Year of Year on Investments - -------------------------------------------------------------------------------------------------------------------- Fidelity Variable Insurance Products Fund: Equity-Income Portfolio: Annuity contracts in accumulation $7,476,209 $22,859,546 $17,824,133 $(5,035,413) - -------------------------------------------------------------------------------------------------------------------- Growth Portfolio: Annuity contracts in accumulation 5,777,289 33,940,400 67,658,735 33,718,335 - -------------------------------------------------------------------------------------------------------------------- High Income Portfolio: Annuity contracts in accumulation (2,480,388) (4,425,686) (2,606,690) 1,818,996 - -------------------------------------------------------------------------------------------------------------------- Overseas Portfolio: Annuity contracts in accumulation 1,581,304 669,980 4,814,866 4,144,886 - -------------------------------------------------------------------------------------------------------------------- Fidelity Variable Insurance Products Fund II: Asset Manager Portfolio: Annuity contracts in accumulation 409,194 1,633,427 1,897,225 263,798 - -------------------------------------------------------------------------------------------------------------------- Contrafund Portfolio: Annuity contracts in accumulation 15,587,326 35,201,475 56,818,405 21,616,930 - -------------------------------------------------------------------------------------------------------------------- Index 500 Portfolio: Annuity contracts in accumulation 19,542,751 25,538,020 32,900,456 7,362,436 - -------------------------------------------------------------------------------------------------------------------- Investment Grade Bond Portfolio: Annuity contracts in accumulation 70,130 478,048 75,103 (402,945) - -------------------------------------------------------------------------------------------------------------------- Janus Aspen Series: Aggressive Growth Portfolio: Annuity contracts in accumulation 27,339,558 8,106,849 100,137,615 92,030,766 - -------------------------------------------------------------------------------------------------------------------- Balanced Portfolio: Annuity contracts in accumulation 3,244,252 15,241,071 40,182,173 24,941,102 - -------------------------------------------------------------------------------------------------------------------- Flexible Income Portfolio: Annuity contracts in accumulation 147,199 255,193 (999,230) (1,254,423) - -------------------------------------------------------------------------------------------------------------------- Growth Portfolio: Annuity contracts in accumulation 7,909,529 12,281,148 56,878,486 44,597,338 - -------------------------------------------------------------------------------------------------------------------- Worldwide Growth Portfolio: Annuity contracts in accumulation 31,635,650 37,241,442 183,495,928 146,254,486 - -------------------------------------------------------------------------------------------------------------------- Lexington Emerging Markets Fund, Inc.: Annuity contracts in accumulation (266,288) (1,196,659) 579,071 1,775,730 - -------------------------------------------------------------------------------------------------------------------- Lexington Natural Resources Trust Fund: Annuity contracts in accumulation (316,185) (1,266,269) (494,145) 772,124 - -------------------------------------------------------------------------------------------------------------------- MFS Funds: Global Government Series: (1) Annuity contracts in accumulation 7,270 102,292 (52,025) (154,317) - -------------------------------------------------------------------------------------------------------------------- Total Return Series: Annuity contracts in accumulation 1,093,651 3,834,735 1,850,808 (1,983,927) - -------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------- Year Ended December 31, 1999 Net Increase (Decrease) in Net Assets Resulting from Operations - ----------------------------------------------------------------------- Fidelity Variable Insurance Products Fund: Equity-Income Portfolio: Annuity contracts in accumulation $8,234,508 - ----------------------------------------------------------------------- Growth Portfolio: Annuity contracts in accumulation 53,452,033 - ----------------------------------------------------------------------- High Income Portfolio: Annuity contracts in accumulation 3,584,204 - ----------------------------------------------------------------------- Overseas Portfolio: Annuity contracts in accumulation 6,148,986 - ----------------------------------------------------------------------- Fidelity Variable Insurance Products Fund II: Asset Manager Portfolio: Annuity contracts in accumulation 1,903,863 - ----------------------------------------------------------------------- Contrafund Portfolio: Annuity contracts in accumulation 41,359,381 - ----------------------------------------------------------------------- Index 500 Portfolio: Annuity contracts in accumulation 27,101,299 - ----------------------------------------------------------------------- Investment Grade Bond Portfolio: Annuity contracts in accumulation (122,050) - ----------------------------------------------------------------------- Janus Aspen Series: Aggressive Growth Portfolio: Annuity contracts in accumulation 122,234,133 - ----------------------------------------------------------------------- Balanced Portfolio: Annuity contracts in accumulation 29,900,972 - ----------------------------------------------------------------------- Flexible Income Portfolio: Annuity contracts in accumulation 30,892 - ----------------------------------------------------------------------- Growth Portfolio: Annuity contracts in accumulation 51,864,331 - ----------------------------------------------------------------------- Worldwide Growth Portfolio: Annuity contracts in accumulation 174,504,178 - ----------------------------------------------------------------------- Lexington Emerging Markets Fund, Inc.: Annuity contracts in accumulation 1,495,073 - ----------------------------------------------------------------------- Lexington Natural Resources Trust Fund: Annuity contracts in accumulation 433,774 - ----------------------------------------------------------------------- MFS Funds: Global Government Series: (1) Annuity contracts in accumulation (69,560) - ----------------------------------------------------------------------- Total Return Series: Annuity contracts in accumulation 706,490 - -----------------------------------------------------------------------
S-23 Variable Annuity Account B Notes to Financial Statements - December 31, 1999 (continued): 5. Supplemental Information to Statements of Operations (continued):
- ------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, 1999 Valuation Proceeds Cost of Period from Investments Dividends Deductions Sales Sold - ------------------------------------------------------------------------------------------------------------------------ Mitchell Hutchins Series Trust: Growth & Income Portfolio: Annuity contracts in accumulation $3 $(2,950) $134,571 $132,047 - ------------------------------------------------------------------------------------------------------------------------ Small Cap Portfolio: Annuity contracts in accumulation 5,932 (761) 1,608 1,675 - ------------------------------------------------------------------------------------------------------------------------ Tactical Allocation Portfolio: Annuity contracts in accumulation 473,308 (12,484) 259,982 250,453 - ------------------------------------------------------------------------------------------------------------------------ Oppenheimer Funds: Aggressive Growth Fund/VA: (2) Annuity contracts in accumulation 0 (228,766) 29,784,999 24,129,999 - ------------------------------------------------------------------------------------------------------------------------ Global Securities Fund/VA: (3) Annuity contracts in accumulation 280,254 (94,735) 6,574,995 4,790,427 - ------------------------------------------------------------------------------------------------------------------------ Main Street Growth & Income Fund/VA: (4) Annuity contracts in accumulation 454,029 (588,876) 5,827,992 5,360,308 - ------------------------------------------------------------------------------------------------------------------------ Strategic Bond Fund/VA: (5) Annuity contracts in accumulation 786,643 (214,526) 4,087,701 4,296,040 - ------------------------------------------------------------------------------------------------------------------------ Portfolio Partners,Inc. (PPI): PPI MFS Emerging Equities Portfolio: Annuity contracts in accumulation 1,395,386 (1,803,211) 69,154,424 53,471,073 - ------------------------------------------------------------------------------------------------------------------------ PPI MFS Research Growth Portfolio: Annuity contracts in accumulation 179,933 (1,192,525) 22,188,694 17,498,425 - ------------------------------------------------------------------------------------------------------------------------ PPI MFS Value Equity Portfolio: Annuity contracts in accumulation 1,111,624 (447,967) 6,884,756 4,709,438 - ------------------------------------------------------------------------------------------------------------------------ PPI Scudder International Growth Portfolio: Annuity contracts in accumulation 1,024,592 (243,925) 75,090,895 65,822,845 - ------------------------------------------------------------------------------------------------------------------------ PPI T. Rowe Price Growth Equity Portfolio: Annuity contracts in accumulation 2,862,703 (1,607,370) 19,816,183 14,545,431 - ------------------------------------------------------------------------------------------------------------------------ Total Variable Annuity Account B $372,453,223 ($ 59,498,930) $1,971,718,606 $1,728,629,845 ======================================================================================================================== - ---------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 1999 Net Unrealized Net Net Gain (Loss) Change in Realized ----------- Unrealized Gain (Loss) Beginning End Gain (Loss) on Investments of Year of Year on Investments - ---------------------------------------------------------------------------------------------------------------------- Mitchell Hutchins Series Trust: Growth & Income Portfolio: Annuity contracts in accumulation $2,524 $0 $74,102 $74,102 - ---------------------------------------------------------------------------------------------------------------------- Small Cap Portfolio: Annuity contracts in accumulation (67) 0 9,469 9,469 - ---------------------------------------------------------------------------------------------------------------------- Tactical Allocation Portfolio: Annuity contracts in accumulation 9,529 0 35,469 35,469 - ---------------------------------------------------------------------------------------------------------------------- Oppenheimer Funds: Aggressive Growth Fund/VA: (2) Annuity contracts in accumulation 5,655,000 1,243,228 8,288,775 7,045,547 - ---------------------------------------------------------------------------------------------------------------------- Global Securities Fund/VA: (3) Annuity contracts in accumulation 1,784,568 786,005 2,312,761 1,526,756 - ---------------------------------------------------------------------------------------------------------------------- Main Street Growth & Income Fund/VA: (4) Annuity contracts in accumulation 467,684 (435,824) 7,488,511 7,924,335 - ---------------------------------------------------------------------------------------------------------------------- Strategic Bond Fund/VA: (5) Annuity contracts in accumulation (208,339) 47,663 (12,690) (60,353) - ---------------------------------------------------------------------------------------------------------------------- Portfolio Partners,Inc. (PPI): PPI MFS Emerging Equities Portfolio: Annuity contracts in accumulation 15,683,351 19,423,983 64,359,069 44,935,086 - ---------------------------------------------------------------------------------------------------------------------- PPI MFS Research Growth Portfolio: Annuity contracts in accumulation 4,690,269 11,016,482 26,374,011 15,357,529 - ---------------------------------------------------------------------------------------------------------------------- PPI MFS Value Equity Portfolio: Annuity contracts in accumulation 2,175,318 3,770,053 17,014,014 13,243,961 - ---------------------------------------------------------------------------------------------------------------------- PPI Scudder International Growth Portfolio: Annuity contracts in accumulation 9,268,050 863,502 3,641,431 2,777,929 - ---------------------------------------------------------------------------------------------------------------------- PPI T. Rowe Price Growth Equity Portfolio: Annuity contracts in accumulation 5,270,752 24,891,619 40,800,081 15,908,462 - ---------------------------------------------------------------------------------------------------------------------- Total Variable Annuity Account B $243,088,761 $349,806,583 $860,262,998 $510,456,415 ====================================================================================================================== - ---------------------------------------------------------------------- Year Ended December 31, 1999 Net Increase (Decrease) in Net Assets Resulting from Operations - ---------------------------------------------------------------------- Mitchell Hutchins Series Trust: Growth & Income Portfolio: Annuity contracts in accumulation $73,679 - ---------------------------------------------------------------------- Small Cap Portfolio: Annuity contracts in accumulation 14,573 - ---------------------------------------------------------------------- Tactical Allocation Portfolio: Annuity contracts in accumulation 505,822 - ---------------------------------------------------------------------- Oppenheimer Funds: Aggressive Growth Fund/VA: (2) Annuity contracts in accumulation 12,471,781 - ---------------------------------------------------------------------- Global Securities Fund/VA: (3) Annuity contracts in accumulation 3,496,843 - ---------------------------------------------------------------------- Main Street Growth & Income Fund/VA: (4) Annuity contracts in accumulation 8,257,172 - ---------------------------------------------------------------------- Strategic Bond Fund/VA: (5) Annuity contracts in accumulation 303,425 - ---------------------------------------------------------------------- Portfolio Partners,Inc. (PPI): PPI MFS Emerging Equities Portfolio: Annuity contracts in accumulation 60,210,612 - ---------------------------------------------------------------------- PPI MFS Research Growth Portfolio: Annuity contracts in accumulation 19,035,206 - ---------------------------------------------------------------------- PPI MFS Value Equity Portfolio: Annuity contracts in accumulation 16,082,936 - ---------------------------------------------------------------------- PPI Scudder International Growth Portfolio: Annuity contracts in accumulation 12,826,646 - ---------------------------------------------------------------------- PPI T. Rowe Price Growth Equity Portfolio: Annuity contracts in accumulation 22,434,547 - ---------------------------------------------------------------------- Total Variable Annuity Account B $1,066,499,469 ======================================================================
(1) - Effective May 1, 1999, MFS Worldwide Government Series name changed to MFS Global Government Series. (2) - Effective May 1, 1999, Oppenheimer Aggressive Growth Fund/OVAF's name changed to Oppenheimer Aggressive Growth Fund/VA. (3) - Effective May 1, 1999, Oppenheimer Global Securities Fund/OVAF's name changed to Oppenheimer Global Securities Fund/VA. (4) - Effective May 1, 1999, Oppenheimer Growth and Income Fund/OVAF's name changed to Oppenheimer Main Street Growth and Income Fund/VA. (5) - Effective May 1, 1999, Oppenheimer Strategic Bond Fund/OVAF's name changed to Oppenheimer Strategic Bond Fund/VA. S-24 Variable Annuity Account B Notes to Financial Statements - December 31, 1999 (continued): 6. Supplemental Information to Statements of Changes in Net Assets
- ---------------------------------------------------------------------------------------- Year Ended December 31, 1999 Net Net Change in Net Realized Unrealized Investment Gain (Loss) Gain (Loss) Income on Investments on Investments - ---------------------------------------------------------------------------------------- Aetna Ascent VP: Annuity contracts in accumulation $1,070,293 $614,087 $688,288 - ---------------------------------------------------------------------------------------- Aetna Balanced VP, Inc.: Annuity contracts in accumulation 24,109,936 5,798,309 (6,953,408) Annuity contracts in payment period - ---------------------------------------------------------------------------------------- Aetna Bond VP: Annuity contracts in accumulation 5,009,815 (250,395) (6,626,783) Annuity contracts in payment period - ---------------------------------------------------------------------------------------- Aetna Crossroads VP: Annuity contracts in accumulation 1,159,582 835,357 92,697 Annuity contracts in payment period - ---------------------------------------------------------------------------------------- Aetna Get Fund, Series B: Annuity contracts in accumulation 7,720,048 (4,212,086) (3,285,620) - ---------------------------------------------------------------------------------------- Aetna Get Fund, Series C: Annuity contracts in accumulation 1,883,527 1,202,519 (1,645,757) - ---------------------------------------------------------------------------------------- Aetna Get Fund, Series D: Annuity contracts in accumulation 1,027,651 877,472 9,652,660 - ---------------------------------------------------------------------------------------- Aetna Get Fund, Series E: Annuity contracts in accumulation 512,899 235,363 23,410,070 - ---------------------------------------------------------------------------------------- Aetna Get Fund, Series G: Annuity contracts in accumulation (105,549) 10,944 5,934,910 - ---------------------------------------------------------------------------------------- Aetna Get Fund, Series H: Annuity contracts in accumulation (535) 0 2,439 - ---------------------------------------------------------------------------------------- Aetna Growth and Income VP: Annuity contracts in accumulation 195,636,189 27,598,205 (54,549,571) Annuity contracts in payment period - ---------------------------------------------------------------------------------------- Aetna Growth VP: Annuity contracts in accumulation 2,503,752 8,758,918 4,526,105 Annuity contracts in payment period - ---------------------------------------------------------------------------------------- Aetna High Yield VP: Annuity contracts in accumulation 20,145 (26,909) 22,547 - ---------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP: Annuity contracts in accumulation 7,633,075 12,905,081 14,212,836 Annuity contracts in payment period - ---------------------------------------------------------------------------------------- Aetna Index Plus Mid Cap VP: Annuity contracts in accumulation 151,622 3,176 (67,301) - ---------------------------------------------------------------------------------------- Aetna Index Plus Small Cap VP: Annuity contracts in accumulation (6,226) 4,776 88,028 - ---------------------------------------------------------------------------------------- Aetna International VP: Annuity contracts in accumulation 314,228 796,809 334,892 Annuity contracts in payment period - ---------------------------------------------------------------------------------------- Aetna Legacy VP: Annuity contracts in accumulation 1,259,802 677,837 (268,597) Annuity contracts in payment period - ---------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- Year Ended December 31, 1999 Net Increase (Decrease) Net Assets in Net Assets ---------- from Unit Beginning End Transactions of Year of Year - ----------------------------------------------------------------------------------------- Aetna Ascent VP: Annuity contracts in accumulation ($7,289,731) $24,898,190 $19,981,127 - ----------------------------------------------------------------------------------------- Aetna Balanced VP, Inc.: Annuity contracts in accumulation (10,869,045) 176,154,146 180,920,898 Annuity contracts in payment period 18,758,905 26,077,945 - ----------------------------------------------------------------------------------------- Aetna Bond VP: Annuity contracts in accumulation 10,606,260 85,100,187 93,390,139 Annuity contracts in payment period 5,213,758 5,662,703 - ----------------------------------------------------------------------------------------- Aetna Crossroads VP: Annuity contracts in accumulation (6,748,440) 28,289,880 23,405,948 Annuity contracts in payment period 1,317,322 1,540,450 - ----------------------------------------------------------------------------------------- Aetna Get Fund, Series B: Annuity contracts in accumulation (19,622,110) 19,399,768 0 - ----------------------------------------------------------------------------------------- Aetna Get Fund, Series C: Annuity contracts in accumulation (3,591,840) 9,276,019 7,124,468 - ----------------------------------------------------------------------------------------- Aetna Get Fund, Series D: Annuity contracts in accumulation 75,168,020 89,907,126 176,632,929 - ----------------------------------------------------------------------------------------- Aetna Get Fund, Series E: Annuity contracts in accumulation 357,540,044 0 381,698,376 - ----------------------------------------------------------------------------------------- Aetna Get Fund, Series G: Annuity contracts in accumulation 206,014,754 0 211,855,059 - ----------------------------------------------------------------------------------------- Aetna Get Fund, Series H: Annuity contracts in accumulation 1,725,051 0 1,726,955 - ----------------------------------------------------------------------------------------- Aetna Growth and Income VP: Annuity contracts in accumulation (106,172,195) 955,586,320 980,638,280 Annuity contracts in payment period 155,197,661 192,658,329 - ----------------------------------------------------------------------------------------- Aetna Growth VP: Annuity contracts in accumulation 25,546,818 28,467,187 66,260,594 Annuity contracts in payment period 1,199,857 4,742,043 - ----------------------------------------------------------------------------------------- Aetna High Yield VP: Annuity contracts in accumulation (487) 230,386 245,682 - ----------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP: Annuity contracts in accumulation 117,244,893 85,248,495 198,210,089 Annuity contracts in payment period 1,829,647 40,863,938 - ----------------------------------------------------------------------------------------- Aetna Index Plus Mid Cap VP: Annuity contracts in accumulation 403,520 375,745 866,762 - ----------------------------------------------------------------------------------------- Aetna Index Plus Small Cap VP: Annuity contracts in accumulation (145,065) 969,800 911,313 - ----------------------------------------------------------------------------------------- Aetna International VP: Annuity contracts in accumulation 1,562,914 1,528,847 4,434,269 Annuity contracts in payment period 2,086 105,507 - ----------------------------------------------------------------------------------------- Aetna Legacy VP: Annuity contracts in accumulation (7,254,086) 32,331,905 26,597,646 Annuity contracts in payment period 2,822,843 2,972,058 - -----------------------------------------------------------------------------------------
S-25 Variable Annuity Account B Notes to Financial Statements - December 31, 1999 (continued): 6. Supplemental Information to Statements of Changes in Net Assets (continued):
- --------------------------------------------------------------------------------------- Year Ended December 31, 1999 Net Net Change in Net Realized Unrealized Investment Gain (Loss) Gain (Loss) Income on Investments on Investments - --------------------------------------------------------------------------------------- Aetna Money Market VP: Annuity contracts in accumulation $4,806,378 $2,133,321 $330,845 Annuity contracts in payment period - --------------------------------------------------------------------------------------- Aetna Real Estate Securities VP: Annuity contracts in accumulation 79,420 (94,506) (103,018) Annuity contracts in payment period - --------------------------------------------------------------------------------------- Aetna Small Company VP: Annuity contracts in accumulation 46,684 495,596 5,053,673 Annuity contracts in payment period - --------------------------------------------------------------------------------------- Aetna Value Opportunity VP: Annuity contracts in accumulation 571,020 1,109,347 1,089,659 - --------------------------------------------------------------------------------------- AIM V.I. Funds: Capital Appreciation Fund: Annuity contracts in accumulation 162,329 218,729 2,092,057 Annuity contracts in payment period - --------------------------------------------------------------------------------------- Growth and Income Fund: Annuity contracts in accumulation 72,400 84,137 3,729,182 Annuity contracts in payment period - --------------------------------------------------------------------------------------- Growth Fund: Annuity contracts in accumulation 569,280 91,500 2,699,619 Annuity contracts in payment period - --------------------------------------------------------------------------------------- Value Fund: Annuity contracts in accumulation 473,993 272,868 4,649,445 Annuity contracts in payment period - --------------------------------------------------------------------------------------- Alger American Funds: Balanced Portfolio: Annuity contracts in accumulation 369,558 503,031 585,771 - --------------------------------------------------------------------------------------- Income & Growth Portfolio: Annuity contracts in accumulation 692,076 1,010,580 3,954,746 - --------------------------------------------------------------------------------------- Leveraged AllCap Portfolio: Annuity contracts in accumulation 977,173 1,941,955 8,510,988 - --------------------------------------------------------------------------------------- American Century VP Funds: Balanced Fund: Annuity contracts in accumulation 626,812 42,756 (373,958) - --------------------------------------------------------------------------------------- International Fund: Annuity contracts in accumulation (80,728) 370,470 2,677,680 - --------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio: Annuity contracts in accumulation 221,160 35,903 (6,720) - --------------------------------------------------------------------------------------- Federated Insurance Series: American Leaders Fund II: Annuity contracts in accumulation 11,655,701 9,006,979 (13,940,497) Annuity contracts in payment period - --------------------------------------------------------------------------------------- Equity Income Fund II: Annuity contracts in accumulation 417,336 1,150,293 3,009,771 Annuity contracts in payment period - --------------------------------------------------------------------------------------- Growth Strategies Fund II: Annuity contracts in accumulation (459,868) 1,914,945 17,537,931 - --------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- Year Ended December 31, 1999 Net Increase (Decrease) Net Assets in Net Assets ---------- from Unit Beginning End Transactions of Year of Year - ------------------------------------------------------------------------------------------- Aetna Money Market VP: Annuity contracts in accumulation $58,499,955 $149,772,871 $214,710,443 Annuity contracts in payment period 229,509 1,062,436 - ------------------------------------------------------------------------------------------- Aetna Real Estate Securities VP: Annuity contracts in accumulation 1,076,287 965,259 1,925,817 Annuity contracts in payment period 16,278 13,903 - ------------------------------------------------------------------------------------------- Aetna Small Company VP: Annuity contracts in accumulation 1,501,029 18,295,242 25,125,952 Annuity contracts in payment period 197,498 463,770 - ------------------------------------------------------------------------------------------- Aetna Value Opportunity VP: Annuity contracts in accumulation (4,540,412) 18,689,212 16,918,826 - ------------------------------------------------------------------------------------------- AIM V.I. Funds: Capital Appreciation Fund: Annuity contracts in accumulation 7,199,232 298,792 9,923,942 Annuity contracts in payment period 0 47,197 - ------------------------------------------------------------------------------------------- Growth and Income Fund: Annuity contracts in accumulation 19,382,908 221,558 22,700,889 Annuity contracts in payment period 0 789,296 - ------------------------------------------------------------------------------------------- Growth Fund: Annuity contracts in accumulation 15,273,804 296,860 18,608,980 Annuity contracts in payment period 0 322,083 - ------------------------------------------------------------------------------------------- Value Fund: Annuity contracts in accumulation 35,726,392 703,970 40,884,392 Annuity contracts in payment period 0 942,276 - ------------------------------------------------------------------------------------------- Alger American Funds: Balanced Portfolio: Annuity contracts in accumulation (1,430,177) 6,185,618 6,213,801 - ------------------------------------------------------------------------------------------- Income & Growth Portfolio: Annuity contracts in accumulation (2,033,469) 15,463,737 19,087,670 - ------------------------------------------------------------------------------------------- Leveraged AllCap Portfolio: Annuity contracts in accumulation (3,289,670) 16,971,895 25,112,341 - ------------------------------------------------------------------------------------------- American Century VP Funds: Balanced Fund: Annuity contracts in accumulation (1,575,541) 4,732,298 3,452,367 - ------------------------------------------------------------------------------------------- International Fund: Annuity contracts in accumulation (1,259,618) 5,791,227 7,499,031 - ------------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio: Annuity contracts in accumulation 380,705 1,958,082 2,589,130 - ------------------------------------------------------------------------------------------- Federated Insurance Series: American Leaders Fund II: Annuity contracts in accumulation (16,005,273) 134,398,144 125,105,874 Annuity contracts in payment period 51,858 61,038 - ------------------------------------------------------------------------------------------- Equity Income Fund II: Annuity contracts in accumulation (2,848,736) 28,656,460 30,384,515 Annuity contracts in payment period 7,576 8,185 - ------------------------------------------------------------------------------------------- Growth Strategies Fund II: Annuity contracts in accumulation 234,105 27,450,515 46,677,628 - -------------------------------------------------------------------------------------------
S-26 Variable Annuity Account B Notes to Financial Statements - December 31, 1999 (continued): 6. Supplemental Information to Statements of Changes in Net Assets (continued):
- ------------------------------------------------------------------------------------------------- Year Ended December 31, 1999 Net Net Change in Net Realized Unrealized Investment Gain (Loss) Gain (Loss) Income on Investments on Investments - ------------------------------------------------------------------------------------------------- High Income Bond Fund II: Annuity contracts in accumulation $3,429,519 $525,169 $(3,482,849) Annuity contracts in payment period - ------------------------------------------------------------------------------------------------- International Equity Fund II: Annuity contracts in accumulation 232,563 1,197,123 11,869,478 - ------------------------------------------------------------------------------------------------- Prime Money Fund II: Annuity contracts in accumulation 284,037 2,223 (2,223) - ------------------------------------------------------------------------------------------------- U.S. Government Securities Fund II: Annuity contracts in accumulation 529,521 252,857 (1,085,066) - ------------------------------------------------------------------------------------------------- Utility Fund II: Annuity contracts in accumulation 1,703,210 1,436,932 (3,152,728) Annuity contracts in payment period - ------------------------------------------------------------------------------------------------- Fidelity Variable Insurance Products Fund: Equity-Income Portfolio: Annuity contracts in accumulation 5,793,712 7,476,209 (5,035,413) - ------------------------------------------------------------------------------------------------- Growth Portfolio: Annuity contracts in accumulation 13,956,409 5,777,289 33,718,335 - ------------------------------------------------------------------------------------------------- High Income Portfolio: Annuity contracts in accumulation 4,245,596 (2,480,388) 1,818,996 Annuity contracts in payment period - ------------------------------------------------------------------------------------------------- Overseas Portfolio: Annuity contracts in accumulation 422,796 1,581,304 4,144,886 - ------------------------------------------------------------------------------------------------- Fidelity Variable Insurance Products Fund II: Asset Manager Portfolio: Annuity contracts in accumulation 1,230,871 409,194 263,798 - ------------------------------------------------------------------------------------------------- Contrafund Portfolio: Annuity contracts in accumulation 4,155,125 15,587,326 21,616,930 - ------------------------------------------------------------------------------------------------- Index 500 Portfolio: Annuity contracts in accumulation 196,112 19,542,751 7,362,436 - ------------------------------------------------------------------------------------------------- Investment Grade Bond Portfolio: Annuity contracts in accumulation 210,765 70,130 (402,945) - ------------------------------------------------------------------------------------------------- Janus Aspen Series: Aggressive Growth Portfolio: Annuity contracts in accumulation 2,863,809 27,339,558 92,030,766 - ------------------------------------------------------------------------------------------------- Balanced Portfolio: Annuity contracts in accumulation 1,715,618 3,244,252 24,941,102 - ------------------------------------------------------------------------------------------------- Flexible Income Portfolio: Annuity contracts in accumulation 1,138,116 147,199 (1,254,423) - ------------------------------------------------------------------------------------------------- Growth Portfolio: Annuity contracts in accumulation (642,536) 7,909,529 44,597,338 Annuity contracts in payment period - ------------------------------------------------------------------------------------------------- Worldwide Growth Portfolio: Annuity contracts in accumulation (3,385,958) 31,635,650 146,254,486 Annuity contracts in payment period - ------------------------------------------------------------------------------------------------- Lexington Emerging Markets Fund, Inc.: Annuity contracts in accumulation (14,369) (266,288) 1,775,730 - ------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- Year Ended December 31, 1999 Net Increase (Decrease) Net Assets in Net Assets ---------- from Unit Beginning End Transactions of Year of Year - -------------------------------------------------------------------------------------------------- High Income Bond Fund II: Annuity contracts in accumulation $(8,553,264) $49,887,731 $41,788,490 Annuity contracts in payment period 0 17,816 - -------------------------------------------------------------------------------------------------- International Equity Fund II: Annuity contracts in accumulation (1,894,959) 17,521,464 28,925,669 - -------------------------------------------------------------------------------------------------- Prime Money Fund II: Annuity contracts in accumulation 306,114 8,067,320 8,657,471 - -------------------------------------------------------------------------------------------------- U.S. Government Securities Fund II: Annuity contracts in accumulation (2,937,725) 16,054,824 12,814,411 - -------------------------------------------------------------------------------------------------- Utility Fund II: Annuity contracts in accumulation (3,766,513) 30,329,937 26,498,835 Annuity contracts in payment period 7,667 59,670 - -------------------------------------------------------------------------------------------------- Fidelity Variable Insurance Products Fund: Equity-Income Portfolio: Annuity contracts in accumulation 7,411,679 176,108,721 191,754,908 - -------------------------------------------------------------------------------------------------- Growth Portfolio: Annuity contracts in accumulation 17,013,720 138,516,768 208,982,521 - -------------------------------------------------------------------------------------------------- High Income Portfolio: Annuity contracts in accumulation 9,278,961 49,328,098 61,938,947 Annuity contracts in payment period 503,361 755,677 - -------------------------------------------------------------------------------------------------- Overseas Portfolio: Annuity contracts in accumulation (3,946,889) 17,886,843 20,088,940 - -------------------------------------------------------------------------------------------------- Fidelity Variable Insurance Products Fund II: Asset Manager Portfolio: Annuity contracts in accumulation (799,139) 20,414,738 21,519,462 - -------------------------------------------------------------------------------------------------- Contrafund Portfolio: Annuity contracts in accumulation 30,664,230 162,974,413 234,998,024 - -------------------------------------------------------------------------------------------------- Index 500 Portfolio: Annuity contracts in accumulation 1,630,498 141,735,838 170,467,635 - -------------------------------------------------------------------------------------------------- Investment Grade Bond Portfolio: Annuity contracts in accumulation (1,453,541) 5,695,641 4,120,050 - -------------------------------------------------------------------------------------------------- Janus Aspen Series: Aggressive Growth Portfolio: Annuity contracts in accumulation 95,062,093 57,368,774 274,665,000 - -------------------------------------------------------------------------------------------------- Balanced Portfolio: Annuity contracts in accumulation 83,194,454 72,228,489 185,323,915 - -------------------------------------------------------------------------------------------------- Flexible Income Portfolio: Annuity contracts in accumulation (1,081,920) 20,633,439 19,582,411 - -------------------------------------------------------------------------------------------------- Growth Portfolio: Annuity contracts in accumulation 101,412,913 68,058,273 213,572,309 Annuity contracts in payment period 1,585,189 9,348,397 - -------------------------------------------------------------------------------------------------- Worldwide Growth Portfolio: Annuity contracts in accumulation 59,587,939 243,902,115 470,413,281 Annuity contracts in payment period 3,724,747 11,305,698 - -------------------------------------------------------------------------------------------------- Lexington Emerging Markets Fund, Inc.: Annuity contracts in accumulation (430,469) 1,509,423 2,574,027 - --------------------------------------------------------------------------------------------------
S-27 Variable Annuity Account B Notes to Financial Statements - December 31, 1999 (continued): 6. Supplemental Information to Statements of Changes in Net Assets (continued):
- ----------------------------------------------------------------------------------------------- Year Ended December 31, 1999 Net Net Change in Net Realized Unrealized Investment Gain (Loss) Gain (Loss) Income on Investments on Investments - ----------------------------------------------------------------------------------------------- Lexington Natural Resources Trust Fund: Annuity contracts in accumulation $(22,165) $(316,185) $772,124 - ----------------------------------------------------------------------------------------------- MFS Funds: Global Government Series: (1) Annuity contracts in accumulation 77,487 7,270 (154,317) - ----------------------------------------------------------------------------------------------- Total Return Series: Annuity contracts in accumulation 1,596,766 1,093,651 (1,983,927) - ----------------------------------------------------------------------------------------------- Mitchell Hutchins Series Trust: Growth & Income Portfolio: Annuity contracts in accumulation (2,947) 2,524 74,102 - ----------------------------------------------------------------------------------------------- Small Cap Portfolio: Annuity contracts in accumulation 5,171 (67) 9,469 - ----------------------------------------------------------------------------------------------- Tactical Allocation Portfolio: Annuity contracts in accumulation 460,824 9,529 35,469 - ----------------------------------------------------------------------------------------------- Oppenheimer Funds: Aggressive Growth Fund/VA: (2) Annuity contracts in accumulation (228,766) 5,655,000 7,045,547 Annuity contracts in payment period - ----------------------------------------------------------------------------------------------- Global Securities Fund/VA: (3) Annuity contracts in accumulation 185,519 1,784,568 1,526,756 - ----------------------------------------------------------------------------------------------- Main Street Growth & Income Fund/VA: (4) Annuity contracts in accumulation (134,847) 467,684 7,924,335 Annuity contracts in payment period - ----------------------------------------------------------------------------------------------- Strategic Bond Fund/VA: (5) Annuity contracts in accumulation 572,117 (208,339) (60,353) Annuity contracts in payment period 0 0 0 - ----------------------------------------------------------------------------------------------- Portfolio Partners, Inc. (PPI): PPI MFS Emerging Equities Portfolio: Annuity contracts in accumulation (407,825) 15,683,351 44,935,086 Annuity contracts in payment period - ----------------------------------------------------------------------------------------------- PPI MFS Research Growth Portfolio: Annuity contracts in accumulation (1,012,592) 4,690,269 15,357,529 - ----------------------------------------------------------------------------------------------- PPI MFS Value Equity Portfolio: Annuity contracts in accumulation 663,657 2,175,318 13,243,961 Annuity contracts in payment period - ----------------------------------------------------------------------------------------------- PPI Scudder International Growth Portfolio: Annuity contracts in accumulation 780,667 9,268,050 2,777,929 Annuity contracts in payment period - ----------------------------------------------------------------------------------------------- PPI T. Rowe Price Growth Equity Portfolio: Annuity contracts in accumulation 1,255,333 5,270,752 15,908,462 Annuity contracts in payment period - ----------------------------------------------------------------------------------------------- Total Variable Annuity Account B $312,954,293 $243,088,761 $510,456,415 =============================================================================================== - ------------------------------------------------------------------------------------------------------ Year Ended December 31, 1999 Net Increase (Decrease) Net Assets in Net Assets ---------- from Unit Beginning End Transactions of Year of Year - ------------------------------------------------------------------------------------------------------ Lexington Natural Resources Trust Fund: Annuity contracts in accumulation $(1,219,704) $3,954,893 $3,168,963 - ------------------------------------------------------------------------------------------------------ MFS Funds: Global Government Series: (1) Annuity contracts in accumulation (301,164) 2,014,138 1,643,414 - ------------------------------------------------------------------------------------------------------ Total Return Series: Annuity contracts in accumulation 11,945,226 38,137,728 50,789,444 - ------------------------------------------------------------------------------------------------------ Mitchell Hutchins Series Trust: Growth & Income Portfolio: Annuity contracts in accumulation 736,277 0 809,956 - ------------------------------------------------------------------------------------------------------ Small Cap Portfolio: Annuity contracts in accumulation 157,949 0 172,522 - ------------------------------------------------------------------------------------------------------ Tactical Allocation Portfolio: Annuity contracts in accumulation 6,858,373 0 7,364,195 - ------------------------------------------------------------------------------------------------------ Oppenheimer Funds: Aggressive Growth Fund/VA: (2) Annuity contracts in accumulation 6,541,844 11,917,723 29,291,524 Annuity contracts in payment period 0 1,639,824 - ------------------------------------------------------------------------------------------------------ Global Securities Fund/VA: (3) Annuity contracts in accumulation (1,636,196) 7,653,101 9,513,748 - ------------------------------------------------------------------------------------------------------ Main Street Growth & Income Fund/VA: (4) Annuity contracts in accumulation 12,915,912 35,193,209 56,214,303 Annuity contracts in payment period 0 151,990 - ------------------------------------------------------------------------------------------------------ Strategic Bond Fund/VA: (5) Annuity contracts in accumulation 6,368,812 12,897,019 19,569,256 Annuity contracts in payment period 27,229 201,581 228,810 - ------------------------------------------------------------------------------------------------------ Portfolio Partners, Inc. (PPI): PPI MFS Emerging Equities Portfolio: Annuity contracts in accumulation (9,039,734) 131,150,274 181,712,440 Annuity contracts in payment period 922,555 1,531,267 - ------------------------------------------------------------------------------------------------------ PPI MFS Research Growth Portfolio: Annuity contracts in accumulation (5,108,995) 88,610,687 102,536,898 - ------------------------------------------------------------------------------------------------------ PPI MFS Value Equity Portfolio: Annuity contracts in accumulation 10,888,326 27,062,849 53,173,898 Annuity contracts in payment period 903,680 1,763,893 - ------------------------------------------------------------------------------------------------------ PPI Scudder International Growth Portfolio: Annuity contracts in accumulation 5,029,371 17,577,310 35,328,550 Annuity contracts in payment period 18,946 123,723 - ------------------------------------------------------------------------------------------------------ PPI T. Rowe Price Growth Equity Portfolio: Annuity contracts in accumulation (14,489,363) 118,791,854 126,069,747 Annuity contracts in payment period 56,523 723,814 - ------------------------------------------------------------------------------------------------------ Total Variable Annuity Account B $1,150,783,141 $3,956,568,422 $6,173,851,032 ======================================================================================================
(1) - Effective May 1, 1999, MFS Worldwide Government Series name changed to MFS Global Government Series. (2) - Effective May 1, 1999, Oppenheimer Aggressive Growth Fund/OVAF's name changed to Oppenheimer Aggressive Growth Fund/VA. (3) - Effective May 1, 1999, Oppenheimer Global Securities Fund/OVAF's name changed to Oppenheimer Global Securities Fund/VA. (4) - Effective May 1, 1999, Oppenheimer Growth and Income Fund/OVAF's name changed to Oppenheimer Main Street Growth and Income Fund/VA. (5) - Effective May 1, 1999, Oppenheimer Strategic Bond Fund/OVAF's name changed to Oppenheimer Strategic Bond Fund/VA. S-28 Variable Annuity Account B Notes to Financial Statements - December 31, 1998 (continued): 6. Supplemental Information to Statements of Changes in Net Assets (continued):
- ----------------------------------------------------------------------------------------- Year Ended December 31, 1998 Net Net Change in Net Realized Unrealized Investment Gain (Loss) Gain (Loss) Income on Investments on Investments - ----------------------------------------------------------------------------------------- Aetna Ascent VP: (1) Annuity contracts in accumulation $878,477 $871,974 ($1,238,982) - ----------------------------------------------------------------------------------------- Aetna Balanced VP: (2) Annuity contracts in accumulation 28,982,565 4,413,800 (7,474,240) Annuity contracts in payment period - ----------------------------------------------------------------------------------------- Aetna Bond VP: (3) Annuity contracts in accumulation 4,385,261 2,012,976 (1,053,158) Annuity contracts in payment period - ----------------------------------------------------------------------------------------- Aetna Crossroads VP: (4) Annuity contracts in accumulation 792,688 438,508 (248,169) Annuity contracts in payment period - ----------------------------------------------------------------------------------------- Aetna Get Fund, Series B: Annuity contracts in accumulation 4,701,182 1,466,703 (2,909,123) - ----------------------------------------------------------------------------------------- Aetna Get Fund, Series C: Annuity contracts in accumulation 974,026 1,329,280 288,064 - ----------------------------------------------------------------------------------------- Aetna Get Fund, Series D: Annuity contracts in accumulation 284,442 60 (64,824) - ----------------------------------------------------------------------------------------- Aetna Growth and Income VP: (5) Annuity contracts in accumulation 183,021,214 29,084,074 (82,062,430) Annuity contracts in payment period - ----------------------------------------------------------------------------------------- Aetna Growth VP: (6) Annuity contracts in accumulation (127,836) (347,867) 4,999,810 Annuity contracts in payment period - ----------------------------------------------------------------------------------------- Aetna High Yield VP: (7) Annuity contracts in accumulation 21,541 42 (38,627) - ----------------------------------------------------------------------------------------- Aetna Index Plus Large Cap VP: (8) Annuity contracts in accumulation 3,193,925 3,120,964 8,202,029 Annuity contracts in payment period - ----------------------------------------------------------------------------------------- Aetna Index Plus Mid Cap VP: (9) Annuity contracts in accumulation 17,150 (7,168) 25,068 - ----------------------------------------------------------------------------------------- Aetna Index Plus Small Cap VP: (10) Annuity contracts in accumulation 36,190 (33,035) 8,264 - ----------------------------------------------------------------------------------------- Aetna International VP: (11) Annuity contracts in accumulation 72,618 (50,060) (4,447) Annuity contracts in payment period - ----------------------------------------------------------------------------------------- Aetna Legacy VP: (12) Annuity contracts in accumulation 1,112,714 509,928 (325,629) Annuity contracts in payment period - ----------------------------------------------------------------------------------------- Aetna Money Market VP: (13) Annuity contracts in accumulation 4,609,417 958,394 4,835 Annuity contracts in payment period - ----------------------------------------------------------------------------------------- Aetna Real Estate Securities VP: (14) Annuity contracts in accumulation 45,121 (25,500) (78,505) Annuity contracts in payment period - ----------------------------------------------------------------------------------------- Aetna Small Company VP: (15) Annuity contracts in accumulation (18,206) (1,755,032) 1,488,099 Annuity contracts in payment period - ----------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------ Year Ended December 31, 1998 Net Increase (Decrease) Net Assets in Net Assets ---------- from Unit Beginning End Transactions of Year of Year - ------------------------------------------------------------------------------------------ Aetna Ascent VP: (1) Annuity contracts in accumulation $3,942,985 $20,443,736 $24,898,190 - ------------------------------------------------------------------------------------------ Aetna Balanced VP: (2) Annuity contracts in accumulation 6,148,805 150,761,384 176,154,146 Annuity contracts in payment period 12,080,737 18,758,905 - ------------------------------------------------------------------------------------------ Aetna Bond VP: (3) Annuity contracts in accumulation 12,050,394 69,236,488 85,100,187 Annuity contracts in payment period 3,681,984 5,213,758 - ------------------------------------------------------------------------------------------ Aetna Crossroads VP: (4) Annuity contracts in accumulation 8,303,550 20,250,904 28,289,880 Annuity contracts in payment period 69,721 1,317,322 - ------------------------------------------------------------------------------------------ Aetna Get Fund, Series B: Annuity contracts in accumulation (4,718,918) 20,859,924 19,399,768 - ------------------------------------------------------------------------------------------ Aetna Get Fund, Series C: Annuity contracts in accumulation (4,244,458) 10,929,107 9,276,019 - ------------------------------------------------------------------------------------------ Aetna Get Fund, Series D: Annuity contracts in accumulation 89,687,448 0 89,907,126 - ------------------------------------------------------------------------------------------ Aetna Growth and Income VP: (5) Annuity contracts in accumulation (42,142,027) 892,006,381 955,586,320 Annuity contracts in payment period 130,876,769 155,197,661 - ------------------------------------------------------------------------------------------ Aetna Growth VP: (6) Annuity contracts in accumulation 21,924,027 3,210,344 28,467,187 Annuity contracts in payment period 8,566 1,199,857 - ------------------------------------------------------------------------------------------ Aetna High Yield VP: (7) Annuity contracts in accumulation 247,430 0 230,386 - ------------------------------------------------------------------------------------------ Aetna Index Plus Large Cap VP: (8) Annuity contracts in accumulation 44,321,436 28,074,705 85,248,495 Annuity contracts in payment period 165,083 1,829,647 - ------------------------------------------------------------------------------------------ Aetna Index Plus Mid Cap VP: (9) Annuity contracts in accumulation 340,695 0 375,745 - ------------------------------------------------------------------------------------------ Aetna Index Plus Small Cap VP: (10) Annuity contracts in accumulation 958,381 0 969,800 - ------------------------------------------------------------------------------------------ Aetna International VP: (11) Annuity contracts in accumulation 1,512,822 0 1,528,847 Annuity contracts in payment period 0 2,086 - ------------------------------------------------------------------------------------------ Aetna Legacy VP: (12) Annuity contracts in accumulation 13,863,127 18,710,015 32,331,905 Annuity contracts in payment period 1,284,593 2,822,843 - ------------------------------------------------------------------------------------------ Aetna Money Market VP: (13) Annuity contracts in accumulation 19,490,597 124,939,137 149,772,871 Annuity contracts in payment period 0 229,509 - ------------------------------------------------------------------------------------------ Aetna Real Estate Securities VP: (14) Annuity contracts in accumulation 1,040,421 0 965,259 Annuity contracts in payment period 0 16,278 - ------------------------------------------------------------------------------------------ Aetna Small Company VP: (15) Annuity contracts in accumulation 12,670,750 6,059,783 18,295,242 Annuity contracts in payment period 47,346 197,498 - ------------------------------------------------------------------------------------------
S-29 Variable Annuity Account B Notes to Financial Statements - December 31, 1998 (continued): 6. Supplemental Information to Statements of Changes in Net Assets (continued):
- -------------------------------------------------------------------------------------- Year Ended December 31, 1998 Net Net Change in Net Realized Unrealized Investment Gain (Loss) Gain (Loss) Income on Investments on Investments - -------------------------------------------------------------------------------------- Aetna Value Opportunity VP: (16) Annuity contracts in accumulation $32,768 $(95,362) $2,278,113 - -------------------------------------------------------------------------------------- AIM V.I. Funds: Capital Appreciation Fund: Annuity contracts in accumulation 4,604 2,342 19,720 - -------------------------------------------------------------------------------------- Growth and Income Fund: Annuity contracts in accumulation 2,446 3,734 17,765 - -------------------------------------------------------------------------------------- Growth Fund: Annuity contracts in accumulation 9,531 3,714 12,342 - -------------------------------------------------------------------------------------- Value Fund: Annuity contracts in accumulation 24,489 5,144 22,553 - -------------------------------------------------------------------------------------- Alger American Funds: Balanced Portfolio: Annuity contracts in accumulation 404,757 212,710 891,394 - -------------------------------------------------------------------------------------- Income & Growth Portfolio: Annuity contracts in accumulation 1,261,633 1,121,965 1,506,757 - -------------------------------------------------------------------------------------- Leveraged AllCap Portfolio: Annuity contracts in accumulation 428,467 1,178,197 4,993,194 - -------------------------------------------------------------------------------------- American Century Investments: Balanced Fund: Annuity contracts in accumulation 528,065 61,039 25,474 - -------------------------------------------------------------------------------------- International Fund: Annuity contracts in accumulation 304,847 243,131 381,327 - -------------------------------------------------------------------------------------- Calvert Social Balanced Portfolio: Annuity contracts in accumulation 127,415 119,256 (44,356) - -------------------------------------------------------------------------------------- Fidelity Investments Variable Insurance Products Fund: Equity-Income Portfolio: Annuity contracts in accumulation 6,762,670 4,643,346 3,051,873 - -------------------------------------------------------------------------------------- Growth Portfolio: Annuity contracts in accumulation 9,878,072 5,383,950 19,355,887 - -------------------------------------------------------------------------------------- High Income Portfolio: Annuity contracts in accumulation 4,018,324 (478,695) (7,148,373) Annuity contracts in payment period - -------------------------------------------------------------------------------------- Overseas Portfolio: Annuity contracts in accumulation 820,880 787,883 209,050 - -------------------------------------------------------------------------------------- Fidelity Investments Variable Insurance Products Fund II: Asset Manager Portfolio: Annuity contracts in accumulation 1,361,761 264,591 495,725 - -------------------------------------------------------------------------------------- Contrafund Portfolio: Annuity contracts in accumulation 4,885,888 11,863,324 16,999,643 - -------------------------------------------------------------------------------------- Index 500 Portfolio: Annuity contracts in accumulation 1,707,451 8,567,398 14,655,179 - -------------------------------------------------------------------------------------- Investment Grade Bond Portfolio: Annuity contracts in accumulation 254,649 90,675 90,888 - -------------------------------------------------------------------------------------- Year Ended December 31, 1998 Net Increase (Decrease) Net Assets in Net Assets ---------- from Unit Beginning End Transactions of Year of Year - ------------------------------------------------------------------------------------------ Aetna Value Opportunity VP: (16) Annuity contracts in accumulation $12,561,099 $3,912,594 $18,689,212 - ------------------------------------------------------------------------------------------ AIM V.I. Funds: Capital Appreciation Fund: Annuity contracts in accumulation 272,126 0 298,792 - ------------------------------------------------------------------------------------------ Growth and Income Fund: Annuity contracts in accumulation 197,613 0 221,558 - ------------------------------------------------------------------------------------------ Growth Fund: Annuity contracts in accumulation 271,273 0 296,860 - ------------------------------------------------------------------------------------------ Value Fund: Annuity contracts in accumulation 651,784 0 703,970 - ------------------------------------------------------------------------------------------ Alger American Funds: Balanced Portfolio: Annuity contracts in accumulation (979,394) 5,656,151 6,185,618 - ------------------------------------------------------------------------------------------ Income & Growth Portfolio: Annuity contracts in accumulation (2,575,078) 14,148,460 15,463,737 - ------------------------------------------------------------------------------------------ Leveraged AllCap Portfolio: Annuity contracts in accumulation (3,907,972) 14,280,009 16,971,895 - ------------------------------------------------------------------------------------------ American Century Investments: Balanced Fund: Annuity contracts in accumulation (525,510) 4,643,230 4,732,298 - ------------------------------------------------------------------------------------------ International Fund: Annuity contracts in accumulation (991,033) 5,852,955 5,791,227 - ------------------------------------------------------------------------------------------ Calvert Social Balanced Portfolio: Annuity contracts in accumulation 784,430 971,337 1,958,082 - ------------------------------------------------------------------------------------------ Fidelity Investments Variable Insurance Products Fund: Equity-Income Portfolio: Annuity contracts in accumulation 22,941,092 138,709,740 176,108,721 - ------------------------------------------------------------------------------------------ Growth Portfolio: Annuity contracts in accumulation 23,497,310 80,401,549 138,516,768 - ------------------------------------------------------------------------------------------ High Income Portfolio: Annuity contracts in accumulation 18,153,824 35,217,837 49,328,098 Annuity contracts in payment period 68,542 503,361 - ------------------------------------------------------------------------------------------ Overseas Portfolio: Annuity contracts in accumulation 3,064,387 13,004,643 17,886,843 - ------------------------------------------------------------------------------------------ Fidelity Investments Variable Insurance Products Fund II: Asset Manager Portfolio: Annuity contracts in accumulation 6,549,586 11,743,075 20,414,738 - ------------------------------------------------------------------------------------------ Contrafund Portfolio: Annuity contracts in accumulation 21,398,116 107,827,442 162,974,413 - ------------------------------------------------------------------------------------------ Index 500 Portfolio: Annuity contracts in accumulation 39,819,038 76,986,772 141,735,838 - ------------------------------------------------------------------------------------------ Investment Grade Bond Portfolio: Annuity contracts in accumulation (1,318,753) 6,578,182 5,695,641 - ------------------------------------------------------------------------------------------
S-30 Variable Annuity Account B Notes to Financial Statements - December 31, 1998 (continued): 6. Supplemental Information to Statements of Changes in Net Assets (continued):
- ------------------------------------------------------------------------------------------ Year Ended December 31, 1998 Net Net Change in Net Realized Unrealized Investment Gain (Loss) Gain (Loss) Income on Investments on Investments - ------------------------------------------------------------------------------------------ Insurance Management Series: American Leaders Fund II: Annuity contracts in accumulation $6,205,550 $4,799,578 $7,120,071 Annuity contracts in payment period - ------------------------------------------------------------------------------------------ Equity Income Fund II: Annuity contracts in accumulation (222,529) 434,027 3,061,727 Annuity contracts in payment period - ------------------------------------------------------------------------------------------ Growth Strategies Fund II: Annuity contracts in accumulation 1,093,875 720,386 1,686,112 - ------------------------------------------------------------------------------------------ High Income Bond Fund II: Annuity contracts in accumulation 834,077 852,846 (1,048,315) - ------------------------------------------------------------------------------------------ International Equity Fund II: Annuity contracts in accumulation (216,708) 474,001 2,881,033 - ------------------------------------------------------------------------------------------ Prime Money Fund II: Annuity contracts in accumulation 263,248 0 2,223 - ------------------------------------------------------------------------------------------ U.S. Government Securities Fund II: Annuity contracts in accumulation 31,718 275,671 500,178 - ------------------------------------------------------------------------------------------ Utility Fund II: Annuity contracts in accumulation 1,351,222 735,614 1,252,242 Annuity contracts in payment period - ------------------------------------------------------------------------------------------ Janus Aspen Series: Aggressive Growth Portfolio: Annuity contracts in accumulation (548,576) 11,062,640 3,512,332 - ------------------------------------------------------------------------------------------ Balanced Portfolio: Annuity contracts in accumulation 1,620,017 1,490,655 11,778,213 - ------------------------------------------------------------------------------------------ Flexible Income Portfolio: Annuity contracts in accumulation 842,156 316,618 (112,372) - ------------------------------------------------------------------------------------------ Growth Portfolio: Annuity contracts in accumulation 2,610,124 7,033,011 6,516,940 Annuity contracts in payment period - ------------------------------------------------------------------------------------------ Worldwide Growth Portfolio: Annuity contracts in accumulation 5,363,231 21,545,989 19,031,176 Annuity contracts in payment period - ------------------------------------------------------------------------------------------ Lexington Emerging Markets Fund: Annuity contracts in accumulation 133,353 (350,599) (487,111) - ------------------------------------------------------------------------------------------ Lexington Natural Resources Trust Fund: Annuity contracts in accumulation 278,095 3,027 (1,444,141) - ------------------------------------------------------------------------------------------ MFS Funds: Total Return Series: Annuity contracts in accumulation 372,500 613,337 1,859,586 - ------------------------------------------------------------------------------------------ Worldwide Government Series: Annuity contracts in accumulation (5,538) (1,135) 108,229 - ------------------------------------------------------------------------------------------ Oppenheimer Funds: Aggressive Growth Fund: Annuity contracts in accumulation 39,364 (225,494) 1,109,442 - ------------------------------------------------------------------------------------------ - ---------------------------------------------------------------------------------------------- Year Ended December 31, 1998 Net Increase (Decrease) Net Assets in Net Assets ---------- from Unit Beginning End Transactions of Year of Year - ---------------------------------------------------------------------------------------------- Insurance Management Series: American Leaders Fund II: Annuity contracts in accumulation $(524,859) $116,800,911 $134,398,144 Annuity contracts in payment period 48,751 51,858 - ---------------------------------------------------------------------------------------------- Equity Income Fund II: Annuity contracts in accumulation 5,452,240 19,938,571 28,656,460 Annuity contracts in payment period 0 7,576 - ---------------------------------------------------------------------------------------------- Growth Strategies Fund II: Annuity contracts in accumulation 1,241,036 22,709,106 27,450,515 - ---------------------------------------------------------------------------------------------- High Income Bond Fund II: Annuity contracts in accumulation (3,963,730) 53,212,853 49,887,731 - ---------------------------------------------------------------------------------------------- International Equity Fund II: Annuity contracts in accumulation 437,110 13,946,028 17,521,464 - ---------------------------------------------------------------------------------------------- Prime Money Fund II: Annuity contracts in accumulation 271,362 7,530,487 8,067,320 - ---------------------------------------------------------------------------------------------- U.S. Government Securities Fund II: Annuity contracts in accumulation 2,050,473 13,196,784 16,054,824 - ---------------------------------------------------------------------------------------------- Utility Fund II: Annuity contracts in accumulation 695,668 26,302,858 30,329,937 Annuity contracts in payment period 0 7,667 - ---------------------------------------------------------------------------------------------- Janus Aspen Series: Aggressive Growth Portfolio: Annuity contracts in accumulation 4,958,453 38,383,925 57,368,774 - ---------------------------------------------------------------------------------------------- Balanced Portfolio: Annuity contracts in accumulation 26,193,826 31,145,778 72,228,489 - ---------------------------------------------------------------------------------------------- Flexible Income Portfolio: Annuity contracts in accumulation 9,052,449 10,534,588 20,633,439 - ---------------------------------------------------------------------------------------------- Growth Portfolio: Annuity contracts in accumulation 12,764,560 40,072,928 68,058,273 Annuity contracts in payment period 645,899 1,585,189 - ---------------------------------------------------------------------------------------------- Worldwide Growth Portfolio: Annuity contracts in accumulation 39,032,925 160,658,096 243,902,115 Annuity contracts in payment period 1,995,445 3,724,747 - ---------------------------------------------------------------------------------------------- Lexington Emerging Markets Fund: Annuity contracts in accumulation (619,636) 2,833,416 1,509,423 - ---------------------------------------------------------------------------------------------- Lexington Natural Resources Trust Fund: Annuity contracts in accumulation (1,812,452) 6,930,364 3,954,893 - ---------------------------------------------------------------------------------------------- MFS Funds: Total Return Series: Annuity contracts in accumulation 16,318,427 18,973,878 38,137,728 - ---------------------------------------------------------------------------------------------- Worldwide Government Series: Annuity contracts in accumulation 588,287 1,324,295 2,014,138 - ---------------------------------------------------------------------------------------------- Oppenheimer Funds: Aggressive Growth Fund: Annuity contracts in accumulation 7,306,211 3,688,200 11,917,723 - ----------------------------------------------------------------------------------------------
S-31 Variable Annuity Account B Notes to Financial Statements - December 31, 1998 (continued): 6. Supplemental Information to Statements of Changes in Net Assets (continued):
- ----------------------------------------------------------------------------------------------- Year Ended December 31, 1998 Net Net Change in Net Realized Unrealized Investment Gain (Loss) Gain (Loss) Income on Investments on Investments - ----------------------------------------------------------------------------------------------- Global Securities Fund: Annuity contracts in accumulation $317,658 $(373,983) $786,851 - ----------------------------------------------------------------------------------------------- Growth & Income Fund: Annuity contracts in accumulation 697,969 126,292 (901,751) - ----------------------------------------------------------------------------------------------- Strategic Bond Fund: Annuity contracts in accumulation 37,162 (25,262) 68,836 Annuity contracts in payment period - ----------------------------------------------------------------------------------------------- Portfolio Partners, Inc. (PPI): PPI MFS Emerging Equities Portfolio: Annuity contracts in accumulation (1,172,488) 8,905,074 20,177,815 Annuity contracts in payment period - ----------------------------------------------------------------------------------------------- PPI MFS Research Growth Portfolio: Annuity contracts in accumulation (1,002,802) 3,344,659 12,179,408 - ----------------------------------------------------------------------------------------------- PPI MFS Value Equity Portfolio: Annuity contracts in accumulation (241,843) 1,430,022 3,549,391 Annuity contracts in payment period - ----------------------------------------------------------------------------------------------- PPI Scudder International Growth Portfolio: Annuity contracts in accumulation (138,109) 2,709,959 668,075 Annuity contracts in payment period - ----------------------------------------------------------------------------------------------- PPI T. Rowe Price Growth Equity Portfolio: Annuity contracts in accumulation (835,041) 1,547,217 23,093,697 Annuity contracts in payment period - ----------------------------------------------------------------------------------------------- Total Variable Annuity Account B $283,508,891 $143,410,533 $94,282,077 =============================================================================================== - ------------------------------------------------------------------------------------------------------ Year Ended December 31, 1998 Net Increase (Decrease) Net Assets in Net Assets ---------- from Unit Beginning End Transactions of Year of Year - ------------------------------------------------------------------------------------------------------ Global Securities Fund: Annuity contracts in accumulation $4,241,638 $2,680,937 $7,653,101 - ------------------------------------------------------------------------------------------------------ Growth & Income Fund: Annuity contracts in accumulation 22,581,792 12,688,907 35,193,209 - ------------------------------------------------------------------------------------------------------ Strategic Bond Fund: Annuity contracts in accumulation 9,925,163 3,092,701 12,897,019 Annuity contracts in payment period 0 201,581 - ------------------------------------------------------------------------------------------------------ Portfolio Partners, Inc. (PPI): PPI MFS Emerging Equities Portfolio: Annuity contracts in accumulation 8,869,734 94,796,247 131,150,274 Annuity contracts in payment period 496,447 922,555 - ------------------------------------------------------------------------------------------------------ PPI MFS Research Growth Portfolio: Annuity contracts in accumulation 8,222,292 65,867,130 88,610,687 - ------------------------------------------------------------------------------------------------------ PPI MFS Value Equity Portfolio: Annuity contracts in accumulation 7,801,278 15,049,606 27,062,849 Annuity contracts in payment period 378,075 903,680 - ------------------------------------------------------------------------------------------------------ PPI Scudder International Growth Portfolio: Annuity contracts in accumulation 1,706,168 12,650,163 17,577,310 Annuity contracts in payment period 0 18,946 - ------------------------------------------------------------------------------------------------------ PPI T. Rowe Price Growth Equity Portfolio: Annuity contracts in accumulation 4,872,246 90,170,258 118,791,854 Annuity contracts in payment period 0 56,523 - ------------------------------------------------------------------------------------------------------ Total Variable Annuity Account B $512,924,064 $2,922,442,857 $3,956,568,422 ======================================================================================================
(1) - Effective May 1, 1998, Aetna Ascent Variable Portfolio's name changed to Aetna Ascent VP. (2) - Effective May 1, 1998, Aetna Investment Advisors Fund's name changed to Aetna Balanced VP. (3) - Effective May 1, 1998, Aetna Income Shares began doing business under the name Aetna Bond VP. (4) - Effective May 1, 1998, Aetna Crossroads Variable Portfolio's name changed to Aetna Crossroads VP. (5) - Effective May 1, 1998, Aetna Variable Fund began doing business under the name Aetna Growth and Income VP. (6) - Effective May 1, 1998, Aetna Variable Growth Portfolio's name changed to Aetna Growth VP. (7) - Effective May 1, 1998, Aetna High Yield Portfolio's name changed to Aetna High Yield VP. (8) - Effective May 1, 1998, Aetna Variable Index Plus Portfolio's name changed to Aetna Index Plus Large Cap VP. (9) - Effective May 1, 1998, Aetna Index Plus Mid Cap Portfolio's name changed to Aetna Index Plus Mid Cap VP. (10) - Effective May 1, 1998, Aetna Index Plus Small Cap Portfolio's name changed to Aetna Index Plus Small Cap VP. (11) - Effective May 1, 1998, Aetna International Portfolio's name changed to Aetna International VP. (12) - Effective May 1, 1998, Aetna Legacy Variable Portfolio's name changed to Aetna Legacy VP. (13) - Effective May 1, 1998, Aetna Variable Encore Fund began doing business under the name Aetna Money Market VP. (14) - Effective May 1, 1998, Aetna Real Estate Securities Portfolio's name changed to Aetna Real Estate Securities VP. (15) - Effective May 1, 1998, Aetna Variable Small Company Portfolio's name changed to Aetna Small Company VP. (16) - Effective May 1, 1998, Aetna Variable Capital Appreciation Portfolio's name changed to Aetna Value Opportunity VP. S-32 Independent Auditors' Report The Board of Directors of Aetna Life Insurance and Annuity Company and Contract Owners of Variable Annuity Account B: We have audited the accompanying statement of assets and liabilities of Aetna Life Insurance and Annuity Company Variable Annuity Account B (the "Account") as of December 31, 1999, and the related statement of operations for the year then ended, statements of changes in net assets for each of the years in the two-year period then ended and condensed financial information for the year ended December 31, 1999. These financial statements and condensed financial information are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements and condensed financial information based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and condensed financial information are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1999, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and condensed financial information referred to above present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company Variable Annuity Account B as of December 31, 1999, the results of its operations for the year then ended, changes in its net assets for each of the years in the two-year period then ended and condensed financial information for the year ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP Hartford, Connecticut February 11, 2000 S-33 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES Index to Consolidated Financial Statements
Page ---- Independent Auditors' Report........................................................ F-2 Consolidated Financial Statements: Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997.................................................................. F-3 Consolidated Balance Sheets as of December 31, 1999 and 1998..................... F-4 Consolidated Statements of Changes in Shareholder's Equity for the Years Ended December 31, 1999, 1998 and 1997............................................... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997....................................................................... F-6 Notes to Consolidated Financial Statements....................................... F-7
F-1 Independent Auditors' Report The Shareholder and Board of Directors Aetna Life Insurance and Annuity Company: We have audited the accompanying consolidated balance sheets of Aetna Life Insurance and Annuity Company and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in shareholder's equity and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company and Subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP Hartford, Connecticut February 7, 2000 F-2 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Consolidated Statements of Income (millions)
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------- ------------ ------------ Revenue: Premiums $ 107.5 $ 79.4 $ 69.1 Charges assessed against policyholders 388.3 324.3 262.0 Net investment income 886.3 871.8 881.7 Net realized capital (losses) gains (21.5) 10.4 29.7 Other income 129.7 100.2 96.8 -------- -------- -------- Total revenue 1,490.3 1,386.1 1,339.3 -------- -------- -------- Benefits and expenses: Current and future benefits 746.2 714.4 720.4 Operating expenses: Salaries and related benefits 153.0 141.0 133.5 Other 214.9 200.8 182.8 Amortization of deferred policy acquisition costs 104.9 91.2 66.3 -------- -------- -------- Total benefits and expenses 1,219.0 1,147.4 1,103.0 -------- -------- -------- Income from continuing operations before income taxes 271.3 238.7 236.3 Income taxes 90.1 66.6 68.4 -------- -------- -------- Income from continuing operations 181.2 172.1 167.9 Discontinued operations, net of tax: Income from operations -- 61.8 67.8 Amortization of deferred gain on sale 5.7 -- -- Immediate gain on sale -- 59.0 -- -------- -------- -------- Net income $ 186.9 $ 292.9 $ 235.7 ======== ======== ========
See Notes to Consolidated Financial Statements F-3 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Consolidated Balance Sheets (millions, except share data)
December 31, December 31, 1999 1998 ------------- -------------- Assets Investments: Debt securities available for sale, at fair value (amortized cost: $11,657.9 and $11,571.3) $11,410.1 $12,068.2 Equity securities, available for sale: Nonredeemable preferred stock (cost: $134.7 and $202.6) 130.9 203.3 Investment in affiliated mutual funds (cost: $63.5 and $96.8) 64.1 100.1 Common stock (cost: $6.7 and $1.0) 11.5 2.0 Short-term investments 74.2 48.9 Mortgage loans 6.7 12.7 Policy loans 314.0 292.2 Other investments 13.2 12.7 ----------- ----------- Total investments 12,024.7 12,740.1 Cash and cash equivalents 693.3 628.3 Short-term investments under securities loan agreement 232.5 277.3 Accrued investment income 150.7 151.6 Premiums due and other receivables 298.3 61.1 Reinsurance recoverable 3,001.2 2,959.8 Deferred income taxes 150.4 114.3 Deferred policy acquisition costs 1,046.4 893.1 Other assets 96.5 70.4 Separate Accounts assets 38,692.6 29,430.2 ----------- ----------- Total assets $56,386.6 $47,326.2 =========== =========== Liabilities and Shareholder's Equity Liabilities: Future policy benefits $ 3,850.4 $ 3,815.9 Unpaid claims and claim expenses 27.3 18.8 Policyholders' funds left with the Company 11,121.7 11,305.6 ----------- ----------- Total insurance reserve liabilities 14,999.4 15,140.3 Payables under securities loan agreement 232.5 277.3 Current income taxes 14.7 279.6 Other liabilities 1,063.0 805.5 Separate Accounts liabilities 38,692.6 29,430.2 ----------- ----------- Total liabilities 55,002.2 45,932.9 ----------- ----------- Shareholder's equity: Common stock, par value $50 (100,000 shares authorized; 55,000 shares issued and outstanding) 2.8 2.8 Paid-in capital 431.8 431.8 Accumulated other comprehensive (loss) income (44.8) 104.8 Retained earnings 994.6 853.9 ----------- ----------- Total shareholder's equity 1,384.4 1,393.3 ----------- ----------- Total liabilities and shareholder's equity $56,386.6 $47,326.2 =========== ===========
See Notes to Consolidated Financial Statements F-4 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Consolidated Statements of Changes in Shareholder's Equity (millions)
Years Ended December 31, --------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- Shareholder's equity, beginning of year $1,393.3 $1,852.8 $1,618.3 Comprehensive income: Net income 186.9 292.9 235.7 Other comprehensive income, net of tax: Unrealized (losses) gains on securities ($(230.2), $18.2 $49.9, pretax)(1) (149.6) 11.9 32.4 ---------- ---------- ---------- Total comprehensive income 37.3 304.8 268.1 ---------- ---------- ---------- Capital contribution -- 9.3 (5.0) Other changes 2.8 2.4 5.7 ---------- ---------- ---------- Common stock dividends (49.0) (776.0) (34.3) ---------- ---------- ---------- Shareholder's equity, end of year $1,384.4 $1,393.3 $1,852.8 ========== ========== ==========
(1) Net of reclassification adjustments. See Notes to Consolidated Financial Statements F-5 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.) Consolidated Statements of Cash Flows (millions)
Years Ended December 31, --------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- Cash Flows from Operating Activities: Net income $ 186.9 $ 292.9 $ 235.7 Adjustments to reconcile net income to net cash (used for) provided by operating activities: Net accretion of discount on investments (26.5) (29.5) (66.8) Amortization of deferred gain on sale ( 5.7) -- -- Immediate gain on sale -- (59.0) -- Net realized capital losses (gains) 21.5 (11.1) (36.0) Changes in assets and liabilities: Decrease (increase) in accrued investment income 0.9 11.4 ( 4.0) Increase in premiums due and other receivables 23.3 (23.7) (30.0) (Increase) decrease in policy loans (21.8) 177.4 (70.3) Increase in deferred policy acquisition costs (153.3) (132.8) (155.8) Decrease in reinsurance loan to affiliate -- 397.2 231.1 Net increase in universal life account balances 55.7 122.9 157.1 Decrease in other insurance reserve liabilities (28.6) (41.8) (120.3) Decrease in other liabilities and other assets (53.9) (53.6) (74.0) (Decrease) increase in income taxes (259.8) 106.4 (25.8) ---------- ---------- ---------- Net cash (used for) provided by operating activities (261.3) 756.7 40.9 ---------- ---------- ---------- Cash Flows from Investing Activities: Proceeds from sales of: Debt securities available for sale 5,890.1 6,790.2 5,311.4 Equity securities 111.2 150.1 103.1 Mortgage loans 6.1 0.3 0.2 Life Business -- 966.5 -- Investment maturities and collections of: Debt securities available for sale 1,216.5 1,296.3 1,212.7 Short-term investments 80.6 135.3 108.4 Cost of investment purchases in: Debt securities available for sale (7,099.7) (6,706.4) (6,734.8) Equity securities (13.0) (125.7) (113.3) Short-term investments (106.0) (83.9) (167.1) Increase in property and equipment 5.7 9.0 10.0 Other, net 3.7 (2,725.9) -- ---------- ---------- ---------- Net cash provided by (used for) investing activities 95.2 (294.2) (269.4) ---------- ---------- ---------- Cash Flows from Financing Activities: Deposits and interest credited for investment contracts 2,040.2 1,571.1 1,621.2 Withdrawals of investment contracts (1,680.8) (1,393.1) (1,256.3) Capital contribution to Separate Account -- -- (25.0) Return of capital from Separate Account -- 1.7 12.3 Capital contribution from HOLDCO -- 9.3 (5.0) Dividends paid to shareholder (255.0) (570.0) (34.3) Other, net 126.7 (34.3) 26.4 ---------- ---------- ---------- Net cash provided by (used for) financing activities 231.1 (415.3) 339.3 ---------- ---------- ---------- Net increase in cash and cash equivalents 65.0 47.2 110.8 Cash and cash equivalents, beginning of year 628.3 581.1 470.3 ---------- ---------- ---------- Cash and cash equivalents, end of year $ 693.3 $ 628.3 $ 581.1 ========== ========== ========== Supplemental cash flow information: Income taxes paid, net $ 316.5 $ 60.5 $ 130.3 ========== ========== ==========
See Notes to Consolidated Financial Statements F-6 Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Aetna Life Insurance and Annuity Company ("ALIAC") and its wholly owned subsidiaries (collectively, the "Company") are providers of financial products and services and investment management services in the United States. The Company has two business segments: Financial Products and Investment Management Services. On October 1, 1998, the Company sold its individual life insurance business to Lincoln National Corporation ("Lincoln") and accordingly, it is now classified as Discontinued Operations (refer to note 3). Financial Products include annuity contracts that offer a variety of funding and payout options for individual and employer-sponsored retirement plans qualified under Internal Revenue Code Sections 401, 403, 408 and 457, nonqualified annuity contracts and mutual funds. Annuity contracts may be deferred or immediate ("payout annuities"). These products also include programs offered to qualified plans and nonqualified deferred compensation plans that package administrative and recordkeeping services along with a menu of investment options, including mutual funds (both ALIAC and nonaffiliated mutual funds), variable and fixed investment options. Financial Products also include investment advisory services and pension plan administrative services. Investment Management Services provides: investment advisory services to affiliated and unaffiliated institutional and retail clients on a fee-for-service basis; underwriting services to the Aetna Series Fund Inc.; distribution services for other Aetna products; and trustee, administrative, and other fiduciary services to retirement plans requiring or otherwise utilizing a trustee or custodian. Discontinued Operations include universal life, variable universal life, traditional whole life and term insurance. Principles of Consolidation The consolidated financial statements include ALIAC and its wholly owned subsidiaries, Aetna Insurance Company of America ("AICA") and Aetna Investment Adviser Holding Company, Inc. ("IA Holdco"). ALIAC is a wholly owned subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly owned subsidiary of Aetna Retirement Services, Inc. whose ultimate parent is Aetna Inc. ("Aetna"). On July 1, 1999, HOLDCO contributed IA Holdco to the Company (refer to note 2). The consolidated financial statements have been prepared in accordance with generally accepted accounting principles. The contribution of IA Holdco to the Company was accounted for in a manner similar to that of a pooling-of-interests and accordingly, the Company's historical consolidated financial statements have been restated to include the accounts and results of operations of IA Holdco. Certain reclassifications have been made to 1998 and 1997 financial information to conform to the 1999 presentation. F-7 Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) New Accounting Standards Accounting by Insurance and Other Enterprises for Insurance-Related Assesments As of January 1, 1999, the Company adopted Statement of Position ("SOP") 97-3, Accounting by Insurance and Other Enterprises for Insurance-Related Assessments, issued by the American Institute of Certified Public Accountants ("AICPA"). This statement provides guidance for determining when an insurance or other enterprise should recognize a liability for guaranty-fund and other insurance-related assessments and guidance for measuring the liability. The adoption of this standard did not have a material effect on the Company's financial position or results of operations, as the Company had previously accounted for guaranty-fund and other insurance-related assessments in a manner consistent with this standard. Future Application of Accounting Standards Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk In October 1998, the AICPA issued SOP 98-7, Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk, which provides guidance on how to account for all insurance and reinsurance contracts that do not transfer insurance risk, except for long-duration life and health insurance contracts. This statement is effective for the Company's financial statements beginning January 1, 2000. The Company does not expect the adoption of this standard to have a material effect on its financial position and results of operations. Accounting for Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standard ("FAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. This standard requires companies to record all derivatives on the balance sheet as either assets or liabilities and measure those instruments at fair value. The manner in which companies are to record gains or losses resulting from changes in the values of those derivatives depends on the use of the derivative and whether it qualifies for hedge accounting. As amended by FAS No. 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133, this standard is effective for the Company's financial statements beginning January 1, 2001, with early adoption permitted. The impact of FAS No. 133 on the Company's financial statements will vary based on certain factors including future interpretative guidance from the FASB, the extent of the Company's hedging activities, the types of hedging instruments used and the effectiveness of such instruments. The Company is evaluating the impact of adoption of this standard and currently does not believe that it will have a material effect on its financial position and results of operations. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the F-8 Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) financial statements and accompanying notes. Actual results could differ from reported results using those estimates. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, money market instruments and other debt issues with a maturity of 90 days or less when purchased. Investments Debt and equity securities are classified as available for sale and carried at fair value. Securities are written down (as realized capital losses) for other than temporary declines in value. Included in available-for-sale securities are investments that support experience-rated products. Experience-rated products are products where the customer, not the Company, assumes investment (including realized capital gains and losses) and other risks, subject to, among other things, minimum guarantees. As long as minimum guarantees are not triggered, the effect of experience- rated products' investment performance does not impact the Company's results of operations. Realized and unrealized capital gains and losses on investments supporting these products are reflected in policyholder's funds left with the Company. Realized capital gains and losses on all other investments are reflected in the Company's results of operations. Unrealized capital gains and losses on all other investments are reflected in shareholders' equity, net of related income taxes. Purchases and sales of debt and equity securities are recorded on the trade date. Sales of mortgage loans are recorded on the closing date. Fair values for debt and equity securities are based on quoted market prices or dealer quotations. Where quoted market prices or dealer quotations are not available, fair values are measured utilizing quoted market prices for similar securities or by using discounted cash flow methods. Cost for mortgage-backed securities is adjusted for unamortized premiums and discounts, which are amortized using the interest method over the estimated remaining term of the securities, adjusted for anticipated prepayments. The Company does not accrue interest on problem debt securities when management believes the collection of interest is unlikely. The Company engages in securities lending whereby certain securities from its portfolio are loaned to other institutions for short periods of time. Initial collateral, primarily cash, is required at a rate of 102% of the market value of a loaned domestic security and 105% of the market value of a loaned foreign security. The collateral is deposited by the borrower with a lending agent, and retained and invested by the lending agent according to the Company's guidelines to generate additional income. The market value of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the market value of the loaned securities fluctuates. At December 31, 1999 and 1998, the Company loaned securities (which are reflected as invested assets) with a fair value of approximately $232.5 million and $277.3 million, respectively. The investment in affiliated mutual funds represents an investment in Aetna managed mutual funds which have been seeded by the Company, and is carried at fair value. F-9 Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) Mortgage loans and policy loans are carried at unpaid principal balances, net of impairment reserves. Short-term investments, consisting primarily of money market instruments and other debt issues purchased with an original maturity of 91 days to one year, are considered available for sale and are carried at fair value, which approximates amortized cost. The Company utilizes futures contracts for other than trading purposes in order to hedge interest rate risk (i.e. market risk, refer to note 5.) Futures contracts are carried at fair value and require daily cash settlement. Changes in the fair value of futures contracts allocable to experience rated contracts are deducted from capital gains and losses with an offsetting amount reported in future policy benefits. Changes in the fair value of futures contracts allocable to non-experienced-rated contracts that qualify as hedges are deferred and recognized as an adjustment to the hedged asset or liability. Deferred gains or losses on such futures contracts are amortized over the life of the acquired asset or liability as a yield adjustment or through net realized capital gains or losses upon disposal of an asset. Changes in the fair value of futures contracts that do not qualify as hedges are recorded in net realized capital gains or losses. Hedge designation requires specific asset or liability identification, a probability at inception of high correlation with the position underlying the hedge, and that high correlation be maintained throughout the hedge period. If a hedging instrument ceases to be highly correlated with the position underlying the hedge, hedge accounting ceases at that date and excess gains or losses on the hedging instrument are reflected in net realized capital gains or losses. Included in common stock are warrants which represent the right to purchase specific securities. Upon exercise, the cost of the warrants is added to the basis of the securities purchased. On occasion, the Company sells call options written on underlying securities which are carried at fair value. Changes in fair value of these options are recorded in net realized capital gains or losses. Deferred Policy Acquisition Costs Certain costs of acquiring certain insurance business are deferred. These costs, all of which vary with and are primarily related to the production of new and renewal business, consist principally of commissions, certain expenses of underwriting and issuing contracts, and certain agency expenses. For certain annuity and pension contracts, such costs are amortized in proportion to estimated gross profits and adjusted to reflect actual gross profits over the life of the contracts (up to 20 years for annuity and pension contracts.) Periodically, modifications may be made to deferred annuity contract features, such as shortening the surrender charge period or waiving the surrender charge, changing the mortality and expense fees, etc. Unamortized deferred policy acquisition costs associated with these modified contracts are not written off, but rather, continue to be associated with the original block of business to F-10 Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) which these costs were previously recorded. Such costs are amortized based on revised estimates of expected gross profits based upon the contract after the modification. Unamortized deferred policy acquisition costs related to deferred annuity products were approximately $1.0 billion and $893 million as of December 31, 1999 and 1998, respectively. Deferred policy acquisition costs are written off to the extent that it is determined that future policy premiums and investment income or gross profits are not adequate to cover related expenses. Insurance Reserve Liabilities Future policy benefits include reserves for universal life, immediate annuities with life contingent payouts and traditional life insurance contracts. Reserves for universal life products are equal to cumulative deposits less withdrawals and charges plus credited interest thereon. Reserves for traditional life insurance contracts represent the present value of future benefits to be paid to or on behalf of policyholders and related expenses less the present value of future net premiums. Reserves for immediate annuities with life contingent payouts contracts are computed on the basis of assumed investment yield, mortality, and expenses, including a margin for adverse deviations. Such assumptions generally vary by plan, year of issue and policy duration. Reserve interest rates range from 1.50% to 11.25% for all years presented. Investment yield is based on the Company's experience. Mortality and withdrawal rate assumptions are based on relevant Aetna experience and are periodically reviewed against both industry standards and experience. Because the sale of the domestic individual life insurance business was substantially in the form of an indemnity reinsurance agreement, the Company reported an addition to its reinsurance recoverable approximating the Company's total individual life reserves at the sale date. Policyholders' funds left with the Company include reserves for deferred annuity investment contracts and immediate annuities without life contingent payouts. Reserves on such contracts are equal to cumulative deposits less charges and withdrawals plus credited interest thereon (rates range from 1.50% to 11.25% for all years presented) net of adjustments for investment experience that the Company is entitled to reflect in future credited interest. These reserves also include unrealized gains/losses related to FAS No. 115. Reserves on contracts subject to experience rating reflect the rights of contractholders, plan participants and the Company. Unpaid claims for all lines of insurance include benefits for reported losses and estimates of benefits for losses incurred but not reported. Revenue Recognition For certain annuity contracts, charges assessed against policyholders' funds for the cost of insurance, surrender charges, actuarial margin and other fees are recorded as revenue in charges assessed against policyholders. Other amounts received for these contracts are reflected as deposits F-11 Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) and are not recorded as revenue. Related policy benefits are recorded in relation to the associated premiums or gross profit so that profits are recognized over the expected lives of the contracts. When annuity payments with life contingencies begin under contracts that were initially investment contracts, the accumulated balance in the account is treated as a single premium for the purchase of an annuity and reflected as an offsetting amount in both premiums and current and future benefits in the Consolidated Statements of Income. Separate Accounts Separate Accounts assets and liabilities generally represent funds maintained to meet specific investment objectives of contractholders who bear the investment risk, subject, in some cases, to minimum guaranteed rates. Investment income and investment gains and losses generally accrue directly to such contractholders. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. Separate Accounts assets supporting variable options under universal life and annuity contracts are invested, as designated by the contractholder or participant under a contract (who bears the investment risk subject, in limited cases, to minimum guaranteed rates) in shares of mutual funds which are managed by the Company, or other selected mutual funds not managed by the Company. Separate Accounts assets are carried at fair value. At December 31, 1999 and 1998 , unrealized losses of $8.0 million and unrealized gains of $10.0 million, respectively, after taxes, on assets supporting a guaranteed interest option are reflected in shareholder's equity. Separate Accounts liabilities are carried at fair value, except for those relating to the guaranteed interest option. Reserves relating to the guaranteed interest option are maintained at fund value and reflect interest credited at rates ranging from 3.70% to 12.00% in 1999 and 3.00 to 8.10% in 1998. Separate Accounts assets and liabilities are shown as separate captions in the Consolidated Balance Sheets. Deposits, investment income and net realized and unrealized capital gains and losses of the Separate Accounts are not reflected in the Consolidated Financial Statements (with the exception of realized and unrealized capital gains and losses on the assets supporting the guaranteed interest option). The Consolidated Statements of Cash Flows do not reflect investment activity of the Separate Accounts. Reinsurance The Company utilizes indemnity reinsurance agreements to reduce its exposure to large losses in all aspects of its insurance business. Such reinsurance permits recovery of a portion of losses from reinsurers, although it does not discharge the primary liability of the Company as direct insurer of the risks reinsured. The Company evaluates the financial strength of potential reinsurers and continually monitors the financial condition of reinsurers. Only those reinsurance recoverable deemed probable of recovery are reflected as assets on the Company's Consolidated Balance Sheets. Of the reinsurance recoverable on the Consolidated Balance Sheets at December 31, 1999 and 1998, $2,989 million and $2,946 million, respectively, is related to the reinsurance recoverable from Lincoln arising from the sale of the domestic life insurance business. (Refer to note 3) F-12 Notes to Consolidated Financial Statements (continued) 1. Summary of Significant Accounting Policies (continued) Income Taxes The Company is included in the consolidated federal income tax return of Aetna. The Company is taxed at regular corporate rates after adjusting income reported for financial statement purposes for certain items. Deferred income tax expenses/benefits result from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities. 2. Contribution of IA Holdco from HOLDCO On July 1, 1999, HOLDCO contributed IA Holdco to the Company. The primary operating subsidiary of IA Holdco is Aeltus Investment Management, Inc. ("Aeltus") which has two wholly-owned operating subsidiaries: Aeltus Capital, Inc. ("ACI"), a broker dealer, and Aeltus Trust Company ("ATC"), a limited purpose banking entity. Aeltus is a registered investment advisor under the Investment Advisers Act of 1940 and provides investment advisory services to institutional and retail clients on a fee-for-service basis. In addition, Aeltus, through its ACI subsidiary, provides distribution services for certain Aetna mutual funds and other Aetna products. Aeltus' ATC subsidiary provides trustee, administrative, and other fiduciary services to retirement plans requiring or otherwise utilizing a trustee or custodian. 3. Discontinued Operations-Individual Life Insurance On October 1, 1998, the Company sold its domestic individual life insurance business to Lincoln for $1 billion in cash. The transaction was generally in the form of an indemnity reinsurance arrangement, under which Lincoln contractually assumed from the Company certain policyholder liabilities and obligations, although the Company remains directly obligated to policyholders. Assets related to and supporting the life policies were transferred to Lincoln and the Company recorded a reinsurance recoverable from Lincoln. The transaction resulted in an after-tax gain on the sale of approximately $117 million, of which $57.7 million was deferred and was being recognized over approximately 15 years. The remaining portion of the gain is recognized immediately in net income and was largely attributed to access to the agency sales force and brokerage distribution channel. Approximately $5.2 million (after tax) of the deferred gain was recognized during 1999. During the fourth quarter of 1999, the Company refined certain accrual and tax estimates which had been established in connection with the recording of the deferred gain. As a result, the deferred gain was increased by $12.9 million (after tax) to $65.4 million at December 31, 1999. The remaining deferred gain will be recognized over approximately 14 years. The unamortized portion of the deferred gain is presented in other liabilities on the Consolidated Balance Sheets. The operating results of the domestic individual life insurance business are presented as Discontinued Operations. All prior year income statement data has been restated to reflect the presentation as Discontinued Operations. Revenues for the individual life segment were $652.2 million and $620.4 million for 1998 and 1997. Premiums ceded and reinsurance recoveries made in 1999 totaled $476.5 million and $513.4 million, respectively, and in 1998 totaled $153.4 million and $70.5 million, respectively. F-13 Notes to Consolidated Financial Statements (continued) 4. Investments Debt securities available for sale as of December 31 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair 1999 (Millions) Cost Gains Losses Value - ---------------------------------------------------------------------------------------------------------------- U.S. government and government agencies and authorities $ 1,087.2 $ 4.6 $ 22.1 $ 1,069.7 States, municipalities and political subdivisions 0.3 -- -- 0.3 U.S. corporate securities: Utilities 514.5 5.6 12.7 507.4 Financial 1,869.8 8.2 44.7 1,833.3 Transportation/capital goods 623.4 .9 39.0 585.3 Health care/consumer products 1,138.7 9.3 51.3 1,096.7 Natural resources 424.6 1.3 15.4 410.5 Other corporate securities 214.0 1.0 14.9 200.1 - ---------------------------------------------------------------------------------------------------------------- Total U.S. corporate securities 4,785.0 26.3 178.0 4,633.3 - ---------------------------------------------------------------------------------------------------------------- Foreign securities: Government, including political subdivisions 364.6 17.1 11.9 369.8 Utilities 196.4 7.3 .4 203.3 Other 748.2 8.9 34.3 722.8 - ---------------------------------------------------------------------------------------------------------------- Total foreign securities 1,309.2 33.3 46.6 1,295.9 - ---------------------------------------------------------------------------------------------------------------- Residential mortgage-backed securities: Pass-throughs 1,055.9 19.8 17.6 1,058.1 Collateralized mortgage obligations 1,683.1 25.1 37.7 1,670.5 - ---------------------------------------------------------------------------------------------------------------- Total residential mortgage-backed securities 2,739.0 44.9 55.3 2,728.6 - ---------------------------------------------------------------------------------------------------------------- Commercial/Multifamily mortgage-backed securities 1,031.5 3.4 48.7 986.2 Other asset-backed securities 705.7 0.3 9.9 696.1 - ---------------------------------------------------------------------------------------------------------------- Total debt securities $ 11,657.9 $ 112.8 $ 360.6 $ 11,410.1 ================================================================================================================
F-14 Notes to Consolidated Financial Statements (continued) 4. Investments (continued) Debt securities available for sale as of December 31 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair 1998 (Millions) Cost Gains Losses Value - ---------------------------------------------------------------------------------------------------------------- U.S. government and government agencies and authorities $ 718.9 $ 60.4 $ 0.2 $ 779.1 States, municipalities and political subdivisions 0.3 -- -- 0.3 U.S. corporate securities: Utilities 615.2 29.8 4.1 640.9 Financial 2,260.2 94.6 5.6 2,349.2 Transportation/capital goods 580.8 33.0 1.1 612.7 Healthcare/consumer products 1,328.2 69.8 4.8 1,393.2 Natural resources 254.5 6.9 2.3 259.1 Other corporate securities 261.7 5.8 7.4 260.1 - ---------------------------------------------------------------------------------------------------------------- Total U.S. corporate securities 5,300.6 239.9 25.3 5,515.2 - ---------------------------------------------------------------------------------------------------------------- Foreign securities: Government, including political subdivisions 507.6 30.4 32.9 505.1 Utilities 147.0 32.4 -- 179.4 Other 511.2 14.9 1.8 524.3 - ---------------------------------------------------------------------------------------------------------------- Total foreign securities 1,165.8 77.7 34.7 1,208.8 - ---------------------------------------------------------------------------------------------------------------- Residential mortgage-backed securities: Pass-throughs 671.9 38.4 2.9 707.4 Collateralized mortgage obligations 1,879.6 119.7 10.4 1,988.9 - ---------------------------------------------------------------------------------------------------------------- Total residential mortgage-backed securities 2,551.5 158.1 13.3 2,696.3 - ---------------------------------------------------------------------------------------------------------------- Commercial/Multifamily mortgage-backed securities 1,114.9 30.9 9.8 1,136.0 Other asset-backed securities 719.3 13.8 0.6 732.5 - ---------------------------------------------------------------------------------------------------------------- Total debt securities $ 11,571.3 $ 580.8 $ 83.9 $ 12,068.2 ================================================================================================================
F-15 Notes to Consolidated Financial Statements (continued) 4. Investments (continued) At December 31, 1999 and 1998, net unrealized (depreciation) appreciation of $(247.8) million and $496.9 million, respectively, on available-for-sale debt securities included $(189.7) million and $355.8 million, respectively, related to experience-rated contracts, which were not reflected in shareholder's equity but in insurance reserves. The amortized cost and fair value of debt securities for the year ended December 31, 1999 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called, or prepaid.
Amortized Fair (Millions) Cost Value - ------------------------------------------------------------------------- Due to mature: One year or less $ 266.4 $ 266.5 After one year through five years 2,838.4 2,798.7 After five years through ten years 1,718.0 1,674.6 After ten years 2,351.4 2,250.1 Mortgage-backed securities 3,776.5 3,722.3 Other asset-backed securities 707.2 697.9 - ------------------------------------------------------------------------- Total $ 11,657.9 $ 11,410.1 =========================================================================
At December 31, 1999 and 1998, debt securities carried at fair value of $8.7 million and $8.8 million, respectively, were on deposit as required by regulatory authorities. The Company did not have any investments in a single issuer, other than obligations of the U.S. government, with a carrying value in excess of 10% of the Company's shareholder's equity at December 31, 1999. Included in the Company's debt securities were residential collateralized mortgage obligations ("CMOs") supporting the following:
1999 1998 ----------------------------- -------------------------- Amortized Fair Amortized Fair (Millions) Cost Value Cost Value - ----------------------------------------------------------------------------------------------------- Total residential CMOs (1) $ 1,683.1 $ 1,670.5 $ 1,879.6 $ 1,988.9 ===================================================================================================== Percentage of total: Supporting experience rated products 80.7% 81.7% Supporting remaining products 19.3% 18.3% - ----------------------------------------------------------------------------------------------------- 100.0% 100.0% =====================================================================================================
(1) At December 31, 1999 and 1998, approximately 81% and 66%, respectively, of the Company's residential CMO holdings were backed by government agencies such as GNMA, FNMA, FHLMC. F-16 Notes to Consolidated Financial Statements (continued) 4. Investments (continued) There are various categories of CMOs which are subject to different degrees of risk from changes in interest rates and, for CMO's that are not agency-backed, defaults. The principal risks inherent in holding CMOs are prepayment and extension risks related to dramatic decreases and increases in interest rates resulting in the repayment of principal from the underlying mortgages either earlier or later than originally anticipated. At December 31, 1999 and 1998, approximately 1% and 2%, respectively, of the Company's CMO holdings were invested in types of CMOs which are subject to more prepayment and extension risk than traditional CMOs (such as interest- or principal-only strips). Investments in equity securities available for sale as of December 31 were as follows:
(Millions) 1999 1998 - ---------------------------------------------------- Amortized Cost $ 204.9 $ 300.4 Gross unrealized gains 12.5 13.1 Gross unrealized losses 10.9 8.1 - ---------------------------------------------------- Fair Value $ 206.5 $ 305.4 ====================================================
5. Financial Instruments Estimated Fair Value The carrying values and estimated fair values of certain of the Company's financial instruments at December 31, 1999 and 1998 were as follows:
1999 1998 -------------------------- ---------------------- Carrying Fair Carrying Fair (Millions) Value Value Value Value - ------------------------------------------------------------------------------------------ Assets: Mortgage loans $ 6.7 $ 6.8 $ 12.7 $ 12.3 Liabilities: Investment contract liabilities: With a fixed maturity 1,055.3 991.0 1,063.9 984.3 Without a fixed maturity 10,066.4 9,452.8 10,241.7 9,686.2 - ------------------------------------------------------------------------------------------
Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, such as estimates of timing and amount of future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument. In evaluating the Company's management of interest rate, price and liquidity risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above. F-17 Notes to Consolidated Financial Statements (continued) 5. Financial Instruments (continued) The following valuation methods and assumptions were used by the Company in estimating the fair value of the above financial instruments: Mortgage loans: Fair values are estimated by discounting expected mortgage loan cash flows at market rates which reflect the rates at which similar loans would be made to similar borrowers. The rates reflect management's assessment of the credit quality and the remaining duration of the loans. Investment contract liabilities (included in Policyholders' funds left with the Company): With a fixed maturity: Fair value is estimated by discounting cash flows at interest rates currently being offered by, or available to, the Company for similar contracts. Off-Balance-Sheet and Other Financial Instruments Without a fixed maturity: Fair value is estimated as the amount payable to the contractholder upon demand. However, the Company has the right under such contracts to delay payment of withdrawals which may ultimately result in paying an amount different than that determined to be payable on demand. Futures Contracts: Futures contracts are used to manage interest rate risk in the Company's bond portfolio. Futures contracts represent commitments to either purchase or sell securities at a specified future date and at a specified price or yield. Futures contracts trade on organized exchanges and, therefore, have minimal credit risk. Cash settlements are made daily based on changes in the prices of the underlying assets. The notional amounts, carrying values and estimated fair values of the Company's open treasury futures as of December 31, 1998 were $250.9 million, $.1 million, and $.1 million, respectively. There were no open treasury futures as of December 31, 1999. Warrants: Included in common stocks are warrants which are instruments giving the Company the right, but not the obligation to buy a security at a given price during a specified period. The carrying values and estimated fair values of the Company's warrants to purchase equity securities as of December 31, 1999 were both $6.5 million. The carrying values and estimated fair values as of December 31, 1998 were both $1.5 million. Options: During 1999, the Company earned $0.4 million of investment income for writing call options on underlying securities. The Company did not write any call options in 1998. As of December 31, 1999 and 1998, there were no option contracts outstanding. F-18 Notes to Consolidated Financial Statements (continued) 5. Financial Instruments (continued) Debt Instruments with Derivative Characteristics: The Company also had investments in certain debt instruments with derivative characteristics, including those whose market value is at least partially determined by, among other things, levels of or changes in domestic and/or foreign interest rates (short- or long-term), exchange rates, prepayment rates, equity markets or credit ratings/spreads. The amortized cost and fair value of these securities, included in the debt securities portfolio, as of December 31, 1999 was as follows:
Amortized Fair (Millions) Cost Value - -------------------------------------------------------------------------------- Residential collateralized mortgage obligations $ 1,683.1 $ 1,670.5 Principal-only strips (included above) 9.2 9.7 Interest-only strips (included above) 10.7 14.6 Other structured securities with derivative characteristics (1) 81.7 67.2 - --------------------------------------------------------------------------------
(1) Represents non-leveraged instruments whose fair values and credit risk are based on underlying securities, including fixed income securities and interest rate swap agreements. 6. Net Investment Income Sources of net investment income were as follows:
(Millions) 1999 1998 1997 - -------------------------------------------------------------------------------- Debt securities $ 823.3 $ 798.8 $ 814.6 Nonredeemable preferred stock 17.1 18.4 12.9 Investment in affiliated mutual funds 2.4 6.6 3.8 Mortgage loans 1.1 0.6 0.3 Policy loans 7.7 7.2 5.7 Reinsurance loan to affiliate -- 2.3 5.5 Cash equivalents 39.0 46.1 40.2 Other 15.3 13.2 16.1 - -------------------------------------------------------------------------------- Gross investment income 905.9 893.2 899.1 Less: investment expenses (19.6) (21.4) (17.4) - -------------------------------------------------------------------------------- Net investment income $ 886.3 $ 871.8 $ 881.7 ================================================================================
Net investment income includes amounts allocable to experience rated contractholders of $659.6 million, $655.6 million and $673.8 million for the years ended December 31, 1999, 1998 and 1997, respectively. Interest credited to contractholders is included in current and future benefits. F-19 Notes to Consolidated Financial Statements (continued) 7. Dividend Restrictions and Shareholder's Equity The Company paid $255.0 million, $570.0 million and $34.3 million in cash dividends to HOLDCO in 1999,1998 and 1997, respectively. Of the $255.0 million paid in 1999, $206 million was accrued for in 1998. Of the $776.0 million dividends paid or accrued in 1998, $756.0 million (all of which was approved by the Insurance Commissioner of the State of Connecticut) was attributable to proceeds from the sale of the domestic individual life insurance business. The Department recognizes as net income and shareholder's capital and surplus those amounts determined in conformity with statutory accounting practices prescribed or permitted by the Department, which differ in certain respects from generally accepted accounting principles. Statutory net income was $133.9 million, $148.1 million and $80.5 million for the years ended December 31, 1999, 1998 and 1997, respectively. Statutory capital and surplus was $845.2 million and $773.0 million as of December 31, 1999 and 1998, respectively. As of December 31, 1999, the Company does not utilize any statutory accounting practices which are not prescribed by state regulatory authorities that, individually or in the aggregate, materially affect statutory capital and surplus. 8. Capital Gains and Losses on Investment Operations Realized capital gains or losses are the difference between the carrying value and sale proceeds of specific investments sold. Net realized capital (losses) gains on investments were as follows:
(Millions) 1999 1998 1997 - ---------------------------------------------------------------------------------- Debt securities $ (23.6) $ 7.4 $ 21.1 Equity securities 2.1 3.0 8.6 - ---------------------------------------------------------------------------------- Pretax realized capital (losses) gains $ (21.5) $ 10.4 $ 29.7 ================================================================================== After-tax realized capital (losses) gains $ (14.0) $ 7.3 $ 19.2 ==================================================================================
Net realized capital (losses) gains of $(36.7) million, $15.0 million and $83.7 million for 1999, 1998 and 1997, respectively, allocable to experience rated contracts, were deducted from net realized capital gains and an offsetting amount was reflected in Policyholders' funds left with the Company. Net unamortized gains allocable to experienced-rated contractholders were $68.5 million and $118.6 million at December 31, 1999 and 1998, respectively. F-20 Notes to Consolidated Financial Statements (continued) 8. Capital Gains and Losses on Investment Operations (continued) Proceeds from the sale of available-for-sale debt securities and the related gross gains and losses were as follows:
(Millions) 1999 1998 1997 - ------------------------------------------------------------------ Proceeds on sales $ 5,890.1 $ 6,790.2 $ 5,311.3 Gross gains 10.5 98.8 23.8 Gross losses 34.1 91.4 2.7 - ------------------------------------------------------------------
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:
(Millions) 1999 1998 1997 - ------------------------------------------------------------------------------------- Debt securities $ (199.2) $ 18.9 $ 44.3 Equity securities (3.4) (16.1) 5.6 Other (27.6) 15.4 -- - ------------------------------------------------------------------------------------- Subtotal (230.2) 18.2 49.9 (Decrease) increase in deferred income taxes (Refer to note 9) (80.6) 6.3 17.5 - ------------------------------------------------------------------------------------- Net changes in accumulated other comprehensive (loss) income $ (149.6) $ 11.9 $ 32.4 =====================================================================================
Net unrealized capital (losses) gains allocable to experience-rated contracts of $(189.7) and $355.8 million at December 31, 1999 and December 31, 1998 respectively, are reflected on the Consolidated Balance Sheets in Policyholders' funds left with the Company and are not included in shareholder's equity. F-21 Notes to Consolidated Financial Statements (continued) 8. Capital Gains and Losses on Investment Operations (continued) Shareholder's equity included the following accumulated other comprehensive (loss) income, which is net of amounts allocable to experience-rated contractholders, at December 31:
(Millions) 1999 1998 1997 - ----------------------------------------------------------------------------------- Debt securities: Gross unrealized capital gains $ 18.6 $ 157.3 $ 140.6 Gross unrealized capital losses (76.7) (16.2) (18.4) - ----------------------------------------------------------------------------------- (58.1) 141.1 122.2 - ----------------------------------------------------------------------------------- Equity securities: Gross unrealized capital gains 12.5 13.1 21.2 Gross unrealized capital losses (10.9) (8.1) (0.1) - ----------------------------------------------------------------------------------- 1.6 5.0 21.1 - ----------------------------------------------------------------------------------- Other: Gross unrealized capital gains 1.3 17.1 -- Gross unrealized capital losses (13.7) (1.8) -- - ----------------------------------------------------------------------------------- (12.4) 15.3 -- - ----------------------------------------------------------------------------------- Deferred income taxes (Refer to note 9) (24.1) 56.6 50.4 - ----------------------------------------------------------------------------------- Net accumulated other comprehensive (loss) income $ (44.8) $ 104.8 $ 92.9 ===================================================================================
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:
(Millions) 1999 1998 1997 - ---------------------------------------------------------------------------------------- Unrealized holding (losses) gains arising during the year (1) $ (146.3) $ 38.3 $ 99.2 Less: reclassification adjustment for gains and other items included in net income (2) 3.3 26.4 66.8 ======================================================================================== Net unrealized (losses) gains on securities $ (149.6) $ 11.9 $ 32.4 ========================================================================================
(1) Pretax unrealized holding (losses) gains arising during the year were $(225.2) million, $58.8 million and $152.7 million for 1999, 1998 and 1997, respectively. (2) Pretax reclassification adjustments for gains and other items included in net income were $5.0 million, $40.6 million and $102.8 million for 1999, 1998 and 1997, respectively. F-22 Notes to Consolidated Financial Statements (continued) 9. Income Taxes The Company is included in the consolidated federal income tax return, the combined New York return, and Illinois unitary state income tax return of Aetna. Aetna allocates to each member, as permitted under a tax sharing arrangement, an amount approximating the tax it would have incurred were it not a member of the consolidated group, and credits the member for the use of its tax saving attributes in the consolidated federal income tax return. Income taxes from continuing operations consist of the following:
(Millions) 1999 1998 1997 - ----------------------------------------------------------------------------- Current taxes (benefits): Federal $ 63.8 $ 257.4 $ 40.0 State 2.5 3.0 3.3 Net realized capital (losses) gains (20.1) 16.8 39.1 - ----------------------------------------------------------------------------- 46.2 277.2 82.4 - ----------------------------------------------------------------------------- Deferred taxes (benefits): Federal 31.3 (196.7) 14.3 Net realized capital gains (losses) 12.6 (13.9) (28.3) - ----------------------------------------------------------------------------- 43.9 (210.6) (14.0) - ----------------------------------------------------------------------------- Total $ 90.1 $ 66.6 $ 68.4 =============================================================================
Income taxes were different from the amount computed by applying the federal income tax rate to income from continuing operations before income taxes for the following reasons:
(Millions) 1999 1998 1997 - ------------------------------------------------------------------------------------ Income from continuing operations before income taxes $ 271.3 $ 238.7 $ 236.3 Tax rate 35% 35% 35% - ------------------------------------------------------------------------------------ Application of the tax rate 95.0 83.5 82.7 Tax effect of: State income tax, net of federal benefit 1.6 2.0 2.1 Excludable dividends (6.1) (17.1) (15.6) Other, net (0.4) (1.8) (0.8) - ------------------------------------------------------------------------------------ Income taxes $ 90.1 $ 66.6 $ 68.4 =====================================================================================
F-23 Notes to Consolidated Financial Statements (continued) 9. Income Taxes (continued) The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31 are presented below:
(Millions) 1999 1998 - --------------------------------------------------------------------------------------- Deferred tax assets: Insurance reserves $ 323.1 $ 324.1 Unrealized gains allocable to experience rated contracts -- 124.5 Net unrealized capital losses 90.5 -- Investment losses 1.3 -- Postretirement benefits other than pensions 24.8 27.6 Deferred compensation 42.5 37.3 Sale of individual life 44.9 48.9 Other 20.2 20.4 - --------------------------------------------------------------------------------------- Total gross assets 547.3 582.8 - --------------------------------------------------------------------------------------- Deferred tax liabilities: Deferred policy acquisition costs 324.0 282.9 Market discount 6.5 4.5 Net unrealized capital gains -- 181.1 Unrealized losses allocable to experience rated contracts 66.4 -- - --------------------------------------------------------------------------------------- Total gross liabilities 396.9 468.5 - --------------------------------------------------------------------------------------- Net deferred tax asset $ 150.4 $ 114.3 =======================================================================================
Net unrealized capital gains and losses are presented in shareholder's equity net of deferred taxes. Management believes that it is more likely than not that the Company will realize the benefit of the net deferred tax asset. The Company expects sufficient taxable income in the future to realize the net deferred tax asset because of the Company's long-term history of having taxable income, which is projected to continue. The "Policyholders' Surplus Account," which arose under prior tax law, is generally that portion of a life insurance company's statutory income that has not been subject to taxation. As of December 31, 1983, no further additions could be made to the Policyholders' Surplus Account for tax return purposes under the Deficit Reduction Act of 1984. The balance in such account was approximately $17.2 million at December 31, 1999. This amount would be taxed only under certain conditions. No income taxes have been provided on this amount since management believes under current tax law the conditions under which such taxes would become payable are remote. The Internal Revenue Service (the "Service") has completed examinations of the consolidated federal income tax returns of Aetna through 1994. Discussions are being held with the Service with respect to proposed adjustments. Management believes there are adequate defenses against, or sufficient reserves to provide for, any such adjustments. The Service has commenced its examinations for the years 1995 through 1997. F-24 Notes to Consolidated Financial Statements (continued) 10. Benefit Plans Aetna has noncontributory defined benefit pension plans covering substantially all employees. Aetna's accrued pension cost has been allocated to its subsidiaries, including the Company, under an allocation based on eligible salaries. Data on a separate company basis regarding the proportionate share of the projected benefit obligation and plan assets is not available. The accumulated benefit obligation and plan assets are recorded by Aetna. As of the measurement date (September 30), fair value of plan assets exceed projected benefit obligations. Allocated pretax charges to operations for the pension plan (based on the Company's total salary cost as a percentage of Aetna's total salary cost) were $6.6 million and $3.0 million for the years ended December 31, 1999 and 1997, respectively. There were no charges in 1998 due to favorable plan asset performance. Effective January 1, 1999, the Company, in conjunction with Aetna, changed the formula from the previous final average pay formula to a cash balance formula, which will credit employees annually with an amount equal to a percentage of eligible pay based on age and years of service as well as an interest credit based on individual account balances. The formula also provides for a transition period until December 1, 2006, which allows certain employees to receive vested benefits at the higher of the final average pay or cash balance formula. The changing of this formula did not have a material effect on the Company's results of operations, liquidity or financial condition. In addition to providing pension benefits, Aetna currently provides certain health care and life insurance benefits for retired employees. A comprehensive medical and dental plan is offered to all full-time employees retiring at age 45 with 10 years of service. The company provides subsidized benefits to employees whose sum of age and service is at least equal to 65. There is a cap on the portion of the cost paid by the Company relating to medical and dental benefits. The costs to the Company associated with the Aetna postretirement plans for 1999, 1998 and 1997 were $2.1 million, $1.0 million and $2.4 million, respectively. The Company, in conjunction with Aetna, has a non-qualified pension plan covering certain agents. The plan provides pension benefits based on annual commission earnings. As of the measurement date (September 30), accumulated benefit obligations exceeded fair value of plan assets. The Company, in conjunction with Aetna, also provides certain postretirement health care and life insurance benefits for certain agents. The costs to the Company associated with the agents' postretirement plans for 1999, 1998 and 1997 were $2.1 million, $1.4 million and $0.6 million, respectively. Incentive Savings Plan--Substantially all employees are eligible to participate in a savings plan under which designated contributions, which may be invested in common stock of Aetna or certain other investments, are matched, up to 5% of compensation, by Aetna. Pretax charges to operations for the incentive savings plan were $7.7 million, $5.3 million and $5.0 million in 1999, 1998 and 1997, respectively. Stock Plans--Aetna has a stock incentive plan that provides for stock options, deferred contingent common stock or equivalent cash awards or restricted stock to employees. Executive, middle F-25 Notes to Consolidated Financial Statements (continued) 10. Benefit Plans (continued) management and non-management employees may be granted options to purchase common stock of Aetna at or above the market price on the date of grant. Options generally become 100% vested three years after the grant is made, with one-third of the options vesting each year. Aetna does not recognize compensation expense for stock options granted at or above the market price on the date of grant under its stock incentive plans. In addition, executives may, from time to time, be granted incentive units which are rights to receive common stock or an equivalent value in cash. The incentive units may vest within a range from 0% to 175% at the end of a four year period based on the attainment of performance goals. The costs to the Company associated with the Aetna stock plans for 1999, 1998 and 1997, were $0.4 million, $4.2 million and $2.9 million, respectively. 11. Related Party Transactions Investment Advisory and Other Fees The Company serves as investment advisor to the Aetna managed mutual funds and variable funds (collectively, the Funds). Under the advisory agreements, the Funds pay the Company a daily fee which, on an annual basis, ranged, depending on the fund, from 0.25% to 0.95% of their average daily net assets. The Company is also compensated by the Separate Accounts (variable funds) for bearing mortality and expense risks pertaining to variable life and annuity contracts. Under the insurance and annuity contracts, the Separate Accounts pay the Company a daily fee which, on an annual basis is, depending on the product, up to 2.15% of their average daily net assets. The amount of compensation and fees received from the Funds and Separate Accounts, included in charges assessed against policyholders and other income, amounted to $424.2 million, $349.0 million and $271.2 million in 1999, 1998 and 1997, respectively. Reinsurance Transactions Effective December 31, 1988, the Company entered into a modified coinsurance reinsurance agreement ("MODCO") with Aetna Life Insurance Company ("Aetna Life"), an affiliate company, in which substantially all of the non-participating individual life and annuity business written by Aetna Life prior to 1981 was assumed by the Company. Effective January 1, 1997, this agreement was amended to transition (based on underlying investment rollover in Aetna Life) from a modified coinsurance arrangement to a coinsurance agreement. As a result of this change, reserves were ceded to the Company from Aetna Life as investment rollover occurred. Effective October 1, 1998, this agreement was fully transitioned to a coinsurance arrangement and this business along with the Company's direct individual non-participation life insurance business was sold to Lincoln. (Refer to note 3). The operating results of the domestic individual life business are presented as Discontinued Operations. Premiums of $17.9 million, $336.3 million and $176.7 million and current and future benefits of $8.6 million, $341.1 million and $183.9 million, were assumed in 1999, 1998 and 1997, respectively. Investment income of $17.0 million and $37.5 million was generated from a reinsurance loan to affiliate for the years ended December 31, 1998 and 1997, respectively. Prior to the sale of the domestic individual life insurance business to Lincoln on October 1, 1998, the Company's retention limit per individual life was $2.0 million and amounts in excess of this F-26 Notes to Consolidated Financial Statements (continued) 11. Related Party Transactions (continued) limit, up to a maximum of $8.0 million on any new individual life business was reinsured with Aetna Life on a yearly renewable term basis. Premium amounts related to this agreement were $2.0 million and $5.9 million for 1998 and 1997, respectively. This agreement was terminated effective October 1, 1998. Effective October 1, 1997, the Company entered into a reinsurance agreement with Aetna Life to assume amounts in excess of $0.2 million for certain of its participating life insurance, on a yearly renewable term basis. Premium amounts related to this agreement were $4.4 million in1998. The business assumed under this agreement was retroceded to Lincoln effective October 1, 1998. On December 16, 1988, the Company assumed $25.0 million of premium revenue from Aetna Life for the purchase and administration of a life contingent single premium variable payout annuity contract. In addition, the Company is also responsible for administering fixed annuity payments that are made to annuitants receiving variable payments. Reserves of $115.3 million and $87.8 million were maintained for this contract as of December 31, 1999 and 1998, respectively. Capital Transactions The Company received no capital contributions in 1999. In 1998, the Company received a capital contribution of $9.3 million in cash from HOLDCO. In 1997, the Company returned capital of $5.0 million to HOLDCO. Refer to note 7 for dividends paid to HOLDCO. Other Premiums due and other receivables include $10.5 million and $1.6 million due from affiliates in 1999 and 1998, respectively. Other liabilities include $1.9 million and $2.2 million due to affiliates for 1999 and 1998, respectively. Aetna transferred to the Company $0.8 million, $1.7 million and $3.8 million based on its decision not to settle state tax liabilities for the years 1999, 1998 and 1997, respectively, as permitted under the tax sharing arrangement, which is reported in other changes in retained earnings. Substantially all of the administrative and support functions of the Company are provided by Aetna and its affiliates. The financial statements reflect allocated charges for these services based upon measures appropriate for the type and nature of service provided. 12. Reinsurance On October 1, 1998, the Company sold its domestic individual life insurance business to Lincoln for $1 billion in cash. The transaction is generally in the form of an indemnity reinsurance arrangement, under which Lincoln contractually assumed from the Company certain policyholder liabilities and obligations, although the Company remains directly obligated to policyholders. (Refer to note 3) F-27 Notes to Consolidated Financial Statements (continued) 12. Reinsurance (continued) Effective January 1, 1998, 90% of the mortality risk on substantially all individual universal life product business written from June 1, 1991 through October 31, 1997 was reinsured externally. Beginning November 1, 1997, 90% of new business written on these products was reinsured externally. Effective October 1, 1998 this agreement was assigned from the third party reinsurer to Lincoln. The following table includes premium amounts ceded/assumed as discussed in note 11.
Ceded to Assumed Direct Other from Other Net (Millions) Amount Companies Companies Amount - --------------------------------------------------------------------------------------- 1999 ---- Premiums: Discontinued Operations $ 460.1 $ 478.0 $ 17.9 $ -- Accident and Health Insurance 33.4 33.4 -- -- Annuities 111.5 4.9 .9 107.5 - --------------------------------------------------------------------------------------- Total earned premiums $ 605.0 $ 516.3 $ 18.8 $ 107.5 ======================================================================================= 1998 ---- Premiums: Discontinued Operations $ 166.8 $ 165.4 $ 340.6 $ 342.0 Accident and Health Insurance 16.3 16.3 -- -- Annuities 80.8 2.9 1.5 79.4 - --------------------------------------------------------------------------------------- Total earned premiums $ 263.9 $ 184.6 $ 342.1 $ 421.4 ======================================================================================= 1997 ---- Premiums: Discontinued Operations $ 35.7 $ 15.1 $ 177.4 $ 198.0 Accident and Health Insurance 5.6 5.6 -- -- Annuities 67.9 -- 1.2 69.1 - --------------------------------------------------------------------------------------- Total earned premiums $ 109.2 $ 20.7 $ 178.6 $ 267.1 =======================================================================================
F-28 Notes to Consolidated Financial Statements (continued) 13. Segment Information Summarized financial information for the Company's principal operations was as follows:
Investment Year ended December 31, Financial Management Discontinued 1999 (Millions) Products (1) Services (1) Operations (1) Other (1) Total - --------------------------------------------------------------------------------------------------------- Revenue from external customers $ 551.1 $ 118.3 -- $ (43.9) $ 625.5 Net investment income 881.5 1.5 -- 3.3 886.3 - --------------------------------------------------------------------------------------------------------- Total revenue excluding net realized capital losses $ 1,432.6 $ 119.8 -- $ (40.6) $ 1,511.8 ========================================================================================================= Amortization of deferred policy acquisition costs $ 93.4 $ 11.5 $ 104.9 - --------------------------------------------------------------------------------------------------------- Income taxes (benefits) $ 87.0 $ 16.5 $ (13.4) $ 90.1 - --------------------------------------------------------------------------------------------------------- Operating earnings (losses) (2) $ 192.1 $ 28.1 -- $ (7.5) $ 212.7 Other item (3) -- -- (17.5) (17.5) Net realized capital losses, net of tax (14.0) -- -- (14.0) - --------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 178.1 28.1 -- (25.0) 181.2 Discontinued operations, net of tax: Amortization of deferred gain on sale -- $ 5.7 -- 5.7 - --------------------------------------------------------------------------------------------------------- Net income (loss) $ 178.1 $ 28.1 $ 5.7 $ (25.0) $ 186.9 ========================================================================================================= Segment assets $ 53,324.4 $ 73.2 $ 2,989.0 $ 56,386.6 - --------------------------------------------------------------------------------------------------------- Expenditures for long-lived assets (4) -- -- -- $ 5.7 $ 5.7 - --------------------------------------------------------------------------------------------------------- Balance of long-lived assets -- -- -- $ 16.5 $ 16.5 - ---------------------------------------------------------------------------------------------------------
(1) Financial Products include: deferred and immediate annuity contracts, mutual funds, programs offered to qualified plans and nonqualified deferred compensation plans that package administrative and recordkeeping services along with a menu of investment options, investment advisory services and pension plan administrative services. Investment Management Services include the following services: investment advisory to affiliated and unaffiliated institutional and retail clients, underwriting, distribution for Company products and trustee, administrative and other fiduciary services to retirement plans. (Refer to notes 1 and 2.) Discontinued operations include life insurance products. (Refer to note 3.) Other includes consolidating adjustments and Year 2000 costs. (2) Operating earnings is comprised of net income (loss) excluding net realized capital gains and losses and any other items. While operating earnings is the measure of profit or loss used by the Company's management when assessing performance or making operating decisions, it does not replace operating income or net income as a measure of profitability. (3) Other item excluded from operating earnings represents after-tax Year 2000 costs of $17.5 million (4) Expenditures of long-lived assets represents additions to property and equipment not allocable to business segments. F-29 Notes to Consolidated Financial Statements (continued) 13. Segment Information (continued)
Investment Year ended December 31, Financial Management Discontinued 1998 (Millions) Products (1) Services (1) Operations (1) Other (1) Total - -------------------------------------------------------------------------------------------------------- Revenue from external customers $ 445.6 $ 96.7 -- $ (38.4) $ 503.9 Net investment income 865.3 1.5 -- 5.0 871.8 - -------------------------------------------------------------------------------------------------------- Total revenue excluding net realized capital gains $ 1,310.9 $ 98.2 -- $ (33.4) $ 1,375.7 ======================================================================================================== Amortization of deferred policy acquisition costs $ 80.3 -- -- $ 10.9 $ 91.2 - -------------------------------------------------------------------------------------------------------- Income Taxes (benefits) $ 67.7 $ 14.7 -- $ (15.8) $ 66.6 - --------------------------------- ---------- ------- -- ------- ---------- Operating earnings (2) $ 170.3 $ 24.0 -- $ (7.1) $ 187.2 Other item (3) -- -- -- (22.4) (22.4) Net realized capital gains, net of tax 7.3 -- -- -- 7.3 - -------------------------------------------------------------------------------------------------------- Income from continuing operations 177.6 24.0 -- (29.5) 172.1 Discontinued operations, net of tax: Income from operations -- -- $ 61.8 -- 61.8 Immediate gain on sale -- -- 59.0 -- 59.0 - -------------------------------------------------------------------------------------------------------- Net income (loss) $ 177.6 $ 24.0 $ 120.8 $ (29.5) $ 292.9 ======================================================================================================== Segment assets $ 44,366.4 $ 13.4 $ 2,946.4 $ 47,326.2 - -------------------------------------------------------------------------------------------------------- Expenditures for long-lived assets (4) -- -- -- $ 9.0 $ 9.0 - -------------------------------------------------------------------------------------------------------- Balance of long-lived assets $ 14.8 $ 14.8 - --------------------------------------------------------------------------------------------------------
(1) Financial products include: deferred and immediate annuity contracts, mutual funds, programs offered to qualified plans and nonqualified deferred compensation plans that package administrative and recordkeeping services along with a menu of investment options, investment advisory services and pension plan administrative services. Investment Management Services include the following services: investment advisory to affiliated and unaffiliated institutional and retail clients, underwriting, distribution for Company products and trustee, administrative and other fiduciary services to retirement plans. (Refer to notes 1 and 2.) Discontinued operations include life insurance products. (Refer to note 3.) Other includes consolidating adjustments and Year 2000 costs. (2) Operating earnings is comprised of net income (loss) excluding net realized capital gains and losses and any other items. While operating earnings is the measure of profit or loss used by the Company's management when assessing performance or making operating decisions, it does not replace operating income or net income as a measure of profitability. (3) Other item excluded from operating earnings represents after-tax Year 2000 costs of $22.4 million (4) Expenditures of long-lived assets represents additions to property and equipment not allocable to business segments. F-30 Notes to Consolidated Financial Statements (continued) 13. Segment Information (continued)
Investment Year ended December 31, Financial Management Discontinued 1997 (Millions) Products (1) Services (1) Operations (1) Other (1) Total - -------------------------------------------------------------------------------------------------------- Revenue from external customers $ 371.5 $80.3 -- $(23.9) $ 427.9 Net investment income 876.7 1.4 -- 3.6 881.7 - -------------------------------------------------------------------------------------------------------- Total revenue excluding net realized capital gains $ 1,248.2 $81.7 -- $(20.3) $ 1,309.6 ======================================================================================================== Amortization of deferred policy acquisition costs $ 57.2 -- -- $ 9.1 $ 66.3 - -------------------------------------------------------------------------------------------------------- Income Taxes (benefits) $ 59.7 $11.9 -- $ (3.2) $ 68.4 - -------------------------------------------------------------------------------------------------------- Operating earnings (2) $ 134.9 $19.7 -- $ (5.9) $ 148.7 Net realized capital gains, net of tax 19.2 -- -- -- 19.2 - -------------------------------------------------------------------------------------------------------- Income from continuing operations 154.1 $19.7 -- (5.9) 167.9 Discontinued operations, net of tax: Income from operations -- -- $ 67.8 -- 67.8 Deferred gain on sale -- -- -- -- -- - -------------------------------------------------------------------------------------------------------- Net income (loss) $ 154.1 $19.7 $ 67.8 $ (5.9) $ 235.7 ======================================================================================================== Segment assets $ 36,379.5 $17.9 $ 3,792.5 -- $ 40,189.9 - -------------------------------------------------------------------------------------------------------- Expenditures for long-lived assets (3) -- -- -- $ 10.0 $ 10.0 - -------------------------------------------------------------------------------------------------------- Balance of long-lived assets $ 12.7 $ 12.7 - --------------------------------------------------------------------------------------------------------
(1) Financial products include: deferred and immediate annuity contracts, mutual funds, programs offered to qualified plans and nonqualified deferred compensation plans that package administrative and recordkeeping services along with a menu of investment options, investment advisory services and pension plan administrative services. Investment Management Services include the following services: investment advisory to affiliated and unaffiliated institutional and retail clients, underwriting, distribution for Company products and trustee, administrative and other fiduciary services to retirement plans. (Refer to notes 1 and 2.) Discontinued operations include life insurance products. (Refer to note 3.) Other includes consolidating adjustments and Year 2000 costs. (2) Operating earnings is comprised of net income (loss) excluding net realized capital gains and losses and any other items. While operating earnings is the measure of profit or loss used by the Company's management when assessing performance or making operating decisions, it does not replace operating income or net income as a measure of profitability. (3) Expenditures of long-lived assets represents additions to property and equipment not allocable to business segments. F-31 Notes to Consolidated Financial Statements (continued) 14. Commitments and Contingent Liabilities Commitments Through the normal course of investment operations, the Company commits to either purchase or sell securities or money market instruments at a specified future date and at a specified price or yield. The inability of counterparties to honor these commitments may result in either higher or lower replacement cost. Also, there is likely to be a change in the value of the securities underlying the commitments. At December 31,1998, the Company had off-balance sheet commitments to purchase investments of $68.7 million with an estimated fair value of $68.9 million. At December 31, 1999, there were no off-balance sheet commitments. Litigation The Company is involved in numerous lawsuits arising, for the most part, in the ordinary course of its business operations. While the ultimate outcome of litigation against the Company cannot be determined at this time, after consideration of the defenses available to the Company and any related reserves established, it is not expected to result in liability for amounts material to the financial condition of the Company, although it may adversely affect results of operations in future periods. F-32 Form No. SAI. 87305-00 ALIAC Ed. May 2000 - -------------------------------------------------------------------------------- VARIABLE ANNUITY ACCOUNT B PART C - OTHER INFORMATION - -------------------------------------------------------------------------------- Item 24. Financial Statements and Exhibits (a) Financial Statements: (1) Included in Part A: Condensed Financial Information (2) Included in Part B: Financial Statements of Variable Annuity Account B: - Statement of Assets and Liabilities as of December 31, 1999 - Statement of Operations for the year ended December 31, 1999 - Statements of Changes in Net Assets for the years ended December 31, 1999 and 1998 - Condensed Financial Information for the year ended December 31, 1999 - Notes to Financial Statements - Independent Auditors' Report Financial Statements of the Depositor: - Independent Auditors' Report - Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 - Consolidated Balance Sheets as of December 31, 1999 and 1998 - Consolidated Statements of Changes in Shareholder's Equity for the years ended December 31, 1999, 1998 and 1997 - Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 - Notes to Consolidated Financial Statements (b) Exhibits (1) Resolution of the Board of Directors of Aetna Life Insurance and Annuity Company establishing Variable Annuity Account B(1) (2) Not applicable (3.1) Broker-Dealer Agreement(2) (3.2) Alternative Form of Wholesaling Agreement and Related Selling Agreement(3) (4.1) Variable Annuity Contract GM-VA-99(PB)(4) (4.2) Variable Annuity Contract Certificate GMC-VA-99(PB)(4) (4.3) Endorsement EM-ROTH-99(PB) to Contract GM-VA-99(PB) and Certificate GMC-VA-99(PB)(4) (4.4) Endorsement EM-IRA-99(PB) to Contract GM-VA-99(PB) and Certificate GMC-VA-99(PB)(4) (4.5) Endorsement EM-TDA-99(PB) to Contract GM-VA-99 and Certificate GMC-VA-99(PB)(4) (4.6) Endorsement EGET-00 to Contract GM-VA-99 and Certificate GMC-VA-99(PB)(4) (5) Not applicable (6.1) Certificate of Incorporation of Aetna Life Insurance and Annuity Company(5) (6.2) Amendment of Certificate of Incorporation of Aetna Life Insurance and Annuity Company(6) (6.3) By-Laws as amended September 17, 1997 of Aetna Life Insurance and Annuity Company(7) (7) Not applicable (8.1) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and AIM dated June 30, 1998(8) (8.2) Service Agreement between Aetna Life Insurance and Annuity Company and AIM effective June 30, 1998(8) (8.3) Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Alliance Capital dated March 1, 2000 (8.4) Service Agreement between Aetna Life Insurance and Annuity Company and Alliance Capital dated March 1, 2000 (8.5) Fund Participation Agreement by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series, and Aeltus Investment Management, Inc. dated as of May 1, 1998(2) (8.6) Amendment dated November 9, 1998 to Fund Participation Agreement by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series, and Aeltus Investment Management, Inc. dated as of May 1, 1998(9) (8.7) Second Amendment dated December 31, 1999 to Fund Participation Agreement by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series, and Aeltus Investment Management, Inc. dated as of May 1, 1998 and amended on November 9, 1998(10) (8.8) Third Amendment dated February 11, 2000 to Fund Participation Agreement by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series, and Aeltus Investment Management, Inc. dated as of May 1, 1998 and amended on November 9, 1998 and December 31, 1999(11) (8.9) Fourth Amendment dated May 1, 2000 to Fund Participation Agreement by and among Aetna Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series, and Aeltus Investment Management, Inc. dated as of May 1, 1998 and amended on November 9, 1998, December 31, 1999 and February 11, 2000(11) (8.10) Service Agreement between Aeltus Investment Management, Inc. and Aetna Life Insurance and Annuity Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, and Aetna Variable Portfolios, Inc. on behalf of each of its series dated as of May 1, 1998(2) (8.11) Amendment dated November 4, 1998 to Service Agreement between Aeltus Investment Management, Inc. and Aetna Life Insurance and Annuity Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series and Aetna Variable Portfolios, Inc. on behalf of each of its series dated as of May 1, 1998(9) (8.12) Second Amendment dated February 11, 2000 to Service Agreement between Aeltus Investment Management, Inc. and Aetna Life Insurance and Annuity Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series and Aetna Variable Portfolios, Inc. on behalf of each of its series dated as of May 1, 1998 and November 14, 1998(11) (8.13) Third Amendment dated May 1, 2000 to Service Agreement between Aeltus Investment Management, Inc. and Aetna Life Insurance and Annuity Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series and Aetna Variable Portfolios, Inc. on behalf of each of its series dated as of May 1, 1998, November 14, 1998 and February 11, 2000(11) (8.14) 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(6) (8.15) 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(12) (8.16) 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(13) (8.17) Seventh Amendment dated as of May 1, 1998 to the Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997 and November 6, 1997(2) (8.18) Eighth Amendment dated December 1, 1999 to Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997, November 6, 1997 and May 1, 1998(11) (8.19) 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(6) (8.20) 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(12) (8.21) 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(14) (8.22) 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(2) (8.23) Eighth Amendment dated December 1, 1999 to 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, January 20, 1998 and May 1, 1998(11) (8.24) Service Agreement between Aetna Life Insurance and Annuity Company and Fidelity Investments Institutional Operations Company dated as of November 1, 1995(15) (8.25) 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(10) (8.26) Service Contract between Fidelity Distributors Corporation and Aetna Life Insurance and Annuity Company dated May 2, 1997(9) (8.27) Fund Participation Agreement among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation dated December 8, 1997(16) (8.28) Amendment dated October 12, 1998 to Fund Participation Agreement among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation dated December 8, 1997(9) (8.29) Second Amendment dated December 1, 1999 to Fund Participation Agreement among Janus Aspen Series and Aetna Life Insurance and Annuity Company and Janus Capital Corporation dated December 8, 1997 and amended on October 12, 1998(11) (8.30) Service Agreement between Janus Capital Corporation and Aetna Life Insurance and Annuity Company dated December 8, 1997(16) (8.31) Fund Participation Agreement among MFS Variable Insurance Trust, Aetna Life insurance and Annuity Company and Massachusetts Financial Services Company dated April 30, 1996, and amended on September 3, 1996, March 14, 1997 and November 28, 1997(2) (8.32) Fourth Amendment dated May 1, 1998 to the Fund Participation Agreement by and among MFS Variable Insurance Trust, Aetna Life Insurance and Annuity Company and Massachusetts Financial Services Company dated April 30, 1996, and amended on September 3, 1996, March 14, 1997 and November 28, 1997(8) (8.33) Fifth Amendment dated May 1, 1998 to Fund Participation Agreement by and among MFS Variable Insurance Trust, Aetna Life Insurance and Annuity Company and Massachusetts Financial Services Company dated April 30, 1996, and amended on September 3, 1996, March 14, 1997 and November 28, 1997(17) (8.34) Fifth Amendment dated July 1, 1999 to Fund Participation Agreement by and among MFS Variable Insurance Trust, Aetna Life Insurance and Annuity Company and Massachusetts Financial Services Company dated April 30, 1996, and amended on September 3, 1996, March 14, 1997, November 28, 1997 and May 1, 1998(18) (8.35) Fund Participation Agreement dated May 1, 1999 between Aetna Life Insurance and Annuity Company, Mitchell Hutchins Series Trust, and Mitchell Hutchins Asset Management, Inc.(19) (8.36) Service Agreement dated May 1, 1999 between Mitchell Hutchins Asset Management, Inc. and Aetna Life Insurance and Annuity Company(19) (8.37) Fund Participation Agreement dated March 11, 1997 between Aetna Life Insurance and Annuity Company and Oppenheimer Variable Annuity Account Funds and Oppenheimer Funds, Inc.(20) (8.38) First Amendment dated December 1, 1999 to Fund Participation Agreement between Aetna Life Insurance and Annuity Company and Oppenheimer Variable Annuity Account Funds and Oppenheimer Funds, Inc. dated March 11, 1997(11) (8.39) Service Agreement effective as of March 11, 1997 between Oppenheimer Funds, Inc. and Aetna Life Insurance and Annuity Company(20) (9) Opinion and Consent of Counsel (10) Consent of Independent Auditors (11) Not applicable (12) Not applicable (13) Schedule for Computation of Performance Data(16) (14.1) Powers of Attorney(11) (14.2) Authorization for Signatures(3) 1. Incorporated by reference to Post-Effective Amendment No. 6 to Registration Statement on Form N-4 (File No. 33-75986), as filed on April 22, 1996. 2. Incorporated by reference to Registration Statement on Form N-4 (File No. 333-56297), as filed on June 8, 1998. 3. Incorporated by reference to Post-Effective Amendment No. 5 to Registration Statement on Form N-4 (File No. 33-75986), as filed on April 12, 1996. 4. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration Statement on Form N-4 (File No. 333-87305), as filed on December 13, 1999. 5. Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement on Form S-1 (File No. 33-60477), as filed on April 15, 1996. 6. Incorporated by reference to Post-Effective Amendment No. 12 to Registration Statement on Form N-4 (File No. 33-75964), as filed on February 11, 1997. 7. Incorporated by reference to Post-Effective Amendment No. 12 to Registration Statement on Form N-4 (File No. 33-91846), as filed on October 30, 1997. 8. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration Statement on Form N-4 (File No. 333-56297), as filed on August 4, 1998. 9. Incorporated by reference to Post-Effective Amendment No. 2 to Registration Statement on Form N-4 (File No. 333-56297), as filed on December 14, 1998. 10. Incorporated by reference to Post-Effective Amendment No. 19 to Registration Statement on Form N-4 (File No. 333-56297), as filed on February 16, 2000. 11. Incorporated by reference to Post-Effective Amendment No. 20 to Registration Statement on Form N-4 (File No. 333-01107), as filed on April 4, 2000. 12. Incorporated by reference to Post-Effective Amendment No. 30 to Registration Statement on Form N-4 (File No. 33-34370), as filed on September 29, 1997. 13. Incorporated by reference to Post-Effective Amendment No. 16 to Registration Statement on Form N-4 (File No. 33-75964), as filed on February 9, 1998. 14. Incorporated by Reference to Post-Effective Amendment No. 7 to Registration Statement on Form S-6 (File No. 33-75248), as filed on February 24, 1998. 15. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-88720), as filed on June 28, 1996. 16. Incorporated by reference to Post-Effective Amendment No. 10 to Registration Statement on Form N-4 (File No. 33-75992), as filed on December 31, 1997. 17. Incorporated by reference to Post-Effective Amendment No. 4 to Registration Statement on Form N-4 (File No. 333-56297), as filed on February 16, 1999. 18. Incorporated by reference to Post Effective Amendment No. 11 to Registration Statement on Form N-4 (File No. 333-56297), as filed on November 23, 1999. 19. Incorporated by reference to Post-Effective Amendment No. 8 to Registration Statement on Form N-4 (File No. 333-56297), as filed on June 25, 1999. 20. Incorporated by reference to Post-Effective Amendment No. 27 to Registration Statement on Form N-4 (File No. 33-34370), as filed on April 16, 1997. Item 25. Directors and Officers of the Depositor Name and Principal Business Address* Positions and Offices with Depositor - ----------------- ------------------------------------ Thomas J. McInerney Director and President Shaun P. Mathews Director and Senior Vice President Catherine H. Smith Director, Chief Financial Officer and Senior Vice President Deborah Koltenuk Vice President, Corporate Controller, and Assistant Treasurer Therese M. Squillacote Vice President and Chief Compliance Officer Kirk P. Wickman Senior Vice President, General Counsel and Corporate Secretary * The principal business address of all directors and officers listed is 151 Farmington Avenue, Hartford, Connecticut 06156. Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant Incorporated herein by reference to Item 24 of Post-Effective Amendment No. 38 to the Registration Statement on Form N-1A (File No. 33-41694), as filed on February 23, 2000. Item 27. Number of Contract Owners As of February 29, 2000, there were 99,953 individuals holding interests in variable annuity contracts funded through Variable Annuity Account B. Item 28. Indemnification Section 21 of Public Act No. 97-246 of the Connecticut General Assembly (the "Act") provides that a corporation may provide indemnification of or advance expenses to a director, officer, employee or agent only as permitted by Sections 33-770 to 33-778, inclusive, of the Connecticut General Statutes, as amended by Sections 12 to 20, inclusive, of this Act. Reference is hereby made to Section 33-771(e) of the Connecticut General Statutes ("CGS") regarding indemnification of directors and Section 33-776(d) of CGS regarding indemnification of officers, employees and agents of Connecticut corporations. These statutes provide in general that Connecticut corporations incorporated prior to January 1, 1997 shall, except to the extent that their certificate of incorporation expressly provides otherwise, indemnify their directors, officers, employees and agents against "liability" (defined as the obligation to pay a judgment, settlement, penalty, fine, including an excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with respect to a proceeding) when (1) a determination is made pursuant to Section 33-775 that the party seeking indemnification has met the standard of conduct set forth in Section 33-771 or (2) a court has determined that indemnification is appropriate pursuant to Section 33-774. Under Section 33-775, the determination of and the authorization for indemnification are made (a) by the disinterested directors, as defined in Section 33-770(3); (b) by special counsel; (c) by the shareholders; or (d) in the case of indemnification of an officer, agent or employee of the corporation, by the general counsel of the corporation or such other officer(s) as the board of directors may specify. Also, Section 33-772 provides that a corporation shall indemnify an individual who was wholly successful on the merits or otherwise against reasonable expenses incurred by him in connection with a proceeding to which he was a party because he was a director of the corporation. Pursuant to Section 33-771(d), in the case of a proceeding by or in the right of the corporation or with respect to conduct for which the director, officer, agent or employee was adjudged liable on the basis that he received a financial benefit to which he was not entitled, indemnification is limited to reasonable expenses incurred in connection with the proceeding against the corporation to which the individual was named a party. The statute does specifically authorize a corporation to procure indemnification insurance on behalf of an individual who was a director, officer, employer or agent of the corporation. Consistent with the statute, Aetna Inc. has procured insurance from Lloyd's of London and several major United States and international excess insurers for its directors and officers and the directors and officers of its subsidiaries, including the Depositor. Item 29. Principal Underwriter (a) In addition to serving as the principal underwriter and depositor for the Registrant, Aetna Life Insurance and Annuity Company (Aetna) also acts as the principal underwriter, only, for Aetna Variable Encore Fund, Aetna Variable Fund, Aetna Generation Portfolios, Inc., Aetna Income Shares, Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers Fund, Inc.), Aetna GET Fund, and Aetna Variable Portfolios, Inc. and as the principal underwriter and investment adviser for Portfolio Partners, Inc. (all management investment companies registered under the Investment Company Act of 1940 (1940 Act)). Additionally, Aetna acts as the principal underwriter and depositor for Variable Life Account B of Aetna, Variable Life Account C of Aetna, Variable Annuity Account C of Aetna and Variable Annuity Account G of Aetna (separate accounts of Aetna registered as unit investment trusts under the 1940 Act). Aetna is also the principal underwriter for Variable Annuity Account I of Aetna Insurance Company of America (AICA) (a separate account of AICA registered as a unit investment trust under the 1940 Act). (b) See Item 25 regarding the Depositor. (c) Compensation as of December 31, 1999: (1) (2) (3) (4) (5) Name of Net Underwriting Compensation on Principal Discounts and on Redemption Brokerage Underwriter Commissions or Annuitization Commissions Compensation* - ----------- ----------- ---------------- ----------- ------------- Aetna Life $1,170,405 $60,339,195 Insurance and Annuity Company * Compensation shown in column 5 includes deductions for mortality and expense risk guarantees and contract charges assessed to cover costs incurred in the sales and administration of the contracts issued under Variable Annuity Account B. Item 30. Location of Accounts and Records All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the rules under it relating to the securities described in and issued under this Registration Statement are located at the home office of the Depositor as follows: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156 Item 31. Management Services Not applicable Item 32. Undertakings Registrant hereby undertakes: (a) to file a post-effective amendment to this registration statement on Form N-4 as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than sixteen months old for as long as payments under the variable annuity contracts may be accepted; (b) to include as part of any application to purchase a contract offered by a prospectus which is part of this registration statement on Form N-4, a space that an applicant can check to request a Statement of Additional Information; and (c) to deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-4 promptly upon written or oral request. (d) The Company hereby represents that it is relying upon and will comply with the provisions of Paragraphs (1) through (4) of the SEC Staff's No-Action Letter dated November 28, 1988 with respect to language concerning withdrawal restrictions applicable to plans established pursuant to Section 403(b) of the Internal Revenue Code. See American Counsel of Life Insurance; SEC No-Action Letter, [1988 WL 235221, *13 (S.E.C.)]. (e) Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (f) Aetna Life Insurance and Annuity Company represents that the fees and charges deducted under the contracts covered by this registration statement, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Variable Annuity Account B of Aetna Life Insurance and Annuity Company, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment to its Registration Statement on Form N-4 (File No. 333-87305) and has duly caused this Post-Effective Amendment to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hartford, State of Connecticut, on the 26th day of April, 2000. VARIABLE ANNUITY ACCOUNT B OF AETNA LIFE INSURANCE AND ANNUITY COMPANY (Registrant) By: AETNA LIFE INSURANCE AND ANNUITY COMPANY (Depositor) By: Thomas J. McInerney* -------------------------------------- Thomas J. McInerney President As required by the Securities Act of 1933, this Post-Effective Amendment No. 3 to the Registration Statement on Form N-4 (File No. 333-87305) 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 ) Thomas J. McInerney officer) ) ) ) Shaun P. Mathews* Director ) April - ------------------------------------- ) 26, 2000 Shaun P. Mathews ) ) ) Catherine H. Smith* Director and Chief ) - ------------------------------------- Financial Officer ) Catherine H. Smith ) ) ) Deborah Koltenuk* Vice President, ) - ------------------------------------- Corporate Controller, and ) Deborah Koltenuk Assistant Treasurer ) By: /s/ J. Neil McMurdie --------------------------------- J. Neil McMurdie *Attorney-in-Fact VARIABLE ANNUITY ACCOUNT B EXHIBIT INDEX Exhibit No. Exhibit 99-B.8.3 Participation Agreement between Aetna Life Insurance and Annuity Company and Alliance Capital dated March 1, 2000 -------- 99-B.8.4 Service Agreement between Aetna Life Insurance and Annuity Company and Alliance Capital dated March 1, 2000 -------- 99-B.9 Opinion and Consent of Counsel -------- 99-B.10 Consent of Independent Auditors -------- EX-99.B.8.3 2 Exhibit 99-B.8.3 PARTICIPATION AGREEMENT among AFD, ACML and ALIAC Aetna Life Insurance and Annuity Company (the "Company"), Alliance Fund Distributors, Inc. ("AFD") and Alliance Capital Management L.P. (the "Adviser") hereby agree to an arrangement whereby AFD shall make available Class A shares of Alliance Variable Products Series Fund, Inc. (the "Fund") to serve as underlying investment media for Variable Annuity or Variable Life Contracts ("Contracts") to be issued by the Company. 1. Establishment of Accounts; Availability of Fund. (a) The Company represents that it has established Variable Annuity Accounts B, C, D and Variable Life Accounts B and C and may establish such other accounts as may be set forth in Schedule A attached hereto and as may be amended from time to time with the mutual consent of the parties hereto (the "Accounts"), each of which is a separate account under Connecticut Insurance law, and has registered or will register each of the Accounts (except for such Accounts for which no such registration is required) as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act"), to serve as an investment vehicle for the Contracts. Each Contract provides for the allocation of net amounts received by the Company to an Account for investment in the shares of one of more specified open-end management investment companies available through that Account as underlying investment media. Selection of a particular investment management company and changes therein from time to time are made by the participant or Contract owner, as applicable under a particular Contract. (b) AFD and the Adviser represent and warrant that the investments of the series of the Fund (each designated a "Portfolio") specified in Schedule B attached hereto (as may be amended from time to time with the mutual consent of the parties hereto) will at all times be adequately diversified within the meaning of Section 817(h) of the Internal Revenue Service Code of 1986, as amended (the "Code"), and the Regulations thereunder, and that at all times while this agreement is in effect, all beneficial interests will be owned by one or more insurance companies or by any other party permitted under Section 1.817-5(f)(3) of the Regulations promulgated under the Code or by the successor thereto, or by any other party permitted under a Revenue Ruling or private letter ruling granted by the Internal Revenue Service. 2. Pricing Information; Orders; Settlement. (a) AFD will make Fund shares available to be purchased by the Company, and will accept redemption orders from the Company, on behalf of each Account at the net asset value applicable to each order on those days on which the Fund calculates its net asset value (a "Business Day"). Fund shares shall be purchased and redeemed in such 1 quantity and at such time determined by the Company to be necessary to meet the requirements of those Contracts for which the Fund serve as underlying investment media, provided, however, that the Board of Directors of the Fund (hereinafter the "Directors") may upon reasonable notice to the Company, refuse to sell shares of any Portfolio to any person, or suspend or terminate the offering of shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Directors, acting in good faith and in the best interests of the shareholders of any Portfolio and is acting in compliance with their fiduciary obligations under federal and/or any applicable state laws. (b) AFD will provide to the Company the Fund's closing net asset value, dividend and capital gain information at the close of trading each day that the New York Stock Exchange (the "Exchange" is open (each such day a "Business Day"), and in no event later than 7:00 p.m. Eastern Standard time on such Business Day. The Company will send via facsimile or electronic transmission to AFD or its specified agent orders to purchase and/or redeem Fund shares by 10:00 a.m. Eastern Standard Time the following business day. Payment for net purchases will be wired by the Company to an account designated by AFD to coincide with the order for shares of the Fund. (c) AFD hereby appoints the Company as its agent for the limited purpose of accepting purchase and redemption orders for Fund shares relating to the Contracts from Contract owners or participants. Orders from Contract owners or participants received from any distributor of the Contracts (including affiliates of the Company) by the Company, acting as agent for the Fund, prior to the close of the Exchange on any given business day will be executed by the Fund at the net asset value determined as of the close of the Exchange on such Business Day, provided that AFD receives written (or facsimile) notice of such order by 10 a.m. Eastern Standard Time on the next following Business Day. Any orders received by the Company acting as agent on such day but after the close of the Exchange will be executed by the Fund at the net asset value determined as of the close of the Exchange on the next business day following the day of receipt of such order, provided that the Fund receives written (or facsimile) notice of such order by 10 a.m. Eastern Standard Time within two days following the day of receipt of such order. (d) Payments for net redemptions of shares of the Fund will be wired by AFD to an account designated by the Company. Payments for net purchases of the Fund will be wired by the Company to an account designated by AFD on the same Business Day the Company places an order to purchase Fund shares. Payments shall be in federal funds transmitted by wire. (e) In lieu of applicable provisions set forth in paragraphs 2(a) through 2(d) above, the parties may agree to provide pricing information, execute orders and wire payments for purchases and redemptions through National Securities Clearing Corporation's Fund/SERV system in which case such activities will be governed by the provisions set forth in an Exhibit to this Agreement. 2 (f) Each party has the right to rely on information or confirmations provided by the other party (or by any affiliate of the other party), and shall not be liable in the event that an error is a result of any misinformation supplied by the other party. (g) The Company agrees to purchase and redeem the shares of the Portfolios named in Schedule B offered by the then current prospectus and statement of additional information of the Fund in accordance with the provisions of such prospectus and statement of additional information. The Company shall not permit any person other than a Contract owner or Participant to give instructions to the Company which would require the Company to redeem or exchange shares of the Fund. This provision shall not be construed to prohibit the Company from substituting shares of another fund, as permitted by law. 3. Expenses. (a) Except as otherwise provided in this Agreement, all expenses incident to the performance by AFD or the Adviser under this Agreement shall be paid by AFD or the Adviser or, as appropriate, by the Fund, including the cost of registration of Fund shares with the Securities and Exchange Commission (the "SEC") and in states where required. AFD and the Adviser, individually, and on behalf of the Fund, shall pay no fee or other compensation to the Company under this Agreement, and the Company shall pay no fee or other compensation to AFD, the Fund or Adviser, except as provided herein and in Schedule C attached hereto and made a part of this Agreement as may be amended from time to time with the mutual consent of the parties hereto. All expenses incident to performance by each party of its respective duties under this Agreement shall be paid by that party, unless otherwise specified in this Agreement. (b) AFD or the Adviser shall provide to the Company Post Script files of periodic fund reports to shareholders and other materials that are required by law to be sent to Contract owners. In addition, AFD or the Adviser shall provide the Company with a sufficient quantity of its prospectuses, statements of additional information and any supplements to any of these materials, to be used in connection with the offerings and transactions contemplated by this Agreement. In addition, AFD shall provide the Company with a sufficient quantity of its proxy material that is required to be sent to Contract owners. The Adviser shall be permitted to review and approve the typeset form of such material prior to such printing provided such material has been provided by the Adviser to the Company within a reasonable period of time prior to typesetting. (c) In lieu of AFD's or Adviser's providing printed copies of prospectuses, statements of additional information and any supplements to any of these materials, and periodic fund reports to shareholders, the Company shall have the right to request that AFD transmit a copy of such materials in an electronic format (Post Script files), which the Company may use to have such materials printed together with similar materials of other Account funding media that the Company or any distributor will distribute to existing or prospective Contract owners or participants. 3 4. Representations. (a) The Company agrees that it and its agents shall not, without the written consent of AFD or the Adviser, make representations concerning the Fund, or its shares except those contained in the then current prospectuses and in current printed sales literature approved by or deemed approved by AFD or the Adviser. (b) AFD and Adviser represent and warrant that (i) they have examined and tested their systems and made reasonable inquiry of their business partners and other entities with whom they conduct business with respect to Year 2000 problems and (ii) their ability to perform their obligations under this Agreement will not be interrupted or disrupted as a result of any business interruptions or other business problems relating to specific dates or days before, during and after the Year 2000. 5. Termination. This agreement shall terminate as to the sale and issuance of new Contracts: (a) at the option of either the Company, the Adviser, AFD or the Fund, upon sixty days advance written notice to the other parties; (b) at the option of the Company, upon one week advance written notice to the Adviser and AFD, if Fund shares are not available for any reason to meet the requirement of Contracts as determined by the Company. Reasonable advance notice of election to terminate shall be furnished by Company; (c) at the option of either the Company, the Adviser, AFD or the Fund, immediately upon institution of formal proceedings against the broker-dealer or broker-dealers marketing the Contracts, the Account, the Company, AFD, the Fund or the Adviser by the National Association of Securities Dealers, Inc. (the "NASD"), the SEC or any other regulatory body; (d) upon the determination of the Accounts to substitute for the Fund's shares the shares of another investment company in accordance with the terms of the applicable Contracts. The Company will give 60 days written notice to AFD and the Adviser of any decision to replace the Fund's shares; (e) upon assignment of this Agreement, unless made with the written consent of all other parties hereto; (f) if Fund shares are not registered, issued or sold in conformance with Federal law or such law precludes the use of Fund shares as an underlying investment medium for 4 Contracts issued or to be issued by the Company. Prompt notice shall be given by the appropriate party should such situation occur. 6. Continuation of Agreement. Termination as the result of any cause listed in Section 5 shall not affect AFD's obligation to furnish Fund shares to Contracts then in force for which Fund shares serve or may serve as the underlying medium unless such further sale of Fund shares is prohibited by law or the SEC or other regulatory body, or is determined by the Fund's Board to be necessary to remedy or eliminate an irreconcilable conflict pursuant to Section 10 hereof. 7. Advertising Materials; Filed Documents. (a) Advertising and sales literature with respect to the Fund prepared by the Company or its agents for use in marketing its Contracts will be submitted to AFD or its designee for review before such material is submitted to any regulatory body for review. No such material shall be used if AFD or its designee reasonably object to such use in writing, transmitted by facsimile within two business days after receipt of such material. (b) AFD will provide additional copies of the Fund's financials as soon as available to the Company and at least one complete copy of all registration statements, prospectuses, statements of additional information, annual and semi-annual reports, proxy statements and all amendments or supplements to any of the above that relate to the Fund promptly after the filing of such document with the SEC or other regulatory authorities. At the Adviser's request, the Company will provide to the Adviser at least one complete copy of all registration statements, prospectuses, statements of additional information, annual and semi-annual reports, proxy statements, and all amendments or supplements to any of the above that relate to the Account promptly after the filing of such document with the SEC or other regulatory authority. (c) AFD or the Adviser will provide via Excel spreadsheet diskette format or in electronic transmission to the Company at least quarterly portfolio information necessary to update Fund profiles within seven business days following the end of each quarter. (d) AFD will reimburse the Company for any incorrect information provided to the Company under this Section as provided for in Schedule C. 8. Proxy Voting. 5 (a) The Company shall provide pass-through voting privileges on Fund shares held by registered separate accounts to all Contract owners and participants to the extent the SEC continues to interpret the 1940 Act as requiring such privileges. The Company shall provide pass-through voting privileges on Fund shares held by unregistered separate accounts to all Contract owners. (b) The Company will distribute to Contract owners and participants, as appropriate, all Fund proxy material furnished by AFD and will vote Fund shares in accordance with instructions received from such Contract owners and participants. If and to the extent required by law, the Company, with respect to each group Contract and in each Account, shall vote Fund shares for which no instructions have been received in the same proportion as shares for which such instructions have been received. The Company and its agents shall not oppose or interfere with the solicitation of proxies for Fund shares held for such Contract owners and participants. 9. Indemnification. (a) The Company agrees to indemnify and hold harmless AFD and the Adviser, and its directors, officers, employees, agents and each person, if any, who controls AFD or the Adviser within the meaning of the Securities Act of 1933 (the "1933 Act") against any losses, claims, damages or liabilities to which AFD or the Adviser or any such director, officer, employee, agent, or controlling person may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, prospectus or sales literature of the Company or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or arise out of or as a result of conduct, statements or representations (other than statements or representations contained in the prospectuses or sales literature of the Fund) of the Company or its agents, with respect to the sale and distribution of Contracts for which Fund shares are the underlying investment. The Company will reimburse any legal or other expenses reasonably incurred by AFD or the Adviser or any such director, officer, employee, agent, investment adviser, or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) an untrue statement or omission or alleged omission made in such Registration Statement or prospectus in conformity with written materials furnished to the Company by AFD or the Adviser specifically for use therein or (ii) the willful misfeasance, bad faith, or gross negligence by AFD or the Adviser in the performance of its duties or AFD's or Adviser's reckless disregard of obligations or duties under this Agreement or to the Company, whichever is applicable. This indemnity agreement will be in addition to any liability which Company may otherwise have. (b) AFD and the Adviser agree to indemnify and hold harmless the Company and its directors, officers, employees, agents and each person, if any, who controls the 6 Company within the meaning of the 1933 Act against any losses, claims, damages or liabilities to which the Company or any such director, officer, employee, agent or controlling person may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, prospectuses or sales literature of the Fund or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or material fact required to be stated therein or necessary to make the statements therein not misleading. AFD or the Adviser will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, employee, agent, or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that AFD and the Adviser will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or omission or alleged omission made in such Registration Statement or prospectuses which are in conformity with written materials furnished to AFD or the Adviser by the Company specifically for use therein. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 10. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish to, assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 9 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. 10. Potential Conflicts. (a) The Fund has obtained an order exempting it from certain provisions of the 1940 Act and rules thereunder so that the Fund is available for investment by certain other entities, including, without limitation, separate accounts funding variable life insurance policies and variable annuity contracts and separate accounts of insurance companies unaffiliated with the Company ("Mixed and Shared Funding Order"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 10. (b) The Fund agrees that its Board of Directors shall at all times consist of directors a majority of whom (the "Disinterested Directors") are not interested persons of Adviser or AFD within the meaning of Section 2(a)(19) of the 1940 Act. 7 (c) The Fund agrees that its Board of Directors will monitor for the existence of any material irreconcilable conflict between the interests of the contract owners or participants in all separate accounts of life insurance companies utilizing the Fund, including the Accounts. The Company agrees to inform the Board of Directors of the Fund of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: (i) an action by any state insurance or other regulatory authority; (ii) a change in applicable federal or state insurance, tax or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax or securities regulatory authorities; (iii) an administrative or judicial decision in any relevant proceeding; (iv) the manner in which the investments of any Portfolio are being managed; (v) a difference in voting instructions given by variable annuity and variable life insurance contract owners or participants or by contract owners or participants of different life insurance companies utilizing the Fund; or (vi) a decision by a life insurance company utilizing the Fund to disregard the voting instructions of Contract owners or participants. (d) The Company will assist the Board of Directors in carrying out its responsibilities by providing the Board of Directors with all information reasonably necessary for the Board of Directors to consider any issue raised, including information as to a decision by the Company to disregard voting instructions of Contract owners or participants. (e) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, and if the Board of Directors determines that the Company is responsible for causing or creating said conflict, the Company will, at its own expense and to the extent reasonably practicable (as determined by a majority of the Disinterested Directors), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: 8 (i) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including another Portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected contract owners and participants and, as appropriate, segregating the assets of any particular group (e.g., annuity contract owners or participants, life insurance contract owners or participants or all contract owners and participants of one or more life insurance companies utilizing the Fund) that votes in favor of such segregation, or offering to the affected contract owners or participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a "Management Company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a Management Company. (f) If the material irreconcilable conflict arises because of the Company's decision to disregard Contract owners' or participants' voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Fund's election, to withdraw the Account's investment in the Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six months after the Fund gives notice to the Company that this provision is being implemented, and until such withdrawal AFD and the Fund shall continue to accept and implement orders by the Company for the purchase and redemption of shares of the Fund. (g) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the Account's investment in the Fund within six months after the Fund's Board of Directors informs the Company that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AFD and Fund shall continue to accept and implement orders by the Company for the purchase and redemption of shares of the Fund. (h) The Company agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Contract owners and participants. (i) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will the Fund or AFD be required to establish a new funding medium for any Contracts. The Company will not be required by the terms hereof to establish a new funding medium for any Contracts if an offer to do so has been declined by vote of a majority of the Contract owners and participants materially adversely affected by the material irreconcilable conflict. (j) The Fund will promptly make known in writing to the Company the Board of Directors' determination of the existence of a material irreconcilable conflict, a 9 description of the facts that give rise to such conflict and the implications of such conflict. (k) The Company and AFD will at least annually submit to the Board of Directors of the Fund such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Directors. All reports received by the Board of Directors of potential or existing conflicts, and all Board of Directors actions with regard to determining the existence of a conflict, notifying life insurance companies utilizing the Fund of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Directors or other appropriate records, and such minutes or other records will be made available to the SEC upon request. (l) If, at any time during which the Fund is serving an investment medium for variable life insurance policies or variable annuity contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to mixed and shared funding, the Parties agree that they will comply with the terms and conditions thereof and that the terms of this Section 10 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 11. Miscellaneous. (a) Amendment and Waiver. Neither this Agreement, nor any provision hereof, may be amended, waived, discharged or terminated orally, but only by an instrument in writing signed by all parties hereto. (b) Notices. All notices and other communications hereunder shall be given or made in writing and shall be delivered personally, or sent by telex, telecopier or registered or certified mail, postage prepaid, return receipt requested, or recognized overnight courier service to the party or parties to whom they are directed at the following addresses, or at such other addresses as may be designated by notice from such party to all other parties. To the Company: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156 Attention: Julie E. Rockmore, Counsel To AFD or the Adviser: Alliance Fund Distributors, Inc. 1345 Avenue of the Americas New York, NY 10105-0096 Attention: Edmund P. Bergan, Jr., General Counsel 10 Any notice, demand or other communication given in a manner prescribed in this subsection (b) shall be deemed to have been delivered on receipt. (c) Successors and Assigns. This agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. (d) Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any party hereto may execute this Agreement by signing any such counterpart. (e) Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. (f) Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties hereto and supersedes all prior agreement and understandings relating to the subject matter hereof. (g) Governing Law. This Agreement shall be governed and interpreted in accordance with the laws of the State of Connecticut. (h) It is understood by the parties that this Agreement is not an exclusive arrangement in any respect. (i) The terms of this Agreement and the Schedules thereto will be held confidential by each party except to the extent that either party or its counsel may deem it necessary to disclose such terms. IN WITNESS WHEREOF, the undersigned have executed this Agreement by their duly authorized officers effective as of the 1st day of March, 2000. AETNA LIFE INSURANCE AND ANNUITY COMPANY By: /s/ Laurie M. LeBlanc ------------------------------- Name: Laurie M. LeBlanc Title: Vice President 11 ALLIANCE CAPITAL MANAGEMENT L.P. By: /s/ Richard A. Winge ------------------------------- Name: Richard A. Winge Title: Senior Vice President Managing Director ALLIANCE FUND DISTRIBUTORS, INC. By: /s/ Edmund P. Bergan, Jr. ------------------------------- Name: Edmund P. Bergan, Jr. Title: Vice President & Assistant General Counsel 12 Schedule A (For any future separate accounts - See Section 1(a) 13 Schedule B For list of Portfolios available - See Section 1(b) Alliance Variable Products Series Fund, Inc.-- Alliance Quasar Portfolio Alliance Premier Growth Portfolio Alliance Growth and Income Portfolio 14 Schedule C The following costs, expenses and reimbursements will be paid by the party indicated: 1. For purposes of Sections 2 and 7, AFD or the Adviser shall be liable to the Company for systems and out of pocket costs incurred by the Company in making a Contract owner's or a participant's account whole, if such costs or expenses are a result of AFD's failure to provide timely or correct net asset values, dividend and capital gains or financial information and if such information is not corrected by 4pm EST of the next business day after releasing such incorrect information provided the incorrect NAV as well as the correct NAV for each day that the error occurred is provided. If a mistake is caused in supplying such information or confirmations, which results in a reconciliation with incorrect information, the amount required to make a Contract owner's or a Participant's account whole shall be borne by the party providing the incorrect information, regardless of when the error is corrected. 2. For purposes of Section 3, AFD and the Adviser acknowledge that they or the Fund shall pay for the cost of typesetting and printing periodic fund reports to shareholders, prospectuses, prospectus supplements, statements of additional information and other materials that are required by law to be sent to Contract owners or participants, as well as the cost of distributing such materials. The Company shall pay for the cost of prospectuses and statements of additional information and the distribution thereof for prospective Contract owners or participants. Each party shall be provided with such supporting data as may reasonably be requested for determining expenses under Section 3. 3. AFD shall pay all expenses in connection with the provision to the Company of a sufficient quantity of its proxy material under Section 3. The cost associated with proxy preparation, group authorization letters, programming for tabulation and necessary materials (including postage) will be paid by AFD. Dated this first day of March, 2000. AETNA LIFE INSURANCE AND ANNUITY COMPANY By: /s/ Laurie M. LeBlanc ------------------------------- Name: Laurie M. LeBlanc Title: Vice President 15 ALLIANCE CAPITAL MANAGEMENT L.P. By: /s/ Richard A. Winge ------------------------------- Name: Richard A. Winge Title: Senior Vice President Managing Director ALLIANCE FUND DISTRIBUTORS, INC. By: /s/ Edmund P. Bergan, Jr. ------------------------------- Name: Edmund P. Bergan, Jr. Title: Vice President & Assistant General Counsel 16 EX-99.B.8.4 3 Exhibit 99-B.8.4 SERVICE AGREEMENT AGREEMENT, effective as of March 1, 2000, between Alliance Capital Management L.P. (the "Adviser"), and Aetna Life Insurance and Annuity Company (the "Company"), a Connecticut corporation, for the provision of described administrative services by the Company in connection with the sale of shares of the (the "Fund") as described in the Participation Agreement dated March 1, 2000 between the Company, the Adviser and Alliance Fund Distributors, Inc. ("AFD") (the "Fund Participation Agreement"). In consideration of their mutual promises, the Adviser and the Company agree as follows: 1. The Company agrees to provide the following services to the Adviser: a. responding to inquiries from owners of the Company variable annuity contracts and variable life insurance policies using the Funds as an investment vehicle ("Contractholders") regarding the services performed by the Company that relate to the Funds; b. providing information to Adviser and Contractholders with respect to Fund shares attributable to Contractholder accounts; c. communicating directly with Contractholders concerning the Funds' operations; d. providing such other similar services as Adviser may reasonably request pursuant to Adviser's agreement with the Funds to the extent permitted under applicable federal and state requirements. 2. (a) Administrative services to Contractholders owners and participants shall be the responsibility of the Company and shall not be the responsibility of the Fund or the Adviser. The Adviser recognizes the Company as the sole shareholder of Fund shares issued under the Fund Participation Agreement, and that substantial savings will be derived in administrative expenses, such as significant reductions in postage expense and shareholder communications, by virtue of having a sole shareholder for each of the Accounts rather than multiple shareholders. In consideration of the savings resulting from such arrangement, and to compensate the Company for its costs, the Adviser agrees to pay to the Company and the Company agrees to accept as full compensation for all services rendered hereunder an amount described in Schedule A attached hereto and made a part of this Agreement as may be amended from time to time with the mutual consent of the parties hereto. 1 (b) The parties agree that the Adviser's payments to the Company are for administrative services only and do not constitute payment in any manner for investment advisory services or for costs of distribution. (c) For the purposes of computing the administrative fee reimbursement contemplated by this Section 2, the average aggregate amount invested by the Company over a one month period shall be computed by totaling the Company's aggregate investment (share net asset value multiplied by total number of shares held by the Company) on each business day during the month and dividing by the total number of business days during each month. (d) The Fund will calculate the reimbursement of administrative expenses at the end of each month and will make such reimbursement to the Company within 30 days thereafter. The reimbursement payment will be accompanied by a statement showing the calculation of the monthly amounts payable by the Adviser and such other supporting data as may be reasonably requested by the Company. Payment will be wired by the Adviser to an account designated by the Company. 3. The Company agrees to indemnify and hold harmless the Adviser and its directors, officers, and employees from any and all loss, liability and expense resulting from any gross negligence or willful wrongful act of the Company under this Agreement or a breach of a material provision of this Agreement, except to the extent such loss, liability or expense is the result of the Adviser's misfeasance, bad faith or gross negligence in the performance of its duties. 4. The Adviser agrees to indemnify and hold harmless the Company and its directors, officers, and employees from any and all loss, liability and expense resulting from any gross negligence or willful wrongful act of the Adviser under this Agreement or a breach of a material provision under this Agreement, except to the extent such loss, liability or expense is the result of the Company's own willful misfeasance, bad faith or gross negligence in the performance of its duties. 5. Either party may terminate this Agreement, without penalty, (i) on sixty (60) days written notice to the other party, for any cause or without cause, or (ii) on reasonable notice to the other party, if it is not permissible to continue the arrangement described herein under laws, rules or regulations applicable to either party or the Fund, or if the Participation Agreement is terminated. 6. The terms of this arrangement will be held confidential by each party except to the extent that either party or its counsel may deem it necessary to disclose this arrangement. 7. This Agreement represents the entire Agreement of the parties on the subject matter hereof and it cannot be amended or modified except in writing, signed by the parties. This Agreement may be executed in one or more separate counterparts, all of which, when taken together, shall constitute one and the same Agreement. 2 8. All notices and other communications hereunder shall be given or made in writing and shall be delivered personally, or sent by telex, telecopier or registered or certified mail, postage prepaid, return receipt requested, or recognized overnight courier service to the party to whom they are directed at the following addresses, or at such other addresses as may be designated by notice from such party to the other party. To Aetna: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156 Attention: Julie E. Rockmore, Counsel To Alliance Capital Management L.P. 1345 Avenue of the Americas New York, NY 10105-0096 Attention: Edmund P. Bergan, Jr., General Counsel Any notice, demand or other communication given in a manner prescribed in this Section 8 shall be deemed to have been delivered on receipt. IN WITNESS WHEREOF, the parties to this Agreement have caused this Agreement to be executed by their authorized officers as of the day and year first above written. ALLIANCE CAPITAL MANAGEMENT L.P. ALLIANCE CAPITAL MANAGEMENT L.P. By: /s/ Edmund P. Bergan, Jr. ------------------------------- Name: Edmund P. Bergan, Jr. ------------------------------- Title: Vice President and Assistant General Counsel AETNA LIFE INSURANCE AND ANNUITY COMPANY By: /s/ Laurie M. LeBlanc ------------------------------- Name: Laurie M. LeBlanc Title: Vice President 3 Schedule A In consideration of the services provided by the Company, the Adviser agrees to pay the Company an amount equal to basis points noted in the table below per annum of the average aggregate amount invested by the Company in the Fund under the Fund Participation Agreement. - -------------------------------------------------------------------------------- Fund Name Basis Points per Annum - -------------------------------------------------------------------------------- Alliance Variable Products Series Fund, Inc. - - -------------------------------------------------------------------------------- Alliance Quasar Portfolio 25 bpt or .25% - -------------------------------------------------------------------------------- Alliance Premier Growth Portfolio 25 bpt or .25% - -------------------------------------------------------------------------------- Alliance Growth And Income Portfolio 20 bpt or .20% - -------------------------------------------------------------------------------- Dated this 1st day of March, 2000. ALLIANCE CAPITAL MANAGEMENT L.P. By: /s/ Edmund P. Bergan, Jr. ------------------------------- Name: Edmund P. Bergan, Jr. Title: Vice President and Assistant General Counsel AETNA LIFE INSURANCE AND ANNUITY COMPANY By: /s/ Laurie M. LeBlanc ------------------------------- Name: Laurie M. LeBlanc Title: Vice President 4 EX-99.B.9 4 OPINION AND CONSENT OF COUNSEL [Aetna Letterhead] Aetna Inc. [Aetna Logo] 151 Farmington Avenue Financial Services Hartford, CT 06156-8975 Julie E. Rockmore Counsel AFS Law, TS31 April 26, 2000 (860) 273-4686 Fax: (860) 273-0385 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Attention: Filing Desk Re: Aetna Life Insurance and Annuity Company and its Variable Annuity Account B Post-Effective Amendment No. 3 to Registration Statement on Form N-4 File Nos.: 333-87305 and 811-02512 Gentlemen: The undersigned serves as counsel to Aetna Life Insurance and Annuity Company, a Connecticut life insurance company (the "Company"). It is my understanding that the Company, as depositor, has registered an indefinite amount of securities (the "Securities") under the Securities Act of 1933 (the "Securities Act") as provided in Rule 24f-2 under the Investment Company Act of 1940 (the "Investment Company Act"). In connection with this opinion, I or those for whom I have supervisory responsibility, have reviewed the N-4 Registration Statement, as amended to the date hereof, and this Post-Effective Amendment No. 3. 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. 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 Counsel EX-99.B.10 5 CONSENT OF INDEPENDENT AUDITORS EX-99.B.10 Consent of Independent Auditors The Board of Directors of Aetna Life Insurance and Annuity Company and Contract Owners of Variable Annuity Account B: We consent to the use of our report dated February 7, 2000, relating to the consolidated financial statements of Aetna Life Insurance and Annuity Company and our report dated February 11, 2000, relating to the financial statements of Variable Annuity Account B, which are included in this Post Effective Amendment No. 3 to Registration Statement (File No. 333-87305) on Form N-4 and to the reference to our firm under the heading "Independent Auditors" in the statement of additional information. /s/ KPMG LLP Hartford, Connecticut April 26, 2000 -----END PRIVACY-ENHANCED MESSAGE-----